Two-Cent Message


Elizabeth Warren has succeeded, I think, in framing an argument as close as anyone is going to get (in the present election cycle) to the progressive position of MMT. Warren acknowledges that she’s proposing goals and undertakings that will “cost” a lot of money. She further acknowledges that everyone asks: “How are you going to pay for it?” And she gives a very specific and simple answer: an “ultra-millionaire tax”—which she details as “two-cents on every dollar of income over $50 million.” She then goes on to list what those “two-cents” will accomplish: The cancellation of college debt; free two-year college education; universal pre-school day-care…etc.

The two-cent message is a powerful framing, I believe, because it gives people “intellectual permission” to support a significant increase in federal spending to accomplish specifically targeted, widely held social goals. By “intellectual permission” I mean this: Even if you remain skeptical and unbelieving of MMT’s message about modern fiat-currency, Warren’s two-cent formula is reasonable because (a) the government won’t be “borrowing” dollars for the spending—your biggest fear!—and (b) because the people being taxed for the spending can hardly claim any harm or hardship: one day they have $50 million in their bank account—way more than they need for even the most extravagant life-style—and the next day they have $49 million. Are they even going to notice?

While MMT will want to explain that federal spending for Warren’s proposed goals does NOT require a tax increase on anyone at all, I believe at this pivotal moment advocates would be better served to momentarily set those arguments aside and applaud those aspects of the two-cent message that are, fundamentally, compatible with MMT goals:

  1. The two-cent message focuses on the federal government paying American citizens to undertake and accomplish real, specific objectives for improving the well-being of the whole society. Warren’s framing isn’t focused on “taxing the rich” but rather on accomplishing specific objectives for everyone else. This aligns with the fundamental logic of MMT: a currency-issuing sovereign government can and should pay its citizens to undertake and accomplish those things the collective well-being requires.
  2. While MMT argues that tax dollars are not required to fund federal spending, MMT does argue that taxes are necessary to drive a sovereign fiat-currency—and that since taxes are necessary, the question to be asked is: Can taxes serve purposes other than funding federal spending? One purpose I believe MMT would agree with is using taxes to put some brakes on the astonishing and spiraling wealth imbalance that is straining the stability of America’s socio-economic structure. So, on that score as well, Warren’s two-cent message is a fit with MMT.

Here’s another reason to get behind the two-cent message: It may well be that MMT can never, by logic, reasoning, and relentless argument alone, succeed in altering the deeply ingrained and habitual mental models of the mainstream understanding of “money.” Another path to that end might be required, namely, for Americans first to actually experience, by whatever means necessary, the phenomenon of their federal government spending a large number of dollars to pay American citizens to accomplish a specific collective good—and seeing the benefit in that. (It’s been a long time, I believe, since we’ve had that kind of experience.) The two-cent message might be a strategy for allowing it to happen.

What’s critical, it should be emphasized, is not the spending the two-cent message makes possible, but the results. This is why Warren’s list of goals is so important. First items on the agenda should be highly visible, on-goingly newsworthy, and beneficial to both lower and middle-class families. (My vote, in this regard, is the arena of education and child-rearing: free pre-school day-care programs, forgiveness of college debt, and free college or technical training.)

In the long run, if the targeted federal spending results in real benefits that large numbers of American voters can see and experience, the political dialog—assisted by the continued MMT push to redefine the mainstream understanding of money—can transition from being focused on “where will the dollars come from” to “what are we going to accomplish”? The two-cent message, then, will transition as well: it will no longer be about paying for federal spending, but will be about creating a more equitable society. So Warren’s message might be the best strategy MMT can hope to see in the 2020 elections—and seeing her elected the best of possible outcomes.

15 responses to “Two-Cent Message

  1. Nicholas Haines

    According to this analysis of the 2018 edition of the United States Census Bureau’s annual ASEC survey, 99 percent of individuals in the United States received annual incomes of less than $300,000.

    In that context, why would you only apply this 2 cents in the dollar tax to income above $50 million per year?

    Why wouldn’t you apply it to every dollar of income above $300,000, or perhaps to every dollar of income above $ 1 million if you want to leverage the rhetorical effect of the word “million”?

    In this sense it is a bizarrely timid proposal from Warren. But I suppose that when you consider her overall track record of appeasing corporate and financial interests, cultivating the Democratic establishment (which is a major obstacle to progressive policies), and preferring technocratic tinkering over structural and systemic change, it makes perfect sense.

    If you are serious about using tax policy for redistribution you don’t just propose an extra 2 percent tax on incomes above $50 million. You need to be a lot more ambitious than that.

