I have a new peer-reviewed journal paper out this morning on a theme many on this blog might be interested in.
Tax the rich! That has become a misguided progressive Left mantra. The intention is to maintain public services including health, education and income support which are core issues for progressives. But then the neoliberal indoctrination that has infested this group intervenes. They seem to think the government needs the money of those with lots of it before it can provide essential and progressive public services and fight the climate emergency. They support political parties that set as their primary macroeconomic target the achievement of a bigger fiscal surplus than the conservatives at a time when there are more than 13.5 per cent of available and willing labour resources not working (either unemployed or underemployed) and households are carrying record levels of (unsustainable) debt. And these parties keep losing elections – it is a global phenomena, most recently observed in Britain. One of the reasons we need to tax the rich is to deal with their (grossly) disproportionate impact on carbon emissions. That is one of many reasons. But you should never include among those reasons a need by government for their cash in order to facilitate spending. Any progressive who articulates that argument is just reiterating neoliberal frames....Bill Mitchell – billy blog
Does the solution to widening economic inequality lie in a wealth tax? We speak to Emmanuel Saez, an adviser to Elizabeth Warren who helped design the “Ultra-Millionaire Tax” plan.Half-hour podcast.
I am aware that almost anything written on modern monetary theory appears to be contentious, and that there are those who to seek to belittle my own contribution. I should then add that Randy Wray has already written to me about this paper, welcoming it and the contribution it makes to MMT thinking. Those seeking to dismiss it because I wrote it should, then, tread warily I suggest.
That said, I am aware that I have raised difficult issues, but I hope without offending too many. Suggesting that one of MMT's major contributions is to reverse the understanding of the revenue cycle will, for some, be contentious: they will place the emphasis elsewhere. But that is not key to my argument....Tax Research UK
Abstract
Corporate taxation is a perennially controversial topic in American politics. In fact, it may be the tax policy controversy that most Americans are aware of and even have an opinion about. Nevertheless, the purpose of corporate taxation is unclear in popular, or even for that matter, academic, discourse. In this paper we lay out and critically evaluate contemporary and historical corporate tax policy debates based on three common justifications for taxation: the “revenue” justification, the “distribution” justification, and the “behavior” justification. The revenue theory argues that the purpose of taxes is to raise the money required to finance expenditures. The distribution theory argues that certain taxes are required to produce desirable distributional outcomes. The behavior theory argues that certain taxes are required to change organizational and individual behavior in ways that benefit society.
This paper will trace the application of these justifications in American corporate tax law debates from the late nineteenth century through to the present, and analyze the implications of these debates to the contemporary corporate income tax debate. In particular, we argue that: a) following the observation made in 1946 by former President of the New York Federal Reserve Beardsley Ruml that, in the context of a modern government with a non-convertible currency, a floating exchange-rate, and its own central bank, “taxes for revenue are obsolete,” the revenue theory is empirically false; b) The distribution theory case for the modern corporate income tax is weak; and c) from the perspective of the behavior theory, the modern corporate income tax has strongly perverse impacts on corporate behavior.Binzagr Institute for Sustainable Prosperity
We saw in part 2 that to establish a currency, government needs to do three things:
1. Define a unit of account (e.g. dollar).
2. Impose taxes that can only be paid in that unit of account.
3. Spend or lend the currency into existence.
The most basic purpose of taxation (introduced in step 2 of the sequence) is to create a demand for the currency. Provided taxes are effectively enforced, we in the non-government will have a need to obtain the currency, because it is the only means of paying taxes.
Economists sometimes summarize this as “taxes drive money”....heteconomist
Any government outlay causes somebody somewhere to receive some income they didn’t have previously in return for supplying some good or service. They then pay some tax, and decide how much of that income to spend on other goods and services in the economy and how much to save for a rainy day. That process then continues with the money bouncing around between people causing transactions.
We can represent the initital government outlay with the following definitions.…Understanding issuance and taxation.
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.
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
In the chartalist view, taxes drive acceptance of state money. Through one channel, taxes induce labor services. The need to obtain state money to pay taxes ensures a willingness of some individuals to accept employment in the public sector in exchange for the state money. There is another channel that exists under a broader range of conditions. It is the power of government to induce supply of real output from private enterprise. Not only does government induce a private supply of real output to itself (a transfer of resources from the private to public sector), but it also induces a supply of real output to private consumers. Unlike the inducement of labor services, the inducement of private-sector output would apply equally to a pure labor economy or a purely mechanized economy, as well as to intermediate cases.heteconomist
The entire difference comes after taxes and transfer spending. As the chart above shows, Germany and Ireland both have significantly more pre-tax/transfer inequality than the US, but significantly less post-tax/transfer inequality. In other words, their tax and welfare systems are much, much more progressive. Meanwhile, the Netherlands and Sweden, which have famously egalitarian economies with generous welfare states, have the exact same level of pre-tax/transfer inequality as the US. It's not that their societies naturally produce more equitable distributions. Their governments simply do more redistribution.Vox
All Americans, including the rich, would be better off if top tax rates went back to Eisenhower-era levels when the top federal income tax rate was 91 percent, according to a new working paper by Fabian Kindermann from the University of Bonn and Dirk Krueger from the University of Pennsylvania.The Huffington Post
The top tax rate that makes all citizens, including the highest 1 percent of earners, the best off is “somewhere between 85 and 90 percent,” Krueger told The Huffington Post.
David Cameron has said there is a moral duty to cut tax and in the process reveals, yet again his lack of understanding of tax, morality and the economy.Tax Research UK
Tax is an economic tool. That is all. Let’s not overstate its importance, however excited I get about it. And, like all tools, the only question that can be asked of it is whether or not it is being used to do the right job, in the right way at the right time. The morality of tax comes from answering that question. Tax itself is as neutral as money is in itself: it’s how it is used that matters.
It may come as a shock to many, including David Cameron, to realise that tax is a massively multi-facetted tool. What is more, he might even be even more shocked to realise that the primary purpose of tax is not to pay for government spending, and yet his comments clearly reveal that he thinks this is the case. So before it can be decided whether or not tax is moral the uses of tax have to be explained.
