[palmtree3000]

You can make a consumption tax progressive! You'd probably want to make it a bit more progressive than the current income tax brackets, to cancel out the effect you're describing.

Re: implementation: make putting money into a bank account tax deductible and pulling money out taxable, then continue to use the existing income tax system. Any money you earn that you don't spend is a tax write-off, any money you spend that you didn't earn this year is something you have to pay more taxes on.

[unethical_ban]

Why would you want to encourage money to be hoarded? The modern economy is like a shark - if it stops moving, it dies. Exceptions include retirement savings plans, but that is just to keep the government from having to spend more money on old people.

[imtringued]

Funny, I wasted a whole day reading about freicoin and demurrage... i.e. money that is specifically designed to circulate at a roughly constant velocity.

I came up with a strange idea that is slightly better. When banks create money via loans bind the lifetime of the deposit to the lifetime of the credit. I.e. individual dollars have expiration dates that are directly tied to monthly payments. If people default then the dollars expire and the bank has to either compensate by raising its interest premium or by lowering interest rates on the deposits to compensate the loss. This means that interest rates would have to be negative sometimes and all debts can be repaid one day.

Of course the cash withdrawal scheme is equally complex because cash represents perpetual deposits which would require a perpetual government bond on the other side.

Banks would transfer their worst deposits first when you transfer to another bank which would drag all banks to roughly the same level of interest without needing a central bank to set interest rates. The equilibrium interest rate would discover itself automatically, at least that is the hope.