Thursday, July 12, 2018

The case against income tax By Claire Connelly

Tax is important. Just not for the reasons we think it is.


Economist Dr Steven Hail tells Renegade Inc. that taxation exists to prevent inflation so some form of it will always be required to provide stability, but there are countless better ways to do it than taking away badly needed funds from people already struggling to pay their bills.
“If governments don’t spend much, then they don’t need to tax much, because their spending won’t be creating inflation,” he says. “But it creates an unstable economy. In principle, you could just tax other things and not income. You could tax consumption and have a land tax.”
(Dr Hail emphasises that he is not personally in favour of abolishing income tax, and advocates for a more progressive taxation system).
The federal government does not need our taxes to pay for anything, so why are we handing over hard-earned income to be destroyed when we could be spending it? Or saving it. Or paying off debts. In the current climate, with wages stagnating or in some countries even going backwards, it makes little sense to take money away from people already struggling to pay their bills for the sake of an almost permanent deficit.
As I have previously written, governments have almost always been in deficit and it is almost only during these times that the private sector has been able to save.
People should be able to have more money to spend, to create businesses, and services and goods to be consumed, and pay off the crippling amount of debt they’re putting in to keep up in an economy where even a modest salary is insufficient to keep up with the cost of living, let alone a minimum wage. 
Renegade Inc. 

I always admired the Scandinavian model of  high taxes but with excellent public services that are so good that the public don't mind paying the taxes. Sadly, though, too many people Britain are on low wages and are maxed out with their mortgages and rents to be able to pay more tax even if they do gain more in the end. And the middle-class are maxed out with their mortgages too, so I would despair that we would ever get a Scandinavian style economy in the UK.  


Then I read about Henry George and Britain's social credit movement and how back in the 1930's most people in the UK were informed about the mechanics of money creation and the problem of capitalism where most workers could not afford to buy the products they made which caused recessions and stymied the system. But the bankers won and buried the issue and so today no one knows about how money is made. But reading about this did enlighten me about how governments can create their own money. 


Then I came across Positive Money and I was delighted by what they had to say and I felt more hopeful that we could change how our banking system works for the better, which has been captured by the elite to turn people into debt slaves. Positive Money is a ground roots up movement but many academics have got involved now.

Soon after that I came upon the lovely Michael Hudson in the Guardian online edition where he occasionally had a column. Yes, believe it or not, the Guardian used to put out some of his stuff. I loved what Michael Hudson wrote and started buying his books and then I found out about Money Money Theory which had a vast body of scientific research behind it. From here, a whole new world of possibilities opened up and I saw that we could afford to have a more Scandinavian society after all. Modern Money Theory is top down movement developed by academics but it is now becoming more well known and mainstream. 

Then I discovered Warren Mosler who was a very wealthy hedge fund manager who started MMT and from that I became delighted about how some of the One Percent want to live in a better society too where people are happier and less stressed. I felt we had a chance to change the system for the better. KV. Kevin.  

20 comments:

Matt Franko said...

"Money Money Theory which had a vast body of scientific research behind it."

I don't know about "vast"... there is perhaps some...

Kaivey said...

Yes, you're probably right, Matt. I get a bit carried away with enthusiasm at times, but those academics have done a lot of work on it.

Noah Way said...


The real purpose of taxes is not to fund government spending but rather to control behavior and regulate the economy. If the economy is too ‘hot’, raising taxes takes money out of circulation, providing a cooling effect. Tax reduction has the opposite effect. As to behavior, low taxes are used to encourage desirable ones and high taxes to discourage undesirable ones. Example: cigarette smoking declines every time taxes on cigarettes are raised.

Low taxes on a specific class of individuals has allowed them to accumulate massive wealth – wealth that translates directly into political power. Taxing this wealth out of existence would restore democracy by eliminating the political power associated with it.

Matt Franko said...

“Low taxes on a specific class of individuals has allowed them to accumulate massive wealth – ”

It is the firms that they found and develop that create their wealth...

Here is Musk on this the other day when some unqualified Art major accused hm of being a “billionaire!”:

https://twitter.com/elonmusk/status/1016731812159254529?s=21

“No, it means I created jobs for 50,000 people directly and, through parts suppliers & supporting professions, ~250,000 people indirectly, thus supporting half a million families. What have you done?”

Konrad said...

“The real purpose of taxes is not to fund government spending…”

State, county, and municipal governments need taxes to fund their spending. Monetarily sovereign governments do not (e.g. the U.S. government).

Other than that, Noah Way is correct. Taxes can be used to widen or narrow the gap between the rich and the rest.

