Bill Mitchell — Governments do not need the savings of the rich, nor their taxes!

In Chapter 24 of The General Theory of Employment, Interest and Money, Concluding Notes on the Social Philosophy towards which the General Theory might Lead, John Maynard Keynes confronted the issue of the “arbitrary and inequitable distribution of wealth and incomes” in capitalist economies. The argument he advances in that Chapter of his 1936 book contains guidelines for the progressive left that some just cannot seem to grasp. In short, governments (as our agents) do not need the savings of the rich to ensure that society prospers. There was another interesting contribution in 1946 from the American statistician and economist – Beardsley Ruml – who wrote that “Taxes for Revenue are Obsolete”. The progressive left would be advised to study his work and stop building political policy platforms on the claim that governments needs to make the rich pay their fair share of taxes so that adequate public services and infrastructure can be provided. The incomes and taxes paid by the rich are largely irrelevant to the capacity of a national, currency-issuing government to provide first-class public services and infrastructure. It is time to re-frame the debate and the way in which progressive political forces state their policy aspirations….

According to functional finance, the purpose of taxation is to control inflation rather than fund government that is a currency sovereign.

Taxes also discourage behaviors that are taxed. Therefore, taxes can also serve as a negative incentives for negative externalities.

Is the political power and social influence that great wealth accrues a negative externality, for example, leading to cronyism and corruption? If so, should it be taxed away to level the playing field? This is the debate that we should be having.

So the government might impose taxes:

1. To control inflation.

2. To redistribute purchasing power from the rich to the poor (high income to low income).

3. To alter the allocation of resources away from undesirable ends – such as tobacco taxes.

4. To provide some hypothecated public transparency for major projects/programs.
So from a functional finance perspective, taxation must be designed to advance these purposes and the public discussion must be about the idea of public purpose and never about raising revenue.

So from a functional finance perspective, taxation must be designed to advance these purposes and the public discussion must be about the idea of public purpose and never about raising revenue.…

Bill Mitchell – billy blog
Governments do not need the savings of the rich, nor their taxes!Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia