By L. Randall Wray
I’ve been blogging a series on the role of taxes. In the first piece, I argued that “taxes drive money”, in response to a silly claim that MMT argues we do not need taxes. In the second instalment I examined other uses for taxes—including to reduce excessive aggregate demand and to discourage “sin”. Most importantly, I argued that we do not need taxes to “pay for” sovereign government spending. In the third piece, I argued against the “Robin Hood” view that we need taxes to “take from the rich to give to the poor”. That should be obvious—we can spend on the poor without any tax increase, and indeed could spend on the poor while reducing everyone’s taxes.
Predictably, that third instalment riled the liberals. There’s nothing they like more than using the need to spend on the poor to justify raising taxes on the rich.
What was more surprising to me was the reaction from the FormerMMT/Austrian/Libertarian/Neoliberal/Regressive-leaning commentators over at Naked Capitalism (which reposted my third piece). As always, when it comes to attacking MMT, all standards of integrity, logic, and civil behavior are thrown out the window. Outright lies are OK: I’ve supposedly taken a pledge against taxes (stupid comment—read my blogs); my salary is paid by Warren Mosler (a lie; I’m a public employee paid by the state of Missouri which posts my salary online); I’ve never provided details on how to reduce inequality (another stupid and dishonest comment); and on and on.
My claims were two-fold: linking “tax the rich” to “help the poor” unnecessarily burdens sensible policy to reduce inequality at the bottom. Sure, we can “tax the rich” and we can “help the poor” but combining the two makes it harder to get the “help the poor” policy. My second claim was that it is difficult to reduce income and wealth at the top using the tax system.
Note that truth of this second claim is not at all necessary to the first claim.
(I went on to argue that incarcerating the rich for their crimes would do more good by discouraging their thieving. That led to a bizarre rally of support for thieving by the rich! See footnote below for my response to one other particularly nasty claim made by at least two critics.*)
I’m no political scientist and my claim that the attempt to raise taxes on the rich would fail was mostly an empirical claim, based on the work of Philadelphia Inquirer reporters Donald Barlett and James Steele who went through the tax code and documented that the rich DO NOT PAY TAXES because they’ve had thousands of PERSONAL exemptions written into law. Sometimes facts matter! (But not to commentators.)
In any case, this series will continue and I’ll get into a bit of nitty gritty on what kinds of taxes I favor.
Meanwhile, Lambert Strether (who runs interference against trolls over at Naked Capitalism) penned an exceptionally good piece on what we might call the “political economy” of taxation explaining why “redistribution” through Robin Hood schemes won’t work.
Here’s Lambert; I’m reposting with his permission. The original is here.
This post began with an exchange in comments at Naked Capitalism; it’s a response to a “Distributionist” proposal by contributor Hugh in response to a post by Randall Wray, “Forget Taxes for Redistribution – What to do About Inequality”. Popularizing, we could define our terms using short-hand slogans from the New Deal era: “Soak the rich” would stand in for “Redistribution,” since redistribution’s intent is to reallocate wealth using the tax code; and “New Deal” itself would stand in for “Pre-distribution,” since redistribution’s intent is to reallocate wealth via government programs and services. (“Predistribute” because, as MMT teaches, government spending can come before the collection of taxes, and does not depend on them.) Note also that “Redistribute” is just a little bit deceptive; granting that we could raise tax rates on the rich effectively, that does not automagically net out positive for those who are not rich. Suppose we raised a trillion new dollars with progressive taxation, and then blew it on a manned space mission that the oligarchs build Galt’s Gulch on Mars? (Trickle-down enthusiasts, the door is to your right.) Or a lottery where all the proceeds went (again) to a winning 1%? –Lambert.
* * *
I’ve read your proposal to “Soak the rich” — which I’m all for — and these are my thoughts.
Ultimately, people support government programs because they deliver concrete material benefits; that’s why programs like single payer in Canada or the NHS in the UK or Social Security and Medicare in this country are hard to dislodge, no matter how hard the neo-liberals work to degrade, privatize, and loot them.
And programs that deliver concrete material benefits are hard to dislodge because they develop constituencies and institutions that support them. Show me the enduring constituency for (say) a steeply progressive tax code! There isn’t one. And why? No concrete material benefits for voters, that’s why. Suppose the Piketty media boomlet turns into a constituency of sorts. Show me why that constituency is going to end up more powerful than a program like Social Security, that sends you a check in the mail (even today), or a program like Medicare, that gets you medical care (even today).
