MMT Discussion – Part 3 – My taxes paid for That!

BRADFROMSALEM

If you have not read Part 1 and are unfamiliar with the concept of Modern Money Theory [MMT], click here for a brief introduction. In Part 2 I cover 4 of the 5 reasons taxes are still necessary even though MMT explains that taxes do not fund Federal spending, click here to read about the first 4 reasons. Below, is the 5th reason for collecting taxes in an economy that honors the MMT economic descriptions.

The most popular feature of the MMT description of how money is created, circulated into the economy, and then ultimately destroyed is undoubtedly the approach to taxes. In the previous entry I described 4 reasons why taxes are collected even though the MMT description does not require tax receipts to fund government activities. Instead government activities are funded by money creation and taxes are ultimately destroyed. But MMT’s description of money creation limits that act to funding government expenses that serve a public purpose. Currently, in the news we have an expenditure that cannot be described as providing a public purpose. I use the example of the cost of maintaining a lavish and separate lifestyle for Mr. Donald Trump and his wife more for its notoriety than its dollar amount.

If we were funding government expenditures solely by creating whatever is required to pay for everything that is an expense, what is the public recourse? While there is little truth to the near myth that printing money will cause inflation, there is as my language indicates a path to that occurring. Also as I noted in the previous blog, should inflation start to accelerate, then raising taxes would brake that situation. To take the Trump example a little further, without a lever that the public can exercise to prevent extravagant spending by not just the President, but by all elected officials; who would gladly use that power to enrich each other along with their friends and others as well. It becomes evident that eventually the power will be abused and even with a remedy at hand (raising taxes) a better approach would be to allow tax receipts to be “allocated” as an accounting trick to certain government expenses.

This will allow taxpayers the right to proclaim, as they do now, that they do not want to pay taxes for Trump’s lifestyle choices. Taxes to serve the public purpose of maintaining citizen sense of ownership. In fact it’s more than a sense of ownership, it is real ownership. Something that rounds out the public purpose of spending. The question is then, how are public purpose expenditures separated from operational expenses that will not enhance serve the public purpose? One possible way is to fund all maintenance costs from tax collections. This would be items like road repair, upkeep of National Parks, along with salaries and expenses of Federal office holders and their direct staff. One critical expense would be all military spending, unless there is a true declared war.

Spending via money creation would be on all capital expenses. New infrastructure, Health Care, Social Security, Federal Job Guarantee, Basic Income Guarantee, and Public Education come to mind immediately. These are all items that serve a public purpose. Under the present arrangement these are the costs that are deferred, cut back or never even considered because it is believed we cannot afford it.

There are political advantages to restricting some expenses to be budgeted according to tax revenues. Using the model of assigning maintenance costs to those revenues is not perfect. There will be public purpose spending happening, but since the maintenance areas are the ones people care about the most means there is less push back from taxpayers when they have well maintained parks, roads and power grids.

There is one last caveat to the capital expenses that must be understood. The MMT descriptions only apply to the Federal government’s expenses, states, counties along with city & towns still must collect taxes to pay their bills. With an MMT model we do get more done with less taxes, but as I have shown taxes are a necessary and critical component of a healthy economy and a component essential to a dynamic democracy.

(I plan to write some more on other MMT aspects such as the Basic Income and Job Guarantee along with why it describes money so well and other descriptions are lacking.)

MMT Discussion – Part 2 – Lessen the Burden on Taxes

BRADFROMSALEM

If you have not read Part 1 and you are unfamiliar with the concept of Modern Money Theory [MMT] then please click here for a short introduction. There are 5 reasons why taxes are necessary even in an economy built to take full advantage of MMT descriptions of money. A central observation of MMT is that taxes are not required to fund the government. But still taxes have an essential role and of the 5 reasons the first 4 are listed below. The last reason will appear in a separate blog following this one.

  1. Collecting taxes payable in US currency establishes the dollar as a legitimate currency. If taxes must be paid, and you provide a service where you collect your pay in a barter agreement, then how will you pay your taxes? Some may romanticize using such a system for payments, but it is just not practical. Using dollars allows us to spread out our debts into manageable chunks, paying taxes in dollars reinforces that the dollar has a critical value.
  2. Taxes are the simplest means the government has to control the money supply allowing it to manage inflation, which by the way does not happen if the government creates more money. But, should other external events like the 1970’s energy shortage in the US and inflation gains momentum, raising taxes can take the wind out of that sail real fast. But, the tool also goes both ways, taxes can also be lowered to provide stimulus during a slowdown. Ideally, in a well-managed economy the tax tool will be needed infrequently. MMT, by noting that we overburden taxes by assigning conflicting economic tasks creates an economy that is easier to manage by lessening the workload we currently needlessly assign to money.
  3. Taxes and fines can be used to manage socially positive behavior. We do this now with taxes on alcohol and cigarettes, along with fines on selling those items beyond the legal parameters. This may be the most controversial issue of what taxes (and fines) but one must also consider that the use is not just for “sin” taxes but is also the justification behind a carbon tax and other environmental issues. Encouraging, not just people but business interests as well into acting for a Public purpose or not acting against a public purpose is a critical role of a civilization, and taxes are a powerful tool for enforcing that. Also, by adhering to the principle that taxes are not needed to fund the government’s expenditures, means that these sin taxes don’t end up as necessary to fund the government.
  4. When taxes are not driving all expenditures then tax collections can do all of the previous three tasks and help in the redistribution of unequal wealth acquisition. Yes, Robin Hood taxes may not actually redistribute wealth, but it does, at a certain point, force high earners to reconsider whether or not being paid only 30 cents of each dollar earned is a wise way to make more money. Forcing wealthy, highly paid persons to truly push their wealth back into the economy can significantly help to reverse current income trends.

