Monday, May 19, 2014

Randy Wray — Forget Taxes for Redistribution



Predistribution rather than redistribution.

Economonitor — Great Leap Forward
Forget Taxes for Redistribution
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

16 comments:

Anonymous said...

If it's such a bad meme for America and won't work, then why did it work for so many decades when we had very high marginal tax rates and much lower inequality?

Yes, it would be great to implement predistribution measures too like wage ratios and maximum wage policies, as well as corporate governance reform. But those things are even heavier political lifting than redistributive taxation in America. Also, if you have stringent taxes on high incomes and wealth, that has a "pre-distributive" effect as well, because once people can no longer achieve massive untaxed incomes through competition for Midas-sized bonuses and salaries, then their incentives change.

Also, this is not just a question of going after banksters and the top dogs, but of building a more just, democratic and equal society. The taxes aren't aimed only at people who are bad and deserve punishment.

Jose Guilherme said...

This third piece on taxes is by far Randy Wray´s best.

The proof that high taxes on income and wealth are useless as far as "redistribution" is concerned can be found in the land of Piketty itself.

France (and the rest of the eurozone) have been plagued with ever higher levels of poverty and unemployment despite (or because of?)constant increases in tax rates, including those that theoretically apply to the wealthy.

One should keep in mind that the solutions proposed in Piketty´s magnum opus come straight from the ideological matrix of the French Socialist Party. It would be the height of naiveté to imagine that proposals from such tainted origins (after all, the French Socialists - not the German conservatives - were the originators of the concept of the eurozone) could serve to address the problem of stagnant wages and concurrent inequality of incomes that has affected western economies since the 70s.

Anonymous said...

Wealth and income taxes for redistribution have nothing to do with the separate problem of stagnation and unemployment. The latter problem can only be dealt with by a larger role for government in employment and demand management. The former requires deliberate measures to redistribute the wealth of our society and reform the institutional structure of capital and its control. These two policy agendas address different problems: one is to help deal with the problem of plutocracy, class domination and the perversion of democracy. The other is to deal with stagnation and economic misery and hopelessness. Why not combine the two into one comprehensive progressive package instead of treating it as an either/or debate.

It's one thing to acknowledge that governments are not strictly revenue constrained in carrying out expansionary and full employment policies. It's another thing to fetishize a 'no new taxes" outlook for its own sake.

Keynesian countercyclical policy, and even bolder policies like a job guarantee, are not adequate measures for dealing with our deeply sick and unjust society, and the loss of democratic capabilities and values. The left needs a much more comprehensive agenda for change.

Anonymous said...

Can I also add that any plan for seriously addressing the structural inequalities inherent in contemporary capitalism and American-style plutocracy are bound to be "socially divisive". So surely that's not a serious criticism.

Roger Erickson said...

Dan,
Throughout the field of "operations" ... one truism is that it is:

a) one thing to 1st achieve some outcome, by one particular method (no matter how randomly chosen) ... and

b) quite another to KEEP that outcome, permanently maintained (which usually ends up being done by multiple, different methods than the 1st one that was tried)

Statistically, getting something done, and then keeping it are almost always 2 different processes. Just like the circle was first squared by Archimedes laborious geometry proofs, but eventually far more easily demonstrated, taught & the understanding maintained by newer algebraic methods.

Don't decry better approaches, just because a desired outcome was first achieved by a prior method. There's nothing wrong with statistical process control. In fact, allowing continuous process tuning works wonders.

Anonymous said...

Roger, could you apply those comments to the problem at hand? What are you proposing?

Malmo's Ghost said...

If framed properly, redistribution (even 50's, 60's and 70's style redistribution) is a slam dunk. Even if it only dis-empowers the rich, then so what?

At any rate, predistribution and redistribution are not mutually exclusive policies. At the very least a just society with less power and corruption at the top requires no less than both. It's terribly defeatist and counterproductive to posit otherwise.

The Rombach Report said...

Putting my MMT hat on. If taxes only extinguish reserves and don't actually collect anything for the government, how can it redistribute the tax receipts? Of course I can answer this question myself by noting that soaking the rich and spending on the poor and middle class for all practical purposes accomplishes the same outcome

"Also, if you have stringent taxes on high incomes and wealth, that has a "pre-distributive" effect as well, because once people can no longer achieve massive untaxed incomes through competition for Midas-sized bonuses and salaries, then their incentives change."

Now I am donning my Supply Side hat. The watchword here is INCENTIVES. Warren Mosler once worked for Art Laffer, I think around the same time that Tom Nugent worked for Laffer. In any event, this thing about incentives, tax rates and actual tax revenues is summed up in the Laffer Curve which makes the case for a sweet spot for taxes that are not too high and not to low such that the government maximizes the revenue it collects. Intuitively this makes sense because the government will collect no revenue if the tax rate is 0.00% nor will it collect any revenue if it is 100% because all economic activity will go underground.