That’s why the best course is the one that Wray advocates: Pre-distribution. I’m a big fan of “Show me the money.” “Show. Me. The. Money.” Pre-distribution shows me the money. Messing about with the tax code does not. I can read about a “tax fight” in the papers, but at the end of the day I have to ask a question: “And I get?” What do I get out of your Distributionist plan? Read it through, and you’ll see the answer: Nothing. Zip. Zilch. Nada. A big fat zero. Actually, to be fair, I get the good feeling of having taken revenge on evil-doers (and evil they are!). But feelings don’t pay the grocery bills, and a check in the mail does. Show me the money! (You can’t, because Federal taxes don’t fund spending anyhow). And I get? The only answer is nothing. I read the proposal, and there’s nothing in it for me.
* * *
Now let’s give some consideration to the whys and wherefores of the Piketty boomlet, and the whole “income inequality” gambit. (Wrong phrase: It’s “income inequality”; it’s class warfare. Not that you’ll ever hear a Democrat say that.)
1) We know that both parties and the political class as a whole are fully committed to a neo-liberal worldview that rejects the public delivery of public services for public purpose in favor of private delivery of public services for private purpose, through rent-seeking intermediaries (hence ObamaCare and not single payer, charters, and on and on and on).
2) We know that “income inequality” and the Piketty book are being pushed by the Democratic nomenklatura and the career “progressives,” subsets of the political class above.
3) We know that the Democrats pushing “income inequality” and Piketty got Obama elected and still “have his back,” even though he’s a con artist who’s “the more effective evil”.
4) We know that the Democratic 2008 campaign took a massive popular wave of desire for “hope and change” and dissipated it, completely and deliberately (through, for example, closing down OFA).
5) We know that the Democrats, and especially the career “progressives,” are expert at devising roach motels for progressive energy.
* * *
So where does that leave us?
Let’s assume that a Distributive tax program like yours is the main focus of good-hearted and sincere leftists (like yourself) in the 2014 and 2016 campaigns. (You didn’t the Piketty boomlet was happening for any other reason, right?) So let’s see how all this is likely to play out.
Leaving aside lots and lots of spam for money and petitions from Democratic operatives paid by the click:
1) Massive “tax fight” in Congress in the Fall of 2014 and the summer of 2015. (There will be lots and lots of stories of wretched excess by the filthy rich, and the Senate may even bestir itself to [gasp] hold hearings, something Democrats could never bring themselves to do when the filthy rich had committed well-documented crimes.)
2) The uproar over “tax reform” will therefore turn out to be another “progressive” roach motel. Real outrage and real desire for reform will be fed with the empty calories of TV images from another Beltway circus.
3) A “tax reform” bill may even, after tremendous labor, be passed into law.
4) In due course, say in a decade or so, the law will be seen to have sadly come to nothing, exactly for the reasons Wray gives. (Even as you accuses Wray of pearl clutching, I notice that your proposal does not address how these taxes are to be collected; Wray claims they cannot.) This will happen more or less unnoticed, since as I pointed out above, there’s no constituency for such a law, since it does not deliver any concrete material benefits.
5) Therefore, what the neo-liberals really fear and hate — public delivery of public services for public purpose — won’t even be “on the table” at all. No “infrastructure program to begin to repair our deteriorating public goods, with the jobs targeted at the working poor” (Wray). No “universal preschool” (Wray). Robin Hood, shouting “Soak the rich!” in a “tax fight” will have sucked all the oxygen out of the room, choking the “New Deal.”
6) Democratic nomenklatura to their funders: “Mission accomplished!”
7) Democratic apparatchiks to each other: “BWA-HA-HA-HA-HA-HA-HA!!!! The ol’ ‘roach motel’ play worked again!” They never learn! [high fives, PBR all round]
Obviously, we should tax the rich painfully, to prevent the formation of an aristocracy of inherited wealth, to prevent the rich from buying the government with their loose cash, and for the psychological and spiritual well-being of their children. We also need to see banksters in orange jumpsuits doing the perp walk. Even if the statute of limitations for their crimes in the housing bubble now applies, they have doubtless committed fresh crimes. But let’s not bet the farm of delivering concrete material benefits on solving “income inequality” with the tax code. Na ga happen. The American people really need the left to do better, and the Democrats are doing all in their power to prevent that. Sadly, reactions like your proposal play into their hands.
*Footnote by Wray: At least two commentators claimed that my side comment on Banksters waking up in prison next to a tatooed roomie named Bubba was meant to support prison rape. Another lie. Any careful reader would have seen I used the name Bubba twice in the piece, with an intentional symmetry. I think the Bankster class would not mind having Bubba Clinton as a roomie (if they had to have a prison roomie) since that would probably increase post-release opportunities, as opposed to the other Bubba with tatoos. I realise that tatoos no longer mean what they used to mean, but a couple of decades ago abundance of highly visible tatoos was a sign of time spent in the joint–and probably not the kind of roomie our incarcerated bankster class would choose. I spent a fair amount of time in prisons in the early 1970s and do not condone violence against prisoners. I do think that incarceration of criminals at the top of the banking system would serve as a strong disincentive to banking crime.
