Friday, January 6, 2017

L. Randall Wray on Taxes

L. Randall Wray, an MMT economist, gives a very interesting perspective on taxes:

Certainly raising taxes in the midst of a depression, recession or period of weak aggregate demand and large-scale unemployment is a bad idea. But it is fascinating indeed to hear L. Randall Wray give the left heterodox case for lowering corporate taxes and payroll taxes. If I am not mistaken, some of these ideas on taxes discussed here are derived from the thinking of Hyman Minsky.

While this is not quite an endorsement of Trump’s tax policies, there is at least a left heterodox case for tax cuts and a reformed tax system, which shifts the burden of taxes to certain types of income tax, property tax, financial transactions, banks, and other anti-social behaviour. Cuts to corporate taxes, if properly done, could be part of broader industrial policy to shift manufacturing back to the United States, and to other Western nations.

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  1. I agree with the hut tax, but I'm not sure about the corporation tax. For me you want to get rid of personal variable taxation completely and put it all on corporations. After all they collect it at the moment, so they should just calculate it as well.

    The reason is that corporations don't vote and once you have a job guarantee and an operational public sector the 'jobs will be lost' argument goes out of the window.

    The right loves personal taxation because they can use the 'taxes are going to go up' line to stop any progress. Individuals get hit directly. The left should want rid of taxes individuals get to see.

    If the corporations calculate the taxes and can never show them to the individuals then the slowdown impact of the taxation only shows up in slowdown of hiring/expansion or shifts to and from the Job Guarantee.

    You still need variable taxes, I think, to act as an auto-stabiliser on the business cycle.

    1. Not sure that would work either Neil, being a sole director I would pay myself a maximum possible wage to pay zero corporation tax, I would myself would pay zero tax. People live in society therefore people need to pay the tax.

    2. "Not sure that would work either Neil, being a sole director I would pay myself a maximum possible wage to pay zero corporation tax"

      You're the sole shareholder as well which allows you to do that - so you really just earned an outsourced wage from your clients. Most companies are not sole shareholders/sole director combos/

      Companies pay the tax in return for the limited liability they enjoy.

      As Randy says, and MMT shows, tax has nothing to do with society. It is just a necessary reclaim of prior government spending to avoid inflation.

  2. Kaldor made the same case against corporate taxes which he saw as just a tax that was passed onto consumers -- essentially making it a form of VAT or sales tax which is highly regressive.

    Early chartalist Beardsley Ruml made the same case:

    1. "Kaldor made the same case against corporate taxes which he saw as just a tax that was passed onto consumers"

      And income tax is just a consumer tax that is passed onto corporations in the form of higher wages.

      That's because the spending cycle is a cycle, and whichever point in the flow you tap for taxation is a cost to the rest of the cycle. That's sort of the point.

  3. I'm not expecting you to post this LK, but would you care to do a post about the pre-Brexit hysteria from Remainers being proven unjustified now?

    This is a HUGE admission - basically an intellectual self-immolation, as I see it.
    As a recent migrant to the UK pre-referendum the amount of left-liberal/neoliberal/we-can't-not-be-part-of-the-EU-just-because style thinking was aggravating in the extreme.

    It is great that the regressives over at The Grauniad have finally acknowledged SOMETHING they got wrong; this was, in fact, their lead story last night when I checked!

    I'd love to hear your thoughts on the past six months post-vote: FTSE at all time highs, steady growth, no punishment budget contra-Remain promises, less than expected GBP decline etc etc seem to indicate that, as expected, Project Fear was a complete fraud.

    Cheers! And happy new year

  4. Not sure if it was Ellis Winningham, but someone pointed out that lowering taxes won't do anything since it's actually the cheap labor that's drawing them overseas. If I come across who said that, I'll post the quote.

  5. My understanding was that corporate taxes are just passed on to workers in the form of lower wages. Is the left still making the case for high-business tax? Well, what is the case for that in the first place?

    My opinion is always to keep taxes on lower and middle class wages low and then sharply raise the marginal rates, perhaps with some other taxes on undesirable behaviours.

    The laffer-curve always seemed like propaganda to me.

    1. The Laffer Curve seems to oppose higher taxes AFAICS:

      But what should be understood is that the level of taxation =/= Government revenue. Congress literally "spends money into existence." It's all laid out nicely here:

    2. Even if MMT is theoretically true, how much new money could be put into circulation before inflation kicked in? Wouldn't it have an effect on the exchange rate, which would also have implications for international trade?

      I'm no gold bug but I still believe we should be cautious with MMT, and generate most government revenue through taxation.

    3. MMT isn't "Theoretically True," it's merely descriptive of how things are done.

      Taxation is how the government "removes" money from the economy, so the problem of inflation is already mitigated. Although the whole Money Supply Theory of Inflation is actually considered wack.

      The Government already does pay for things in this way: Congress writes a spending bill. That's it. New money is "spent" into existence. The US has been doing it for over 40 years now.

      Here's a good place to start learning. I just joined today to try and get a handle on all of this myself:

  6. Flat taxes certainly don't have to conflict with a social democratic set up. Scandinavia uses higher but flatter taxes to fund robust and generous public service that are beneficial to all.

  7. On the one hand, the Job Guarantee seems like a great idea. I'm certainly attracted to the notion of the Government helping you find work - or even creating work for you - based on your talents & abilities.

    OTOH, I wonder what happens when we institute a policy of full employment and start scraping the bottom of the barrell trying to find places to put people - where do Earth-friendly considerations come into play?

    Something like this:

    ...which is generally opposed by Progressive seeking more Environmentally sound energy options could gain a lot of traction - or more so than it already has - if we're bent on getting as many people working as possible?

    "What? You're against people being able to earn a living, you Commie~!" ;-)

    Of course, that argument is milked by the greedy Corporations now. But someone needs to address what guarantee we'll have that under a Universal JG policy, it won't become even more difficult to defend the planet we live on.

    1. That's why we need a Green Job Program!

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