9. LETS and the finance of public and community projects

One of the main incentives for forming a LETS scheme is that this gives a community more control over its own economic development. So far we have only looked at the private side of the resulting economy but this is only half of the picture. LETS currencies are already being used to finance voluntary or charitable activities typically by levying a percentage on each transaction or by encouraging voluntary donations by individual or businesses members, particularly those who have difficulty spending all the LETS money credited to them. This is all well and good, but it is unlikely to provide enough for all of the necessary activities within the community which have traditionally been funded by the state.

As a LETS currency operates on a smaller scale it becomes possible to enable more people to contribute to and participate in the economy, but we still need to provide benefits for the elderly and disabled and health and education services; the people who need these most are those least able to pay for them. Those involved in using a new money system will prefer to contribute more directly to these needs rather than through the current kind of system where the administration, collection and disbursement of taxes is expensive and bureaucratic and people feel they have little control over it. 

Why not let individuals decide for themselves to which public services their taxes should be distributed ? People are capable of doing as good or better a job of cutting the tax cake than most politicians because the latter have too many conflicting responsibilities. Some might decide to put all of their taxes into just one kind of public service but this would even out. If it were generally felt that some services were underfunded then people would divert a higher proportion of their taxes appropriately. This would be easy to automate, because the private and public service funds all exist within the same computerised system for the same LETS currency.

We would still need a democratic process to decide the minimum tax rate and to elect representatives to supervise the audit and use of these funds to prevent misuse. However if politicians are freed from the task of setting public service account budgets this will help them to discharge their other responsibilities more effectively. This change will help them ensure that these funds are properly managed and that the need for public finance is not allowed to compromise the integrity of the money system through which it is provided.

Much has gone wrong in the public services because excessive regulation and management has stifled enterprise and initiative. Those working in these areas feel prevented from advancing new ideas because of the probability that they will be penalised for rocking the boat: any improvement inevitably challenges vested interests. If a branch of government is not seen to be using the tax revenues which we choose to give it effectively, why should it go on having an unlimited licence to spend our money if others are able to do a better job for less ? Enabling tax payers to decide how their taxes should be split would introduce a real and necessary atmosphere of competition, flexibility and innovation into our public services.

LETS Benefits for those unable to provide for their own accommodation, clothing or food should be supplied in kind, rather than money; the direct provision of basic necessities will be more popular amongst those contributing tax revenues for this purpose. This will also be easier to administrate within a smaller community. Perhaps there could also be a small LETS fund for a universal money benefit. For the rich this would replace the need for personal tax allowances; for the poor this money should not be taken away as soon as they earn a little more. Everyone needs some income whether or not they can earn it, but the incentive to work openly should not be removed as occurs under the current system of unemployment. We could then also get rid of the current allowances on so many individual or business transactions which result in untaxed income flowing into privately held accounts. 

Income tax need not be the only source of revenue; there are sound reasons for taxing the ownership of land and property, the use of polluting processes and the sale of unhealthy products etc. However there is a strong case for considering all payments into private accounts as being private income and taxing it equally, because:

  1. This will put an end both to the misuse of money for short term speculation and lending for interest because these activities would attract so much tax that no-one would find them worthwhile any longer.
  2. Investment markets will be forced to take a long term view, resulting in things being made to last, with more consideration of the environmental effects being needed if an investment is to be profitable. 
  3. This would make the deduction of tax from income ( and crediting tax payments to the public service or charitable accounts nominated by the taxpayer ) capable of being automated relatively easily. 
For LETS systems to be encouraged to develop in this manner alongside the current money and tax system some minor enabling legislation is needed. Any LETS system whose accounts are properly audited, and which levies taxes in the manner described above on all internal transactions at or above the basic rate of income tax, should be in a position where all income earned through this scheme by its members is exempt from other forms of taxation. If LETS systems keep growing and proliferating over the next few years as they have in the past, I think it very likely that sufficient support can be gained in legislatures for proposals of this nature to succeed and within LETS systems for members to expect and ensure the benefits to their communities which flow from these new responsibilities.

Not everyone within the LETS movement wants the extra responsibilities that are involved in this, but the small amount of extra work could be paid for by using the established method of account service charging. Whether this happens depends on whether the public is prepared to continue supporting the massive bureaucracy and loss of community control associated with the present tax system and whether people within the LETS movement want their systems used as a catalyst for change in this area.

Version #001 20-12-94

Written by Richard Kay  rich@driveout.demon.co.uk