The estate tax should be reformed so that the tax is paid by heirs, and there is an exemption of $1M per person, and a very high tax rate on the rest. If Warren Buffet leaves $50B to one person, the tax would be in excess of $49B. If he leaves $1M each to 50,000 people, no tax. In one generation, the wealth of the top .1% is redistributed to 5%. It’s not Robin Hood, it doesn’t help the poor, you still need JG for that, but it takes the envy factor out of play and it would reduce GINI significantly.
Did you not hear Randy’s main point…. “Once you have figured a way to tax the rich more, they get a law passed to let them pay less taxes to offset new law”?
A better plan is to have a IRS law with felony charges attached to any US citizen having his/her funds sacked away in some foreign acct. to avoid IRS taxes. Give felony count to taxpayer, felony count to CPA that tells the taxpayer about method, felony count to banker/trader that makes the secret transfers happen. With all felony sentences starting at 5 yrs minimun to be served in same prison with current robbers/murderers. We need to make the consequences count.
Isn’t it already a felony to evade income taxes, at least on a large scale? And to fail to report income? People do go to prison for running afoul of the IRS.
“Once you have figured a way to tax the rich more, they get a law passed to let them pay less taxes to offset new law”
Simplification fixes this. There is some justification for different treatment of capital gains in a progressive system, especially when a large part of the gain is illusory, due only to inflation. Also for different treatment of dividends if the income has already been taxed at the corporate level. If we get rid of the corporate income tax, that can go away. Those two are the reason Warren Buffet and Mitt Romney pay low tax rates on very high incomes (their secretaries make 6 figures so don’t feel too sorry for them). But those two are easy to deal with.
The tax code is thousands of pages long, and keeps tens of thousands of lawyers and accountants employed doing nothing productive. Many of them do it for corporations, not individuals. That is where the big campaign contributions live, and the corruption that comes with them. Fixing the complexity makes it cheaper for the rich to pay the tax than to hire the accountants and lawyers (and lobbyists).
How is the estate tax not paid by heirs? How can dead people be claimed to do anything? The actors are the heirs and executors.
Depending on how the will is written, maybe. In practice, the estate pays the tax and then distributes the bequests. If you’re left a specific $ amount or piece or property, you get the whole thing, tax free. If you’re the beneficiary of the “residual” estate, your inheritance is reduced by the full amount of the estate tax.
This change would have the tax fall individually on the heirs, depending on how much they inherit. An estate of any particular size may be tax-free, or may be heavily taxed, depending on how much the will tries to perpetuates a class of 0.1 percenters.
I’m very familiar with both Hugh and Lambert from FDL. Have great respect for both.
Most Americans don’t have the luxury of time to debate this stuff. In terms of messaging, federal income taxes, especially the payroll tax, do great harm to the brand of the federal government. IMHO, from a political perspective, bringing back the full holiday on both sides of the payroll tax has to precede either a federal job guarantee or a basic income.
A more aggressive #MMT “redistribution” idea which might play well with Hugh is for the federal government to begin sending out checks to reimburse tax payers for past payroll taxes. That returns funds to workers filing W-2’s, who were most hurt by the payroll tax. Grover Norquist’s supporters would put immense pressure on him to support that. Provided, wing nuts would not try to use that holiday to cut federal spending that would move more fundamental #MMT ideas, such as bringing back the full holiday on both sides of the payroll tax, towards the political center. Wall Street, the Military Industrial Complex, Big Pharma, Big Data, all the oligarch’s oligopolies rely on federal spending for their welfare. They do not want to see federal spending cut.
Hugh’s obviously not familiar with Mosler’s Health care plan.
It’s from 2009 and to call it the “public option on steroids,” is a gross understatement.
Excellent plan, thanks for pointing this out.
With regard to “the rich not paying their taxes” I think that this argument has been over used and under researched, mainly because before one can have ones high income taxed one must first be paid a high income. What needs to be tested is whether or not high marginal tax rates discouraged paying out of high incomes to individuals and whether or not reducing the top marginal tax rates removed that constraint. It is irrelevant what individuals who happened to have high incomes did to shelter that income. The key question is was there a difference in what was paid out and why.
I spent my career here in New York doing corporate strategy for a number of major corporations and then as a consultant at a couple of big four accounting firms.
Over my career I have witnessed profound changes in the way senior corporate executives function and I have come to attribute this change to two major legislative acts – ERISA and the Reagan Tax cuts – and their impact on the classic agency problem.
ERISA requires fiduciaries to consider only the interests of plan participants in their decision making. And this is their interest as pension plan participants, not their interest as employees or members of the community. Before ERISA was passed pension funds strongly supported corporate management freeing them from concern about stock market pressure on the company. Drucker once listed this as a big competitive advantage that US corporations had globally. When I worked in strategic planning at a Fortune 50 company in the 1970s the CFO told me: “What do we care what Wall St thinks, we’re not going to them for money any time soon.” After ERISA was passed, pension programs became critical players in hostile takeovers and that bulwark of executive protection was lost. As a result corporate executives began to focus on quarterly earnings rather than corporate strategy and being CEO became less and less the culmination of a corporate career and more and more of a short term position focused on short term performance improvement.
