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Government Currency

For the government to spend on public projects
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The amount that a public project costs is often misleading. If the government spend 100 Million on a road, a percentage of that will come straight back from the contractor in the form of tax. Then another chunk will come back in the form of the income tax of the employees of the contractor. Those employees then spend money on goods and services, who pay tax, etc, etc.

The only money which does not go back to the government is that which goes overseas.

Therefore I propose a separate currency that the government can use to pay for its public projects. This currency can only be used by the public to pay tax. Therefore, a contractor could not earn all its money from government contracts as it would have no normal cash for other things, but it could pay its employees a percentage of their salaries in the new currency for their income tax bill (or give it straight to the government as in the UK's PAYE scheme).

marklar, Dec 06 2010

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       Why is this a good thing for a person or company to have to work for the government and that private sector? Are you suggesting we only pay Police Officers and Nurses in tax-credits?   

       Assuming there are benefits to forcing all public sector workers to do two jobs, what happens when brokers start trading that currency to erode these usage limitations - so that people who only have Tax-Pounds can sell them for (slightly fewer - or is it less?) normal Pounds?
zen_tom, Dec 06 2010
  

       Hmm! So how would government pay it's own staff as, presumably, all of their work is for the government?
DrBob, Dec 06 2010
  

       This was Baked by a number of former Communist regimes which did not have "convertible" currencies. Enough said.
8th of 7, Dec 06 2010
  

       Not for the government to use for everything, just the kind of thing mentioned, like roads, bridges and buildings.   

       You couldn't trade it because it is not transferable, so I guess it's not really a currency at all. What you would actually need to do in order for my idea to work is just issue a tax credit to the company doing the work.
marklar, Dec 06 2010
  

       [8th] Reductio ad Stalinum
marklar, Dec 06 2010
  

       //You couldn't trade it because it is not transferable// Watch me! “Hey, psst, marklar, I’ve got 5 road credits here. Will you swap them for that tin of beans?”   

       This is simply defining money. Why do you think money is issued by governments? Where did they get the idea from in the first place? Why do they continue doing it? Why do they prosecute and shut down anyone in their terrortory who starts issuing their own currency as competition?
pocmloc, Dec 06 2010
  

       The value of the government scrip, here, is solely based on the government's demand, backed by threat of violence, that you hand the scrip back, as taxes. So the government isn't really paying for anything, it's just extorting goods & services. That's your point, right? The idea is social satire?   

       The difference between this and government payments in regular money is the multiplier effect, I think. Maybe someone with more knowlege of economics can tell me if I'm right about that.
mouseposture, Dec 06 2010
  

       [MP] Regular money IS government money. What do you think stops the Bank of Independent North Yorkshire issuing its own currency? Answer: the Government, in the form of regulations. What do you think stops individuals being paid their entire wage in North Yorkshire Talents? Or krugerrands? Or beans? Answer: The Government threatens to imprison any North Yorkshireperson who does not pay their taxes in Pounds Sterling.   

       There are local currencies, such as the Totnes pound in Devon, or the private banknotes issued by the Royal Bank of Scotland or the Ulster Bank, but all of these are “derivative” in that the issuing body has to deposit with the Government bank an equal amount of Pounds Sterling - making the independent currency merely a token.
pocmloc, Dec 07 2010
  

       Regular money is government money, yes but not all government money is regular money. I believe this idea proposes a form of money which is govermnent, but not regular.
mouseposture, Dec 07 2010
  

       What pocmloc said, plus the statement that //a contractor could not earn all its money from government contracts // highlights a fundamental difficulty with the scheme as proposed. If I'm an engineering firm that builds roads, who else am I going to work for? The only body that builds roads, bridges etc is the government. So now, with this government scrip payment scheme, i have no real money to pay my employees, buy materials and equipment, invest in the business or pay out dividends to my shareholders.

The logical conclusion of the scheme is that government projects will need to be carried out by government bodies because working on government projects is an unsustainable business model for anyone else. (I'm not saying that this is a bad thing, just pointing out the logical consequence of the idea).

Issuing tax credits won't help either because, in effect, a business won't have any income to pay tax on. So they'll have a huge pile of tax credits that they can't use unless you allow a market in tax credits to be created - and at that point you have a convertible currency again and the object of the idea is defeated.
DrBob, Dec 07 2010
  

       This idea is not purely social satire, but there is an element of thought experiment in it.   

       The point about a company that makes roads only doing work for the government is a good one, but I suspect they also do car parks. In any case, they could build roads for foreign governments. And the new currency would merely be an option for the government. In cases where an exclusive contractor is needed, they could spend normal money, they would just be more reluctant to do so.   

       All money is government issued, but the key point here is that you can't spend this particular money overseas, so it would be useless to a foreign contractor, or the foreign supplier of a local contractor.   

       I have nothing against the free market in the private sector, but I think governments would be able to "spend" a lot more if the money was going to end up back in the coffers.   

       The currency would definitely not be trade-able because it would be electronic, not notes, so you would be able to trace where it had come from to check that it was a legitimate supply chain.   

       I hope there is an economics graduate here who can explain why this idea is either infeasible or redundant, or more likely both.
marklar, Dec 07 2010
  

       This is done all the time. Money is fungible and so a special blue note for this use would not work. But governments routinely offer tax credits to developers and others as incentive / payment to do work it wants. Example: if you give the money to charity you do not need to pay income tax on it. A government can make any law it gets away with.   

       If you want a government to decree that income tax need not be paid on income derived from the government, that is a doable deal. And it would make those projects cheaper. In the US income is reported to the feds on a W2 form. This sort of income could have a special line.
bungston, Dec 07 2010
  

       If income from government projects are excluded from your tax calculation, businesses are likely to seek more government work rather than less, which would defeat the object of the idea.
DrBob, Dec 08 2010
  

       The object of the idea was not that companies seek less government work, it is that governments can spend more. Competition between companies vying for government work because of tax credits would drive down prices, meaning governments could do more for less.
marklar, Aug 09 2011
  

       A tax credit is a cost to the government, [marklar], just as much as a direct payment to a contractor. Replacing an immediate payment with a future tax credit would just mean that the tax credit would have to be larger to deliver the same value to the contractor. (If curious, research "Net Present Value" and Money Markets.) All you're proposing here is to re-arrange the book-keeping; nothing becomes more affordable as a result.
pertinax, Aug 09 2011
  
      
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