However, Laffer does not claim to have invented the idea, but says he got it from 14th century Arab historian Ibn Khaldun who wrote:

"It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments."

Tom Hickey said...

Even if it only dis-empowers the rich, then so what?

That is really the chief reason. It's not "redistribution." It's taxing away economic rent to level of the playing field by addressing asymmetric power, which is the basis of extracting economic rent.

"Predistribution" should mean constructing a fully functional system for all, instead of one that works for the powerful by creating and perpetuating asymmetries.

Calgacus said...

Dan:If it's such a bad meme for America and won't work, then why did it work for so many decades when we had very high marginal tax rates and much lower inequality? Wray overstates criticism of the bad meme, but the "bad meme" is just not what worked for America and elsewhere back then. Full employment at good wages was what worked. That's why elites worldwide decided to end the postwar era. A society that works for the lesser people is what elites loathe. Jose's "stagnant wages and concurrent inequality of incomes" were not a "problem", but a desired, planned and publicly proclaimed goal.

Keynesian countercyclical policy, and even bolder policies like a job guarantee, are not adequate measures for dealing with our deeply sick and unjust society, and the loss of democratic capabilities and values. The left needs a much more comprehensive agenda for change. No, it doesn't. The job guarantee is more than enough all by its lonesome. Even half-assed postwar "Keynesianism" was too much. Full employment is the only thing plutocrats are really scared of, because they understand things. The only other people who do not systematically repress and ignore common sense in economics are the poor and the MMT academics.

The measures that almost everybody else see as substantial institutional change - e.g. Piketty's taxation - are in reality minor or dubious tweaks. Meet the new boss, same as the old boss. And what may look like minor tweaks to the befuddled majority are revolutionary changes.

Tom Hickey said...

Without changing the power structure, no permanent change is possible in the framework of capitalism. The problem is not fundamentally economic or financial, that is, related to the factors or money, but rather political, related to power. This has to be addressed politically and the entire system has to be changed to eliminate privilege, which is always ultimately power-based although the source of power may be different in different contexts. Locate the reasons for the power asymmetries leading to privilege and remove them.Economists always view the world through the lens of economics, which is a myopic POV. The world is much larger.

In my view, economics is a failed discipline because it is too partial and needs to be incorporated into social science and integrated with biology, psychology and philosophy, in particular logic, methodology, ethics and social and political philosophy.

Roger Erickson said...

?? I already did, Dan.

Just because occasional comments are beyond your perspective, please don't take up the habit of denigrating whole fields of science or technology, in this case statistical process control.

ps: spend your own 5 seconds to google the term

Anonymous said...

Full employment at good wages was what worked. That's why elites worldwide decided to end the postwar era.

Calcagus, that was part of it. But inequality would have been much worse during those golden years if it were not for the high tax rates that were in place.

The lowering of top marginal tax rates, along with the reduction or elimination of estate taxes and capital gains taxes, are one major factor responsible for unleashing the forces of acquisitive greed and predatory behavior that have created the modern American plutocracy and given us the world's most embarrassing income distribution. Te abandonment of the goal of full employment and the disempowerment of labor is another factor.

Anonymous said...

The job guarantee alone won't do much about inequality, other than eliminating the lowest levels of poverty and misery. It's a good thing to do, but the idea that a buffer stock of laborers doing minimum wage "starter jobs" is going to make a large dent in the plutocratic power structure seems unrealistic to me.

Tom Hickey said...

Also, IIRC, wage share decreased although compensation share and capital share remained fairly stable in aggregate. The disparity results from stagnant to falling wages lower on the scale, and increasing expansion at the top, with top 1% getting the bulk of the increase. This was amplified by preferential tax treatment of compensation at the top.

In addition, wages did not grow even though worker compensation increased owing to increased cost of benefits, especially health insurance. So the "raise" was in benefits cost rather than spendable income.

Anonymous said...

Re changing the ‘power structure’: first of all, ‘power’ in the world of the human persona is driven by desire. People reach out and grasp for something for themselves (the interesting bit is why?). They are not using the human ‘will’: they are using the energy of desire (tentacles), and intellect to enhance desire. Mind driven by desire resolves as an ‘I’ pursuing its agenda – success binds.

Enter the power of the human heart. People through old habits still reach to grasp, but this time for other selves (the interesting bit is why?). Using the energy of the heart the goal is sought at first through desire, but soon the energies of radiation and attraction, inherent in a noble human goal become evident drivers of the process; intellect enhances – the human ‘will’ also begins to function as an additional energy as desire falls away : when all attain the ‘I’ is satisfied – success frees. Eventually the ‘I’ is seen as unimportant to the process.

Mind driven by the heart resolves itself in evolution. Human nature …..!