To understand the impact of the Reagan tax cut one first has to understand the roll that high marginal taxes rates played in corporate governance. Executives are agents of the stock holders charged with managing their interests. They are overseen by the Board, which at best has only arms distance knowledge of the business. The agency problem comes from the fact that the agent, the executives, know much more about the business than do the owners and thus they are in a position to enrich themselves at the expense of the owners. Russian novels are full of stories of overseers misleading rich aristocrats. During America’s Guided Age Robber Barons were similarly bilking stock holders.
The 80-90% top marginal tax rate in effect put a cap on how much income a corporate executive could take from the company. Why would he ask or the board approve giving 90% of the corporations money to the government, better that the executives should have larger staffs, more sumptuous corporate headquarters, time and resources to focus on the long term interests of the investors. As a result executives tended to be fat and comfortable rather than lean and mean. But most significantly their pay tended to be only about 40 times that of a line worker rather than 600 times or more as it has become in the post Reagan Tax cut era.
Ironically the huge amount of money that executives have been able to take from corporations in their ever briefer tenures at the top have been invested in hedge funds and private equity firms which have 1) replaced pension funds as the key player in the corporate equity market, 2) greatly added to pressure for short term performance and 3) increased the incentive for the executives to get as much money out of their corporate leadership position as quickly as possible.
Last election I read that Mitt Romney paid an effective tax rate of 17% ( as I recall). He paid less than his secretary. How was that possible? I would point to two things: long term capital gains tax rates and the carried interest loophole. So you could have a 90% marginal tax rate and it can be wholly escaped. If anyone wants to raise marginal tax rates they will need to fix that first. When that battle is done you may want to deal with inheritance taxes and then there are dozens of other loopholes you can work on.
I bet you can spend your life trying to raise taxes on the wealthy. Maybe not, but remember they are not going to just roll over and play dead while you work to take their money. So study away. I’m sure they would like that. That could take five years and then there will be all the intervening issues. I suspect trying to fix inequality with higher tax rates ,if it can be done, is a fools errand. Let’s help the poor first.
Robert: I agree with most of what you wrote, and I think you’ve made my point. There were many factors in place in the early postwar period that helped to keep pay at the top from exploding. They are ALL gone now. Simply proposing to raise tax rates at the top to 90% (or whatever) ain’t going to get us back to 1960. The ability to game the system, to get the personal exemptions into the tax code, to move income offshore, to hide and postpone compensation, and so on will defeat the effort. And you’ll never get congress to raise the rates enough to make a dent, anyway. We need to start with a very broad range of reform, starting with disincentives to criminal behavior–that not only enriches the rich, but impoverishes the poor. Enforcing laws would help, don’t you think? Or should we turn a blind eye to “the great divide” in which the rich can steal with impunity and the poor get jail?
Really interesting history, Robert Avila. Thank you. Now I’m off to see under whose admin ERISA was created.
On predistribution, see, for example:
David Bollier’s “Imagining a New Politics of the Commons” ( http://onthecommons.org/imagining-new-politics-commons )
Gar Alperovitz & Lew Daly’s _Unjust Deserts: How the Rich Are Taking Our Common Inheritance_
Another valuable read is _Who Owns the Sky? Our Common Assets and the Future of Capitalism_, by Peter Barnes, though his specific approach — namely, turning the sky and the many other commons into property — is a mixed blessing.
Should the federal minimum wage be raised to $20? I see people working their asses off when I buy lunch and I think, “They should be making at least $15 an hour.”
The biggest problem of economics is that it does not apply to common sense, but rather fixed mathematical models. However, economics are still social science, which makes it difficult to hold any rigid presumptions for the whole universe of cases. Word economics is derived from verb economize, which means:
To practice economy, as by avoiding waste or reducing expenditures.
(often foll by on) to limit or reduce (expense, waste, etc.)
This is a direct contradiction to what is happening right now. Waste and expense are not reduced or limited, because they no longer play a vital role in the mathematical model, focused on the increase of profit.
When you live in some big city, you realize that some people are held captives in the current economic system. Workers in restaurants, construction workers, drivers, and other struggle to survive, without any real chance to ever break the circle. And if they get fired, they end up with no money and dependent on the charity. Just check out how many people visit Bread Bank every day in so called first world country Canada. It is impressive. And it is a signal that something is not working.
