I am confused you are promoting MMT which puts masses of money under the control of politicians but at the same time you are going to great lengths to point out the deficiencies of these same politicians.
The pay4 scam is so obvious. Alas, because both sides of the aisle play this hoax, voters and the MSM, never get woke to the fiscal gaslight.
In my over 4 decade of government service, I observed that it is often the budget-neutral or even positive bills that are the ones with the most unintended fiscal consequences. I recall several decades ago over dinner one night a senior congressman boasted to me that he was introducing a bill to require the Navy to provide access to private sector salvagers prior to using the hulls for artificial reefs. "Navy is sinking billions every year in re-usable equipment." he said.
I explained that this was not waste because Congress required that every piece removed from a retired ship had to be accounted for individually, in triplicate, and sometimes had to be removed at government expense. Thus, it was cheaper to sink it all rather than remove old useable parts and equipment.
His bill would NOT have saved billions; it would have cost billions. Thanks to that dinner conversation, the older law was amended to allow the salvage to occur paperwork-free. Close call, but it shows how pay4 has no bearing on costs.
You wrote: "the purpose of the tax is... to help us rebalance the distribution of wealth."
The idea that we need to tax in order to redistribute wealth relies on zero-sum "Household Budget" thinking. To redistribute, you must take from one person to give to another. But, as MMT folk constantly point out, that's not how taxes work. The redistributive view of taxes on high incomes or wealth also obscures the more equitable purpose for such taxes, which is not to offset inflation, but rather to discourage and offset the rent-seeking which produces high levels of unearned income.
The very rich are different from normal folk not only in that they spend much less of their wealth on consumption, but also in that a much higher portion of their income and wealth is derived from economic rent. Thus, while the offsetting of inflation may be the primary motivation for taxing normal people, the grounds for taxing the rich are two-fold: 1) Inflation offset, and 2) rent-recovery.
As Andrew Carnegie once wrote: "Where wealth accrues honorably, the people are always silent partners." Some taxes on great wealth or income should be intended to discourage the already wealthy from using their positions of advantage to take too much of the people's share. Such taxes should be motivated by equity, not either redistribution or inflation.
As we don't need to tax in order to raise revenue, but we do wish to fight inequality, should we link taxes to inequality? That might look something like this:
As per capita income is roughly $36,000/year and the GINI coefficient for the U.S. is about 0.45, I think that would look like:
A person making $36,000/year or less paying $0 in taxes
A person making $50,000/year paying $6,300 for a12.6% effective rate
A person making $100,000/year paying $28,800 for a 28.8% effective rate
A person making $1,000,000/year paying $433,800 for a 43.4% effective rate
An advantage of this approach is that it makes income taxes very easy to compute. If we wanted to make this approach stronger, we tax all income generated from work and capital at the same rate - this would help put the tax prep industry out of business.
Another “Lens” from which to view these issues is to start with the most fundamental of fundamentals for any going concern, and that is, what is the purpose of our government? Without an agreed upon purpose, economic debate becomes a waste of time. I suggest that we use the one found in the Preamble to the Constitution and then contemporize it a bit to reflect what’s been learned since it’s ratification. For example, to paraphrase Alexander Hamilton’s summary of the Preamble, our government’s purpose should be to abolish the oligarchs and unite for the general welfare using best practice-based solutions. In other words, we need to first agree what our government should be doing and then figure out what is the best way to get it done. MMT can give us the justification and strategy for investing in a role model public education system, a role model healthcare system, and role model management of all of our other commons (for e.g., our parks, police, military, and myriad infrastructures). There are no good reasons why we cannot do this, just a bunch of bad ones.
Thank you to Stephanie Kelton, once again, for giving me another perspective of MMT and the issues that confront our nation.
Finally a model that makes logical sense!!
I am confused you are promoting MMT which puts masses of money under the control of politicians but at the same time you are going to great lengths to point out the deficiencies of these same politicians.
Where is the logic?
Sublimely written per usual. Thank you, Prof. Kelton.
Thanks for the great post! (I think you've misspelled the word 'winning' in the sub-head)
The pay4 scam is so obvious. Alas, because both sides of the aisle play this hoax, voters and the MSM, never get woke to the fiscal gaslight.
In my over 4 decade of government service, I observed that it is often the budget-neutral or even positive bills that are the ones with the most unintended fiscal consequences. I recall several decades ago over dinner one night a senior congressman boasted to me that he was introducing a bill to require the Navy to provide access to private sector salvagers prior to using the hulls for artificial reefs. "Navy is sinking billions every year in re-usable equipment." he said.
I explained that this was not waste because Congress required that every piece removed from a retired ship had to be accounted for individually, in triplicate, and sometimes had to be removed at government expense. Thus, it was cheaper to sink it all rather than remove old useable parts and equipment.
His bill would NOT have saved billions; it would have cost billions. Thanks to that dinner conversation, the older law was amended to allow the salvage to occur paperwork-free. Close call, but it shows how pay4 has no bearing on costs.
You wrote: "the purpose of the tax is... to help us rebalance the distribution of wealth."
The idea that we need to tax in order to redistribute wealth relies on zero-sum "Household Budget" thinking. To redistribute, you must take from one person to give to another. But, as MMT folk constantly point out, that's not how taxes work. The redistributive view of taxes on high incomes or wealth also obscures the more equitable purpose for such taxes, which is not to offset inflation, but rather to discourage and offset the rent-seeking which produces high levels of unearned income.
The very rich are different from normal folk not only in that they spend much less of their wealth on consumption, but also in that a much higher portion of their income and wealth is derived from economic rent. Thus, while the offsetting of inflation may be the primary motivation for taxing normal people, the grounds for taxing the rich are two-fold: 1) Inflation offset, and 2) rent-recovery.
As Andrew Carnegie once wrote: "Where wealth accrues honorably, the people are always silent partners." Some taxes on great wealth or income should be intended to discourage the already wealthy from using their positions of advantage to take too much of the people's share. Such taxes should be motivated by equity, not either redistribution or inflation.
As we don't need to tax in order to raise revenue, but we do wish to fight inequality, should we link taxes to inequality? That might look something like this:
[Your Income]-[Per Capita Income]xGINI Coefficient
As per capita income is roughly $36,000/year and the GINI coefficient for the U.S. is about 0.45, I think that would look like:
A person making $36,000/year or less paying $0 in taxes
A person making $50,000/year paying $6,300 for a12.6% effective rate
A person making $100,000/year paying $28,800 for a 28.8% effective rate
A person making $1,000,000/year paying $433,800 for a 43.4% effective rate
An advantage of this approach is that it makes income taxes very easy to compute. If we wanted to make this approach stronger, we tax all income generated from work and capital at the same rate - this would help put the tax prep industry out of business.
Another “Lens” from which to view these issues is to start with the most fundamental of fundamentals for any going concern, and that is, what is the purpose of our government? Without an agreed upon purpose, economic debate becomes a waste of time. I suggest that we use the one found in the Preamble to the Constitution and then contemporize it a bit to reflect what’s been learned since it’s ratification. For example, to paraphrase Alexander Hamilton’s summary of the Preamble, our government’s purpose should be to abolish the oligarchs and unite for the general welfare using best practice-based solutions. In other words, we need to first agree what our government should be doing and then figure out what is the best way to get it done. MMT can give us the justification and strategy for investing in a role model public education system, a role model healthcare system, and role model management of all of our other commons (for e.g., our parks, police, military, and myriad infrastructures). There are no good reasons why we cannot do this, just a bunch of bad ones.
Thank you to Stephanie Kelton, once again, for giving me another perspective of MMT and the issues that confront our nation.