  2. My answer to the question of why start the 2 percent tax at such a high level when ever $400,000 is more than 99% of the population get every year is the following:

    (sorry for what appears to be a digression at first) — when I was teaching Public Finance and we used to discuss the Estate Tax, I routinely got the argument (absurd on its face) that this or that student opposed taxing millionaires’ estates because “I want to be a millionaire one day….” The idea that an income of $1 million is “within reach” to just about anybody (my students were over 90 percent white — I assume the median African American student had less illusions) is so damned ingrained in this country and taxing “the rich” needs to start at some “super rich” level to be politically acceptable.

    So the reason Warren starts that high is that the lower you go, the more people start to get politically turned off — as it is, even her proposal will get the usual dishonest analysis about how it would punish the “job creators” and hurt “everyone else.”

  3. John-Michael Dumais

    I have to agree with Mr Haines here. This hardly passes the laugh test. I’d prefer to (or in addition) see a tax on transactions in the non-productive economy, ie on every stock transaction, plus moving the capital gains tax back up to the income tax level (at least over a certain amount if eg sole retirement income is from investments).

  4. Nicholas Haines:
    I see the logic of your argument. For me, it is a question of perspective: I see MMT trying to climb a mountain—not unlike the “Free Solo” accent of El Capitan—and the present election cycle is like a particularly dangerous scree that has to, somehow, be crossed before the accent can be resumed on the other side, hopefully on a portion of the mountain face that gives much better traction. The strategy in crossing the scree is to minimize the risk of falling while still maintaining some essential momentum in the climb. If the progressives fail in the upcoming elections—if the Republican’s new form of autocracy prevails—MMT will, in many ways, find its aspirations set back for decades to come. And they will be the crucial decades of our Times.

  5. At this point we’re not making it about redistribution. We’re making it about:
    1) Doing the things that the nation needs done.
    2) Ensuring that the people in the nation can live. This is not happening now, if you look. A comment in another blog mentions someone going to the gym in San Francisco, meeting professional high-school teachers and other such people who are there to shower and clean up for work; they sleep in their cars. There’s definitely room to improve situations like this.
    The 2% policy presses the point: how small does a rich person have to be to resent this?

  6. Mr. Alt, I’m deeply, deeply disappointed in how quickly you have caved.

    The simple argument I make, is posing the following questions to my friends, neighbors etc, is this, how do we pay for the military? Where does that money come from? Why is there no tax increase to pay for it?

    And then I shut up and allow them to try and explain how money just magically appears, and there’s no additional “tax” to fund the spending increase for the military. After they have tragically failed to explain this “military spending” that just magically is available anytime we want, I refer them to the constitution, Article 1 Section 8.

    Mr. Alt, Warren voted to increase Trump’s military budget, more than he requested. She is insane (metaphorically speaking…). I wouldn’t trust Pocahontas, ie Warren, at all. Her technocratic tinkering = incrementalism, which = more of the same that got us here in the first place, ie incrementalism and denial of reality.

    We, ie humanity, are on a collision course with reality via the Climate Crisis that is destroying the narrow band of environmental parameters that enable human existence in the first place. We don’t need “technocratic tinkering”. We need revolution, ie Bernie or bust!

    Warren will placate the billionaire class and leave in place the structural and systemic “systems” that collectively enabled the billionaires to own and dictate our government’s policies.

    Mr. Alt, let me frame this for you, change or die, your choice. What’s it going to be? If we do not change, we are all headed for extinction, sooner rather than later. That is what is at stake!

  7. Stop with the silly, though true, statement that the “Warren’s proposed goals does NOT require a tax increase on anyone at all” The requirement for a tax is that if the government is going to spend it, we require the oligarch’s not to spend it in competition with government uses for the money. The repeating of the phrase “taxes are not needed to fund government spending” makes a point that only MMT proponents care about, and they only say this to make an obscure point without considering MMT’s explanation of why we might want to raise taxes when government increases spending.

    I think it is Randy Wray himself that wishes people would stop pounding on “taxes are not needed to fund government spending”. I wish supposed fans of MMT would listen to Wray’s plea.

  8. F Thomas Burke

    JD writes: “One purpose [of taxes] I believe MMT would agree with is using taxes to put some brakes on the astonishing and spiraling wealth imbalance that is straining the stability of America’s socio-economic structure. So, on that score as well, Warren’s two-cent message is a fit with MMT.”
    Exactly, because hyper-salaries are a kind of out-of-control demand-pull asset inflation, and MMT says that taxes are a kind of release valve for that and any other kind of inflation.