Dr. Wray: I believe the proper view of taxes must be taken in the context of spending, not in isolation. The process of taxation, spending and borrowing by the FG is a powerful tool to move money around in the economy while not adding nor subtracting from the quantity of money in the economy. The policy issue is still from whom does the govt take the money and to whom is it given via spending. Naturally taxes are not needed for the spending but they are needed to suppress the govt’s power to add to or subtract from the quantity of money in the economy, along with the selling of treasuries, and maintain that power in the hands of commercial banks.
I’m glad I caught up with you. After you posted a comment in response to mine in a previous Dr. Wray article in this series, the comments closed. You wrote:
Then you and I didn’t read the same book [Frank Newman’s Freedom from National Debt]. Because the only entity that can spend dollars into existence—can add net financial assets–IS THE FEDERAL GOVERNMENT. Only the Federal Government can spend. The banks cannot. The banks can only lend. They create credit money, or bank credit, whatever you want to call it. They cannot, and do not, create real money. The Federal Government must spend first before there is any money in the system to pay taxes or borrow from banks. Newman does explain that in his book, as well as recommend that people read Mosler, Wray, and Fullwiler to understand how the system actually works, as you probably noticed.
I like to read. I’ll read it again. If I read the same thing the same way again I will be sure to note the text/location for reference. Thanks for the response.
Pay attention to how Newman describes treasury securities working. When people complain about the deficit–government spending–they never mention the treasury securities that offset the spending. All they see is the deficit. Those treasury securities go into the bank accounts of the non-government sector. I think–don’t quote me that amounts to around $500 billion a day changing hands.
That said you seem too defensive about all this. There are, dare I say, assholes on many so called progressive sites. And they do like to pile on without any basis in fact. There are those- hard to believe, I know- who ignore or make up whatever facts support their claim and their buddies who take their lead from that.
At some point you must realize you can’t teach trolls and frogs calculus .
I don’t think he’s being too defensive. He’s clarifying confusion.
I think that the debate has 2 important facets – one is the usual “chicken and egg” question about causality present in the most of MMT-related arguments and the other is related to practical issues related to implementing the badly needed reforms.
I think that the main point made by LRW here is that the actual spending on social programs is independent from raising taxes because the government does not need to acquire gold coins before it spends (we are not living in the 1600s). In that sense the government is not constrained in implementing a sensible policy such as Job Guarantee by the lack of funds. The government is not merely redistributing spending power because the act of transferring the spending power to a certain group of people or purchasing labour / products (government spending) depends just on a decision to transfer money from an account which can be replenished at a will (and when approved by the Congress). I agree with this point.
Let’s consider the following: is the spending on the F-35 Lightning II program conditional upon raising additional taxes? What will happen if the government fails to raise the amount it expected in let’s say income tax – will the people working on F-35 be paid or not? Will the government be forced to buy cheaper (and possibly better, because they don’t reboot when there is an electromagnetic pulse) Сухой ПАК ФА from Vladimir Putin? In fact the existence of “paper money”, government issued money and the development of the modern monetary system is exactly a result of spending on wars. So if the US government has never failed in acquiring funds for armament why is there such a problem to finance the Job Guarantee?
But the usual “chicken and egg” question has another dimension. What will happen if the government does not raise the taxes in the amount needed to suppress aggregate demand up to a point when it matches the productive capacities (ignoring international trade and capital flows)? Well the answer is in one of your books, it happened during American Civil War – the Confederates performed that experiment in an almost controlled environment. From Wikipedia “Confederate war finance”: political considerations limited internal taxation ability, and as long as the voluntary embargo and the Union blockade were in place, it was impossible to find adequate alternative sources of finance” and as a consequence “at the beginning of the war, the Confederate dollar cost 90¢ worth of gold (Union) dollars. By the war’s end, its price had dropped to only .017¢. Overall, the price level in the south increased by 9000% during the war.”.
In that sense the government has to raise taxes in order to spend because if it fails to – the monetary system will also fail due to acceleration inflation and rejection of the currency. If the government wants to spend more it usually has to tax more – but not necessary dollar-for-dollar because saving propensity of the private sector at the margin is usually still greater than zero (and hence the government can “borrow” that is issue securities which are financial assets happily hoarded by the private sector). In that sense the government redistributes spending power which has to reflect goods and services made available for use in the current time period by the non-government sector. This is also the usual, “official” interpretation of the role of the government. You cannot just say – “this is stupid, there is no redistribution”. You have to acknowledge the duality, just like wave particle theory which is “a theory that proposes that every elementary particle exhibits the properties of not only particles, but also waves.” (see Wikipedia, Wave-particle duality) Where is the duality? In our brains only not in the Creator’s mind. You cannot say, “chicken not egg”. You cannot keep offending the people who believe in the “redistribution” view (“egg”) by branding them “regressive-leaning commentators” or worse because whenever you do it a kitten dies and a potential supporter of Job Guarantee is shunned away. The core message is that there is a duality. It is precisely the statement that equally valid is the point that the government does not need pre-acquired tokens in order to spend (because it can create them at a will). This is the statement which is rejected by the orthodox economists and their followers and you want them to acknowledge that but you should not demand them to throw away the “redistribution” mental model.