In the next post I will discuss the 5th reason for we need taxes. And that reason is based on politics, not economics.

Modern Money Theory – Part 1 – Not a Theory, It’s a Description

BRADFROMSALEM

We all know that the US collects taxes and then uses those tax dollars to pay for whatever expenditures the US has. We also know that for nearly every single year of this nation’s existence, the taxes, tariffs, fines and fees collected were not enough to pay for those expenses, so the US borrowed money by issuing Treasury notes, to cover the difference. That is the annual deficit. Of course the deficit borrowing gets paid back with interest from taxes, tariffs, fines and fees [TTF&F] or new borrowing as each Treasury note matures.

All pretty well known and nearly universally accepted. Except, it does not represent fiscal reality. That reality is neatly described in an economic philosophy called “Modern Money Theory” [MMT] which posits that since all US Dollars originate from the US government (a legal fact, try to print your own US Dollars!) and all TTF&F must be paid in those same US Dollars. Then as those dollars come back to the Treasury where they were first created, each one of those dollars are effectively destroyed. That means that every dollar spent by the US is created by the Federal Reserve, an agency that was created for that purpose. The amount of money it creates is not in any manner solely dependent upon any part of the TTF&F collected. I suggest obtaining J.D. Alt’s book on Amazon that explains how this all works with simple language and drawings of bathtubs and other plumbing artifacts by clicking here.

But even though the US does not need your tax money to pay its expenditures, it still must collect taxes. In fact there are 5 reasons it needs to levy and collect taxes. I will cover those 4 of those reasons in a blog to be published in the next day or two, followed by a blog covering the 5th reason a day or two after that.

Put Congress on Obamacare

BRADFROMSALEM

Was it Monday or Tuesday that Speaker Ryan released the years in the making, simmered over a low flame fueled by the heat of Republican passion to create the best Health Care plan ever. Apparently, their passion wasn’t quite hot enough, even after 6? years on the stove. What they came up with is an uncooked mess of leftover ideas seasoned by some of the ACA’s key provisions. But worst of all, instead of health care the plate served by Ryan was just another poorly camouflaged tax break for the rich. Just another day at the wonderful Café Republican, whatever they put on the menu, ain’t really there.

Now for my rant. Ever since the Republicans served up their tax plan and called it a Health Care plan, I keep seeing one meme over and over and for good measure over again. They all boil down to “Demand (via useless and ignored online petition) that we get the same Healthcare plan that Congress gets”. And now it’s time for a little story. Back during battles over the ACA, Republican Senator Grassley proposed an amendment that he was certain would be a poison pill for Democrats. The pill required that every member of Congress and their staff, would be required to obtain their Health Insurance on the exchanges. You know, the exchanges that individuals use to select their Health Insurance from. The exchanges that are the primary mechanism by which the ACA makes it easier to sell individual plans at a much lower than cost than before. Unless you got insurance from an employer, you had to buy insurance on your own and it was very, very expensive. The Democrats, for once displayed some backbone and left the amendment in. Now Congress and their staff has to buy their insurance just like everyone else that uses Obamacare. Sure, since they have an employer, the Federal government kicks in a chunk. But I recall that was exactly what my employer did, and most people I know that worked for larger companies or socially responsible smaller ones. By the way their staffers are not paid very much, not more than 50K.  Congresspersons and their staff do not get a special health insurance plan, they get Obamacare.

Why does this irrelevant meme irk me? It’s a waste of anger. Don’t be angry AT your congressperson. Demand they support single payer, which is the only proposal that fixes all of the deficiencies with the ACA. Insisting that Congress and their staff not get an insurance plan similar to the same one that any other person at the same pay level in the private sector gets will just harden Republican and many Democrats resolve to not listen to what or why you are so hard headed about Single Payer.

Be positive, not negative, vindictive or punishing. Push actual change, not reactionary solutions. Please, I only want comments that agree with me. I really don’t need to hear how corrupt politicians are. Let’s start, right now, expecting more from them. We still have enough of a democracy remaining that there is hope. And opportunity for great change, and some opportunities may come from unexpected sources.