  9. Marvin Sussman

    I find the redistribution proposal coming from MMT to be fundamentally dishonest and self-defeating. The example needed for public understanding of paying for necessities is the military budget.
    Did anyone ever hear of a need to raise tax rates to pay for a dozen aircraft carriers? And their cargoes of supplies, crews, pilots, and planes? And their port facilities and 50 years of operating expenses? Never! The DOD gets what it wants with little or no fuss.
    I have used that argument with frequent success. Try it! It’s honest and teaches the public!

  10. Here’s an offbeat idea: Why not present MMT as patriotic economics? Why not base that presentation on the Preamble to the Declaration of Independence, perhaps the most succinct and elegant expression of Enlightenment principles? Government, according the Preamble, is an instrument called into being by the people to ensure their equality by securing their inherent rights to life, liberty, and the pursuit of happiness. What could be more in line with the spirit of our nation’s founding document than federal spending decisions, made by the people’s elected representatives, to implement the lofty principles of equality and human rights? And if the federal government itself is created ex nihilo by the people to promote their common interests, then, of course, the same is true of its currency. Ever since Reagan talked the American public into believing that the government they created was the problem, their enemy, this country has been going down the drain. Is it time, perhaps, that MMT wrapped itself in the forgotten flag of original American idealism? To me, it’s a perfect fit.

  11. Nicholas Haines wrirtes: “Why wouldn’t you apply it to every dollar of income above $300,000, or perhaps to every dollar of income above $ 1 million …”
    This is certainly well within the realm of practical options, but it misses Alt’s point that everything can easily be “paid for” and then some (even in neoliberal terms) without picking the pockets of folks with annual incomes in the hundreds of thousands or just a few millions of dollars.
    This strikes me as a kind of ironic humor. It’s a way of saying that paying for stuff is not a problem without having to actually explain MMT to closed minds. It’s about as close to MMT as we might get these days as the election approaches. That, I take it, was Alt’s point.

  12. Nicholas Haines

    Bernie Sanders is the best candidate by far. Warren is the second best candidate; she is a lot better than the rest of the field. But it is foolish to pretend that Sanders and Warren are equally progressive, equally perceptive about the nature of power and class politics, and equally effective at building political movements and advocating structural change. Warren appeals mostly to upper middle class white people – people who are relatively insulated from the injustices and the suffering caused by America’s class system. Warren’s base have the luxury of preferring technocratic tweaks over systemic, structural change. Americans in general don’t have that luxury. The planet doesn’t have that luxury.

    This idea of an extra 2 percent tax on annual income above $50 million is consistent with Warren’s analysis of politics, which is that the structures and systems are fundamentally sound, and merely need to be tweaked by enlightened technocrats. For every problem there is a watered-down Bernie plan to save the day. I see this as a very naive approach to thinking about politics and power.

    With so much unused real resources in the economy at present the only reason to increase taxes on anybody at all is for redistribution and/or behaviour modification. An extra 2 percent tax on income above $50 million would be inconsequential on those fronts. Inflation control is not an issue right now; the fiscal space is already there. All it would do in the present context is consolidate the myth that money grows on rich people. It is not a smart idea in terms of policy substance or in terms of political tactics and framing of the issues. It is yet another example of a nominally progressive politician choosing to fight on conservative terrain instead of pushing narratives that favour progressive goals.

  13. I appreciate the sentiments of everyone who is striving for deep structural change in the American economic system. That is the long-term challenge we face and, from my perspective, MMT ultimately holds the key to meeting it. The resistance, however, is huge. Trying to make the present election cycle a referendum on that deep change—and on a new understanding of the monetary system—ignores the political emergency our democracy is desperately facing in the immediate moment. It’s like insisting on renovating the living room while the kitchen is on fire.

  14. Warren’s college debts, 2 years tuition, pre-school, day-care are all nice, but they won’t get the job done. And they reflect the trope college and professionalism being the mark of the democratic party. That identification turns the stomach of many in the working class who like and enjoy their work, and don’t see that route as more important and the mark of success. NO! THE WAY TO FIX THIS COUNTRY IS TO CHANGE THE DISTRIBUTION OF FLOW OF COMPENSATION – LET THE WORKING AND MIDDLE CLASS WORK FOR THEMSELVES. ALLOW THEIR DESIRES AND WISHES TO DIRECT THE ALLOCATION OF RESOURCES IN THIS COUNTRY.

  15. I like Newton’s thinking.