Now the second issue – whether taxing the rich more makes sense. Imagine that in order to suppress the aggregate demand up to a point when there is no inflation we can either introduce a poll tax or we can have a combination of income / Value Added / property taxes. The implementation of Job Guarantee is not contingent on the way taxes are raised. That’s fine. But because we have property rights, people have different incomes (some coming from profits) and different saving patterns – if you just tax everyone the same, all the physical wealth, all the physical resources will be in the hands of the richest. Just like in Ukraine (see Wikipedia: “Ukrainian Oligarchs”) “As of 2008, the combined wealth of Ukraine’s 50 richest oligarchs is equal to 85% of Ukraine’s GDP” (notice this doesn’t say how much of wealth they have just how big the hoard is in absolute terms). People will still have jobs like in Belarus where “official unemployment rate is lower than 1%, but it includes only registered as unemployed”. (Source: Wikipedia, Economy of Belarus” That’s right. The policy of Job Guarantee without the redistribution of wealth (seizing from the rich) is not an answer. (Notice that in Belarus the inequality of concentration of wealth is lower than in Ukraine and unemployed are actually administratively forced to work).
Another example – let’s assume that the interest rates somehow creep up from the current US / Japan level (the official interest rate in Australia is 2.5%) above the inflation rate. You don’t care about the size of the public debt – I am with you. But that hoard of financial assets generates a monetary flow due to the interests. What is the point of redistributing spending power towards the rich (or foreign governments) and paying them for hoarding money/financial assets? But in the current system the main tool used to control the aggregate level of investment are interest rates. Paying the interests on bonds is a side-effect of the fact that the near end of the yield curve is anchored at the interbank interest rate. The yield curve is usually sloping upwards. There might be an unorthodox solution to this problem (allowing for the interest rate to stay at the inflation rate level and taxing bank assets, causing the lending rate minus deposit rate spread to rise and therefore pushing the lending rate upwards) but I think that we simply cannot ignore the issue of the size of the hoard of net financial assets.
As usual – if you use the “small target” strategy and do not make exorbitant claims you can more easily convince people to your point. You want to sound like an old revolutionist? Fine, maybe someone in Cuba will read your article (provided that their Internet filer passes it – I doubt it). But you are trying to convince someone living in let’s say Australia who is an engineer, has a few hundred thousand $ in assets but doesn’t like the income inequality and disrespect towards the poor exhibited by the current government. Why do you want to jail the richest assuming that all of them are criminals? This is just b..t. What if Bill Gates is not a criminal and never stole anything? It is not a crime to be rich. It is even not a crime to make attempts to get rich even if in my moral values system this doesn’t make much sense. But other people may have different moral systems.
Just look again at Ukraine – precisely the richest are who took over the country after the revolution which initially was supposed to get rid of them. It is the system which needs to be reformed. Just think a while about what you wrote – that the 1% will be successful in opposing any meaningful way of taxing them. So we should give up and just jail them. Throw a tantrum! Be serious: won’t they hire mercenaries and just chop off your head if there is a real threat to their liberty?
But wait – there is a smarter way. It is limiting the property rights but not eliminating them. I’ll give you an example. There is a river flowing across your property. In Australia or many Continental European countries I can paddle any river on my kayak. I have the right of way. This is not the case in at least some American states. You own the land – you own the river. What are the property rights in China? To what extent a Russian oligarch owns his assets – can he use them against the state interests (as defined by V.V.Putin?)
Think about creative ways of redefining capitalism rather than repeating long-discredited arguments from a Stalinist propagandist textbook. But this is just another story…
Which is inherently unfair. The water belongs to everyone. Naturally, you should get priority royalty rights, but what’s under the ground has been there for eons and should extend to the people in each state (arbitrarily or artificial division). Companies in my state (usually foreign to the state) that buy tens of thousands of acres to nab the mineral rights should, in my opinion, not have to pay taxes if they extract the mineral, but instead pay a 10% royalty to the state for the benefit of the people, and that royalty should be put into a separate public fund to pay for education, law enforcement, and health care for the benefit of the people , thereby reducing their taxes to the state. That fund should be public, transparent, and something the people in the state vote on. The out-of-state company that is extracting the mineral gets the lion’s share of the money and it’s a win-win for everyone.
And companies must be required by law to restore the land to the same or better condition. Again, in lieu of state taxes.
I think that’s pretty much how Alaska does it. With lots of oil and not very many people, the revenue from the oil companies pays for everything, with money left over to distribute to the people.
