Taxation

March 25, 2019

New School, NYC

Pompeii

The MMT Money Story

• The money story begins with a state desiring to provision itself
• The state levies tax liabilities to create sellers of goods and services
• People seeking paid work are defined as unemployed
• The state purchases desired goods and services to provision itself
• Taxes can then be paid

The Public Purpose of Taxation

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• Taxation functions first, by design, to create unemployment
• Residual unemployment is the evidence that the US government has not spent sufficiently to cover the need to pay taxes and the desire to net save

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Sequencing

• $US to pay taxes or purchase US Treasury securities ultimately come only from the US government through its agents
• Therefore, as a point of logic, the US government necessarily spends first, and then taxes are paid or US Treasury securities purchased
• The US government is not revenue constrained
• The question of US government solvency is inapplicable

Imperatives

• $US spent by the US government will either be:

1. Used to pay taxes and thereby removed

2. Remain outstanding until used to pay taxes

• Taxpayers need the US government’s $US to be able to pay their taxes and to net save $US financial assets.
• The public debt is the $US spent by the US government that have not yet been used to pay taxes.

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Taxation and the Price Level

• The currency is a public monopoly
• Taxation creates sellers of goods and services
• Tax payers need the US government’s $US
• The US government, as sole supplier of those $US, is necessarily “price setter”
• The price level is necessarily a function of prices paid by the US government through its agents when it spends or collateral demanded when it lends

Taxation and Spending Policy

• If prices are rising due to excess US government (net) spending, taxes can be increased or spending cut
• Prices won’t continuously increase if the US government does not pay the higher prices, and instead spends on a price constrained basis.
• This automatically cuts spending until prices return to the prices government is willing to pay

Inflation and Taxation

• Inflation= a continuous increase in the price level
• Inflation is generally “cost push” rather than “demand pull”
• Inflation is often associated with high levels of unemployment indicating the cause is not excess demand
• A policy response that reduces output and employment through taxation and spending cuts is counterproductive
• Policy responses can target specific areas of price increases

Tax Policy Considerations

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• Real compliance costs- record keeping, legal costs, enforcement costs
• Incentives
• Social equity- progressive/regressive

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Transactions Taxes

• Income taxes and sales (value added) taxes
• High compliance costs
• Lost benefits of transactions

1. Specialization of labor

2. Economies of scale

• Regressive

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Corporate Taxes

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• Ultimately passed through to consumers
• Regressive
• Compliance costs

Real Estate Taxes

• Minimal compliance costs
• Can be designed as progressive or regressive
• Discourages non-resident ownership
• Highest acceptability with full employment policy and job guarantee

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Applications

70% Marginal Tax Rate Proposal

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• Does not reduce aggregate demand to create fiscal space
• Increases real compliance costs
• Does not materially alter distribution of income
• Does not alter distribution of consumption
• Delays alternative measures that are materially effective

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Wealth Tax

• A tax on bank deposits is functionally a negative interest rate policy which reduces interest income
• Shifting to a permanent 0% rate policy today would be similar to imposing a 2.5% wealth tax that would phase in as financial assets matured and new ones were created
• Compliance costs of a 0% rate policy are near zero
• Compliance costs of a wealth tax include legal and accounting costs, as well as costs of avoiding the tax

Financial Transactions Tax

• Works to reduce the volume of financial transactions
• The transactions to be reduced need to be targeted
• Compliance problematic for transactions executed via derivative products and for those outside of US jurisdiction
• The ultimate tax payers include individuals invested in pension funds and personal retirement accounts
• Over time a financial transactions tax could reduce aggregate demand and create some fiscal space

Estate Tax

• Does not materially reduce aggregate demand to create fiscal space
• The sole public purpose is social equity
• Compliance costs include the creation of legal structures and other costs of efforts to avoid the tax

My Personal Tax Related Proposals

• Implement a federal real estate tax and job guarantee
• Eliminate personal and corporate income taxes
• Eliminate sales taxes
• Saves up to 15% of GDP in compliance costs
• Can be progressive
• Dampens real estate development and associated resource consumption
• Discourages non-resident ownership

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Additional Proposals

• Campaign finance reform- unrestricted contributions, however, say, 40% goes to the opposition
• Narrow banking to that which serves public purpose
• Medicare for all which increases fiscal space as it puts downward pressure on prices to help “pay for” the GND
• Stephanie Kelton for President
• More at www.moslereconomics.com