What American workers think of as “income tax” is the personal withholding tax, which the U.S. government started imposing during World War II. The U.S. government falsely claimed that income tax revenue was needed for the “war effort,” when in reality the tax was used to prevent wartime inflation. After the war ended, the U.S. government continued to impose this tax in order to keep the peasants in fear. Also, when a person gets a refund for part of the taxes that he paid, he feels grateful to the lying, tyrannical government that stole his money.

Taxes could be used to control housing prices. Where I live, the county imposes property taxes based on what the county thinks is the market value of my property. But in other parts of the USA, bankers have bribed politicians to eliminate property taxes, and increase sales taxes. This allows bankers to “lend up” the price of property, thereby boosting the bankers’ profit in mortgage interest. The result is sky-high sales taxes, and sky-high housing prices which reduce more and more people to living in tents on the roadside.

Nothing will change, since the peasants don’t want change. The peasants cling to their delusions (their security blankets) which they create to cope with their misery. Their suffering is comforting, since it is familiar and predictable. If we took away the peasants’ misery, the peasants would be frightened by their freedom.

*************************
Incidentally the “positive money” people falsely think that all money ( all of it) is created by banks as loans. This is a little box they have sealed themselves in. The walls of this mental box are impenetrable.

Tom Hickey said...

"Money Money Theory which had a vast body of scientific research behind it."

Instead of "scientific," I would say rather something like "Money Money Theory has a significant body of data-based (or empirically founded) research behind it."

Tom Hickey said...

The issue of distribution is partly social, partly political and partly economic. Particular issue arise in these areas under liberalism i general and neoliberalism-market fundamentalism in particular.

They need to be differentiated and analyzed separately for a complete understanding and comprehensive approach to a solution.

The only way to deal with the issue of income and wealth distribution from the POV of economics, finance, and business is through an analysis of economic rent and rent-seeking.

Politically, highly uneven distribution of income and wealth results in concentration of power leading to oligarchy, in particular plutonomy, as a consequence of state capture.

Socially, highly uneven distribution leads to social dysfunction and eventually social unrest.

Taken together distribution that is far from optimal undermines liberal society and is therefore not only illiberal but also antithetical to liberalism, threatening the existence of open society, liberal democracy, and even capitalism as a system that purifies itself of asymmetries through near perfect competition.

While the some are concerned that addressing these issues will lead down a slippery slope to socialism, the actual bottom of this slope is fascism.

Noah Way said...

"It is the firms that they found and develop that create their wealth..."

Corporations are people, too.

Konrad said...

“While some are concerned that addressing these issues will lead down a slippery slope to socialism, the actual bottom of this slope is fascism.” ~ Tom Hickey

I say the actual bottom is feudalism, in which the 99% are serfs (i.e. rentiers) and debt slaves.

The USA is already fascist. The government, media, churches, movies, big banks, and big corporations are all aligned to promote neoliberalism.

Consider (to choose a random example) mandatory vaccination. Mandatory shots full of mercury, aluminum, and formaldehyde. That’s fascism.

Ryan Harris said...

In a developed economy Government spendight be a dominant cause of inflation. In a developing economy capital investment and private income / credit growth often cause inflation. Even in developed but small economies like Australia, mining and resources investment and bust was arguably poorly managed by fiscal authorities.

Andrew Anderson said...

Then I discovered Warren Mosler who was a very wealthy hedge fund manager who started MMT and from that I became delighted about how some of the One Percent want to live in a better society too where people are happier and less stressed. KV

Warren Mosler's proposals just take government privileges for private credit creation to their ultimate end - essentially reducing the liabilities of the banks toward the non-bank private sector to a total sham since the Central Bank is to provide unlimited liquidity to the banks so as to make bank runs pointless. From his own lips:

The hard lesson of banking history is that the liability side of banking is not the place for market discipline. Therefore, with banks funded without limit by government insured deposits and loans from the central bank, discipline is entirely on the asset side. from http://moslereconomics-kg5winhhtut.stackpathdns.com/wp-content/pdfs/Proposals.pdf [bold added]

When in history have we ever had a combination of inexpensive fiat and the right of all citizens, their businesses, State and Local government, etc. to have inherently risk-free checking accounts at the Central Bank or Treasury itself - free of charge for individual citizens up to a generous limit on account size and a reasonable limit on number of transactions - based on the principle that citizens have an inherent right to use their own Nation's fiat in convenient, risk-free account form? Why in Heaven's name, for example, have State and local governments ever had to keep PUBLIC FUNDS IN PRIVATE BANKS?!

This includes being limited to assets deemed ‘legal’ by the regulators and minimum capital requirements also set by the regulators. ibid

Shall loans to finance automation to disemploy workers with what is, in essence, the public's credit but for private gain be deemed legal?

Matt Franko said...

“Corporations are people, too.“

They are not people but they are institutions too... like governments...