Although I disagree with your claim that “taxes drive money” I also disagree with the connotation that a universal financial debit tax is represented as a “Robin Hood tax.” It can be proven mathematically in the case of Australia that a 0.5% debit tax on EVERY financial transaction can serve to eliminate EVERY other form of taxation currently in place. (Based on the figures supplied by the Reserve Bank for daily financial transactions) It has nothing to do with “soaking the rich” nor does it have anything to do with equality, but what it does is reduce the tax load on virtually everyone, and puts money back in the pockets of people, who for most rational minds, are best arbiters of how to spend their “money”.
A universal debit tax also does a number of other things. It virtually removes the incentive for tax avoidance, it greatly simplifies business accounting as the collection of tax revenue becomes the responsibility of the financial sector to pay the half of one percent to the Government on every financial transaction that they routinely handle on a daily basis.
As a simple example, a Debit Tax of 0.5% – for a person earning, say, $50,000 pa, and assuming they spend all of that, their total tax would be $2500. Obviously, welfare recipients would be far better off under this system, and they could come under the single threshold exemption that might apply. For the “investors” who earn their living by trading on the various financial markets, they would be charged the same rate for every trade they make.
Just imagine what this would do to an economy if all sales taxes were eliminated, all duties on goods and services, all the complex paper work involved – it would be a totally new ballgame.
I don’t know if the exercise has ever been done for the USA, but chances are a universal debit tax rate could be even less than the 0.5%
I’m not sure if that is the same tax I have proposed: a business gross receipts tax. I thought that about 3% would be enough to replace the corporate income tax. It would apply to all businesses, not just corporations, and all sales without exemption.
I’ve just seen an article about a metric called Gross Output, which someone thinks should replace GDP as the metric for the size of the economy. If I remember right, it was the Fed that is tracking it? GO is all sales, not just final sales (GDP), including sales from one corporation to another for inclusion in downstream products. GO is about $30T a year now, compared to $17T GDP. So, a 10% tax on GO could raise $3T a year, replacing the current revenue from all other Federal taxes.
So, maybe 6% would be a good starting point, today, if all other taxes were to be abolished, and this tax were to be used to control inflation. It would be adjusted in increments of 0.1%, no more often than quarterly, by a board similar to the Fed (it has to be more nimble than Congress in order to be an effective policy lever.)
We probably should keep an income tax, much simplified and with a much larger 0% bracket – something like $50K, the median household income. There is some value in taxing “the rich”, in that a tax system should be viewed as being “fair”. I’m not sure a 90% rate fits that, but some extra rate on income over some amount – a progressive system – is probably a requirement. And do the estate tax I described above. And “sin” taxes, on cigarettes, liquor, and recreational drugs. Maybe even gambling and high frequency stock trading. But the gross receipts tax is the macro policy lever.
There’s no reason for a corporate business tax. Eliminate it. Property taxes hit the rich a lot more than any other tax, and they can’t deduct a damn thing from it.
Businesses won’t be paying the tax, their customers, employees, or shareholders will pay. Just like the corporate income tax today: corporations don’t pay taxes, they collect them.
The reason for this tax is to control aggregate demand, and that is why it is the broadest possible – a tax on every purchase. The reason to use business to collect it is that they are very efficient and meticulous about it.
Golpher, we have one. It is the merchant tax on credit card purchases except banks keep the tax.
Correct. But why? You don’t need that to control aggregate demand.
MRW, I read the book again. Quoting from Newman, “Freedom from National Debt”, Kindle Loc 226-33, 24% into the book, “The main source of growth of deposits in a nation comes from the banks, which create money as they make loans.” But I hear you when you use the term “real money” by which I think you mean cash. But that bank money is backed up by the Fed/BEP.
And also, when you refer to “…can add net financial assets-IS THE Federal GOVERNMENT.” you are not talking about money, usable spendable money. You are, I think, referring to treasuries which fall in the financial asset category but are really a record of money taken out of the economy by the treasury to assure that spending minus taxes equals money removed via treasuries thereby rendering the federal government’s actions neutral with respect to money supply. Newman explains this at Loc 238, “Treasury, as explained…process is quickly balanced…”
The very real issue is that banks, privately owned, for profit operations, control the nation’s money supply, not the FG. And the problem with that is any natural action by a bank will, long term, remove money from the economy. When a bank makes a loan and then the loan is repaid the loan amount disappears and the interest amount is taken out of the economy, reducing the quantity of money in the economy. If the bank continues to just make loans of the same amount and the same terms they will eventually have all of the money and none will remain in the economy.
In order to maintain a fixed amount of money in the economy banks must resort to an incredulous procedure. They must lend back into the economy exactly what, principal and interest, was paid to them in repayment of previous loans. This becomes an exponential process with loaning by the bank increasing by a factor of (1 + i)^t which is not sustainable. The payback will eventually be equal to or exceed all the money in the economy and again the bank has all the money and none is in the economy. Booms, busts, business cycles always happen to restrain these events. History tells us it is true. Jamie Dimon is quoted by Warren in her book “Fighting Chance” as saying banks need a crises each 5 to 7 years. I think what Dimon meant was that we need little economic downturns/small depressions more often to prevent the big ones separated by many years like we had in ’29 and ’08.
