Monetizing Tax Revenues: A New Calling For Central Banks?

A Benjamin Cole post

The Swiss National Bank gave up trying to peg the Swiss franc to the Euro, and let the Swiss currency shoot to the moon. Some bankers were squeamish about a large SNB balance sheet, which the bank was garnering by printing Swiss francs and buying non-Swiss bonds.

In the U.S. also, there are pundits sweating about the large U.S. Federal Reserve balance sheet, though why remains inexplicable.

Still, there is another way, if we borrow a page from David Beckworth, market monetarist blogger, and economics professor at Western Kentucky University.

Beckworth has mulled simply sending QE-financed money to people who pay income taxes—a helicopter drop—although a tax cut amounts to much the same thing. (Tax cuts may even garner right-wing backing).

QE-financed tax cuts strike me as the best way to deploy QE, and the best way for the SNB to lower the exchange rate of their currency, if that is what they really think they should do.

Tax Holiday

Suppose the Swiss national government simply declared a tax holiday, and that the “lost” revenues would be made up by having the SNB print up (digitize) the money and toss the new booty into Swiss national government coffers?

For the Swiss economy, such a tax break would be a huge shot in the arm, to say the least. Taxpayers would actually get to benefit from their overpriced currency.

That started, the SNB should provide guidance, as in: “We will keep printing up tax revenues until we see the Swiss franc fall 30% against the Euro. Only then will we stop our QE-tax program, though we may taper slowly to make sure the Swiss franc does not rise again.”

Seems to me this would work.

Indeed, a version of this plan seems like a good idea in the United States as well. In times of economic weakness, eliminate Social Security and Medicare taxes (called FICA taxes, they are a 15.2% levy on wages) and simply have the Fed print the money and compensate the Social Security and Medicare trust funds for lost revenue.

Again, the Fed could provide guidance, as in, “We will keep pouring money into the Social Security and Medicare trust funds until nominal GDP grows at 6% or more for eight straight quarters.”

My guess is the U.S., with lowered business costs from the FICA cuts, would experience the Mother of all Recoveries, and not much inflation either.


Set aside disagreements for a moment, and grant that variations of the Beckworth idea—helicopter drops or tax cuts married to QE—are “right.” That they would work.

Then consider if our governments, laws and regulations are set up to accomplish such a plan. Could the Fed do it? Would the Fed marry QE to tax cuts? Can the SNB do it, or the ECB? (The SNB, operating within the already confused Swiss national government, strikes me a hydra-headed monster, partly reporting to cantons, or canton banks, and then to shareholders too. This is a central bank?)

We may have the wrong institutional structures in place (especially the Swiss).

Like insisting on a horse cavalry heading into WWI.


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