Andrew Anderson said...

Then I discovered Warren Mosler who was a very wealthy hedge fund manager who started MMT ... KV

We all know, thanks to Mr. Mosler, that the ONLY limitation on deficit spending by the monetary sovereign is how much price inflation the public will tolerate before, for example, ejecting those responsible out of office.

What I haven't seen from Mr. Mosler or his disciples is the admission that deficit spending by the monetary sovereign need only provide the required interest to support bank loans that are many times larger; e.g. at 5% interest up to 20 times larger. However, I now see that Basil III recommends about a 10% capital requirement for banks so let's just say that for every $1 dollar created and spent for the GENERAL WELFARE, the government-privileged banks can create $10 in deposits for the benefit of the banks (their interest charges) and for the PRIVATE WELFARE of the so-called creditworthy of what is then, in essence, the PUBLIC'S CREDIT but for PRIVATE GAIN.

Therefore, for every $1 of politically allowable price inflation space consumed for the general welfare, $10 is potentially consumed for the PRIVATE WELFARE of the government-privileged banks and their borrowers.

Another way to say this is that deficit spending by the monetary sovereign for the general welfare can be, conservatively speaking, only a fraction of what it might otherwise be except for government privileges for the banks.

Tom Hickey said...

“Corporations are people, too.“

They are not people but they are institutions too... like governments...


Corporations are not only institutions but legal institutions.

Under US law, a corporation is a fictional person, while a human being is a natural person.

A fundamental question is to what extent to fictional persons have rights and responsibilities similar to natural persons, and also different.

Matt Franko said...

Let the lawyers figure that out Tom... that’s what they do...

Tom Hickey said...

Well, that's what the kerfuffle over Citizen's United revolves on.

Kaivey said...

Are you saying that banks should not be allowed to create money, but just lend depositors money, Andrew? If savers were allowed to deposit their money at the central bank then the government need not underwrite the private banks. Then private banks would operate as private companies and depositors would be investors. The private banks would be no more risky than any other private company, and depositors would become share holders. Is this what you are saying, Andrew?

Andrew Anderson said...

Are you saying that banks should not be allowed to create money, KV

That's not what I'm saying at all. I'm saying that banks should be 100% private with 100% voluntary depositors and then let them create all the new deposits/liabilities for fiat they dare to. And when they can't meet a liability then foreclose on them.

but just lend depositors money, Andrew? KV

Banks don't lend depositors' money; they create new deposits/liabilities for fiat when they "lend." That would be entirely legitimate if the liabilities for fiat were genuine liabilities and not largely a sham because of government privileges for the banks.

If savers were allowed to deposit their money at the central bank KV

I'm talking about debit/checking accounts so citizens can USE their Nation's fiat, not just save it.

then the government need not underwrite the private banks. KV

You got it. Because then we would have a risk-free, always liquid payment system at the Central Bank in addition to the current at-risk, not necessarily liquid payment system that must work through the banks. So then a bank or even EVERY bank could fail without stopping the economy from functioning - assuming banks were 100% private so as to not have an unfair advantage over Central Bank accounts.

Then private banks would operate as private companies and depositors would be investors. The private banks would be no more risky than any other private company, KV

Banks borrow short term (even worse since checking deposits can be redeemed on demand!) to lend long term. That is inherently risky which is why bank depositors should be 100% voluntary.

and depositors would become share holders. KV

Not necessarily but they could demand higher interest for their deposits with the banks since the banks would be uninsured and deprivileged.

Is this what you are saying, Andrew? KV

You're getting there. :)

Andrew Anderson said...

Not necessarily but they could demand higher interest for their deposits with the banks since the banks would be uninsured and deprivileged. aa

And if interest rates are deemed too high then:
1) Increase the interest charged (negative interest) on large account balances at the Central Bank.
2) Distribute the interest equally to all individual citizens into their individual citizen accounts at the Central Bank as a Citizen's Dividend.

So banks would have more incentive to lend and individual citizens would have less need to borrow or more fiat to lend - all three of which should tend to lower interest rates.

Googootz said...

When you are a millionaire, the world is your playground. You can easily pay for your basic needs, as well as virtually every desire. Life is your great adventure.

When you are a billionaire, the world is your proving ground. You are one of the annointed. Skill, vision, tenacity are usually not enough to break away from the great throng. But in you, the universe has coalesced. There has to be some higher reason for this, no?

That's why these billionaires think they are our masters, they know how to cure what ails the world.

The immense wealth is neither good nor bad. I don't begrudge these people their wealth; go ahead and buy your ski chalets, hunting lodges, mediterranean villas, super-yachts, and New Zealand ranches. But they are not entitled to buy the government.

If they play nice we won't have to tax them ... or get out the guillotine.