It is worth noting that the Fed has the power to ameliorate and delay the conditions caused by bank lending. The Fed can and does buy treasuries in open market operations to provide reserves to support bank lending. By buying treasuries from individuals rather than banks, the Fed can place additional money in the economy, providing funds to enable payment of interest to banks. This process enables a pipe line from the US Treasury to bank coffers.
To cover all scenarios, banks can increase money in the economy directly. This would require banks to loan at negative interest rates, making payback of loans lower than the amount loaned. I won’t wait for that to occur.
I reached the conclusions stated above using a system depicted by two blocks, a bank serving an economy. I was gratified when I read in Newman, location 242, “It can be very helpful, in looking at some of these issues, to think of the entire financial system in aggregate – as if it were one institution serving the nation’s financial functions….”, an approach I used before reading Newman’s book.
Bottom line conclusion: We do not need apologists for the present system, a position I am afraid, that has been taken by MMT. We need advocates for reform of the flawed monetary system we now endure, flawed as has been demonstrated by history and as can be illustrated and understood by simple mathematics.
MRW, have you ever heard of assessments and different ways of accessing properties depending on their use? These techniques do avoid property tax. And many are very good and worthwhile…
Regarding the trubble with troll commentaries, I noticed that the typical troll commentater runs out of intellectual steam before he/she can finish writing one sentence. Also, many such comments are indefensible — so they don’t bother trying. I consider writings that appeal to bias and prejudice to be unfit for study. I hope you all can try to avoid that by using as few labels as possible, particularly when the label (i.e. neocon) is used with an assumption that it’s pejorative. Consider the term liberal. Trolls think it means “Democratic Party.” Others think Laissez Faire. Now that’s all cleared up. Let’s have no further trubble with it.
But it means the two, depending on context. And also more/other things. (http://coreyrobin.com/2014/04/22/classical-liberalism-%E2%89%A0-libertarianism-vol-2/)
Forget Bubba with the tatoos.
“Iran hangs key figure in banking scandal”
And that guy only scammed ~$2.6 billion, IIRC.
Yeah, I find this rather depressing: Putin and the Chinese leadership do a better job reigning in (some) capital than our governments: http://news.msn.com/world/china-sentences-mining-tycoon-liu-han-to-death
I didn’t realize that you would read it that way. I offer my apologies.
I would like to point out though that what I actually wrote was that your formulation:
I didn’t write “support” because I assume that you are a decent human being. But having emerged from my own privilege bubble only rather recently, I also assumed that you might not realize what you were doing and attempted to call you on it.
The other commenter wrote:
which was even less confrontative than my formulation.
and the man you repost here, Lambert Strether, agreed:
I missed the subtle double-use of Bubba (and wasn’t aware of Clinton’s nickname until today) but if I was not the only one who got it wrong, there might have been a problem with the formulation itself.
I didn’t comment at the time, but I read it the same way you did and I not only missed a connection to our former President, but I don’t see a reasonable way to read it except being about prison rape. Furthermore, I don’t see that your response in any way accused him of support for it. I think the good professor went way overboard (which he is wont to do) when he accused you of that. It is quite reasonable and common for one to oppose prison rape and still know that it occurs and inspires great fear in its potential victims.
“I think that real punishment would do one heck of a lot more to reduce income inequality than taxes will ever do. Put a thousand of Wall Street’s “finest” behind bars.”
Put such fear into our Bankster Class that before they try to push some new fancy derivative deal on a pension fund, they’ll imagine what it would be like waking up in a cell with a tattooed roomie named Bubba.”
Fear of prison itself was conveyed in the first paragraph, and would have been reinforced quite effectively if there was a period after “cell” and the rest were omitted. The fear relating to the roommate can only be a reference to some sort of violence or abuse, not simply a life in constant company with a run-of-the-mill non-prison-rapist blue-collar criminal (as implied in the non-apology), which is not particularly scary. I submit that prison rape would be the most common inference, and quite a reasonable one.
Well there is this about taxes. If the top one percent thought we were coming after them with rope, torches and pitchforks maybe they would change their behavior, like stop hoarding it all and allowing a little help to others. High tax rates may change the way they strut about.
Looking at the import data, I’m inclined to believe that the current level of taxation of the middle and lower classes is actually at a suitable level to control consumer price inflation under free-trade conditions. US merchandise imports do not appear to be dominated by luxury goods categories, indicating that the main driver of US merchandise imports is non-elite demand. Industrial goods and non-oil commodities appear to be mostly in balance, so US business would appear to export as much as import.