May 30, 2023

more taxes to pass profits to the public

Finance Minister Betzalel Smotritch announced today that he intends to levy a very high tax on the exceptionally high profits earned from the increasing interest rates. Smotritch says they didnt earn these progfits by being more efficient or by hard work, but by playing with the par between the interest rates raised by the Bank of Israel that they collect on loans and the lower interest rate they give to clients for their savings accounts.

Smotritch said "I consider it very reasonable to levy taxes at a very high level on these very high profits, especially in order to prevent the banks from having the motivation to achieve them, and to cause them to pass some of those profits back to the public using tools available to them..". Smotritch explains that they should cut their unreasonable profits somewhat by paying out a higher interest rate to savings accounts as well, and the high tax on these profits would encourage that as banks would pay out the higher rates in order to be obligated in paying less tax.

The banks are pigs. Or how did the old saying go? Pigs get fat and hogs get slaughtered. They are a fine line away, if they didnt cross it already, from being hogs with the people's money, and the people have no choice but to continue using the banks. I have no problem with Smotritch slapping them with a massive tax. I just worry it might not solve the problem.

Smotritch thinks that if he slaps them with a massive tax they will pass on some of their profits back to the public in order to cut the profit form the bottom line and avoid the tax. Personally I think it is more likely they will cover their tax by increasing their already unreasonable fees they charge customers for every time they breathe in the vicinity of a bank. Smotritch says slapping them with this high tax will motivate them to pass it back to the public. I think it will too, but not in the same way he is thinking. The banks will just add their charges on customers to cover the tax.

I think a better move, maybe in tandem, would be to open the banking market to more banks. More competition means better rates and the public benefits.

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  1. Canada 1980: The inflation rate was around 9-10%. The price of gasoline was skyrocketing. Oil companies were raking in huge profits that were not a result of being more efficient or hard work.

    The Government launched the National Energy Program, designed to lower the price at the pump and provide incentives to develop the national oil industry.

    Part of the program included a windfall tax that was set to 100%. The Government would determine what the fair price of oil should be and all revenue over and above that amount would go to the Government.

    The end result is that the price at the pump did not fall and the tax provided a disincentive for oil companies to invest in Canada.

    You cannot lower the price of a product by increasing taxes. The banks will be motivated to find there way around the tax or simply to put there investments in more profitable countries.

  2. Economics (the dismal science) often does not make for simple, effective, politically popular solutions. Which category does this proposal fit into? KT


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