Hello,
I understand from 100 USD that the fed prints, it can get back 10 - 90 USD back in taxes. But how can we look at taxes with MMT glasses ? What is the difference if we would leave out taxes, add low taxes on e.g. food and high taxes on e.g. luxury items? What happens to an economy if currency users find new ways to evade taxes with constructions to move e.g. to the Bahamas ?
Posted Jun 29, 2020, 3:26 PM UTC
I understand from 100 USD that the fed prints, it can get back 10 - 90 USD back in taxes
Please clarify - the Treasury 'spends' USD that it 'earns' through taxing and creating bonds. It could tax 100% of the amount that it spends
But how can we look at taxes with MMT glasses ?
Through MMT glasses, the Treasury shouldn't have to 'earn' money through taxes as that causes bad political incentives such as avoiding spending on important projects for fear of needing to increase taxes to 'pay for it'
What is the difference if we would leave out taxes, add low taxes on e.g. food and high taxes on e.g. luxury items?
Food will have a relatively low inflation delta and luxury items will have a relatively high delta
What happens to an economy if currency users find new ways to evade taxes with constructions to move e.g. to the Bahamas ?
It's inflationary depending on the affected sectors
Think of them as Money Reuptake that with different selectivity. As in Selective Serotonin *Reuptake* Inhibitor that removes serotonin from the synaptic cleft.
Why would you want to remove serotonin? Isn't that why we're sad? Well, there's something called serotonin syndrome that's about serotonin toxicity. Evolution has developed negative feedback mechanisms (that are of course imperfect) to reduce this toxicity from happening if for some reason environmental factors were to cause you.
In the case of tax evasion, what if you were your body were to metabolize serotonin and not synthesize it enough? Clearly, something to stimulate endogenous synthesis would be helpful. So you just make more if there's a depression. I do have a problem with tax evasion though. Its a violation and its not fair.
Income taxes are a very important selective Cull back negative feedback automatic stabilizer. Rather than reducing consumption before the purchase or creation of the good, you act on consumption after it is created and someone earns income for selling the good or service. If you do it with consumption taxes, you can discourage the production of the good too much. It also may be culling back demand in areas that are in depression because of lack of incomes. There was no chance that they would ever have inflation or be a source of inflation, yet you remove the little money the area does have from circulation.
With income tax, you remove currency from circulation after the good has been made and purchased in the region where the income is earned. Just like an anti-depressant, this has the proper amount of selectivity to achieve the goals without causing other side effects.
Why do you want to tax luxury items? The rich already basically tax themselves by accepting the higher price of "luxury" items. These are veblen goods and I see the push to reduce the consumption of these expensive goods to stem from a misunderstanding of class. The poor might buy the goods if they were cheaper. In addition, the removal of the money from circulation via consumption taxes might not even discourage consumption all that much. In the case of a UBI dividend being paid pro-cyclically with more consumption tax revenue, I couldn't expect to see consumption decline at all. A lot of that tax revenue would also come directly from credit creation as well which is not removing money but driving people into debt for no reason.
thanks, if I understand right you compare the money flow with a negative feedback system, so, the analogy could work with a temperature feedback system too, e.g. the hotter a room gets, the more air needs to be pushed out of room.
the control unit temperature/serotonin what would be the equivalent in MMT ?
The progressive income tax rates + Job Guarantee wage floor.
Money gets taken out when people earn more of it.
Money gets left in the system when they *dont* get any as income
Money gets put into the system when people don't have jobs (at the highest possible income level w/o competing for private sector employment unless you are raising the wage floor).
Money *stops* going into the system when people get higher paying jobs in the private sector.
Negative feedback.
With the intention of stuff getting made. Social provisioning
Taxes effectively remove money from the money supply e.g. what's available for the private sector to spend. It also ensures demand for money as if you want to buy anything you need to pay some taxes in the countries currency.
If you remove taxes entirely you would remove the need for people to use the states currency. If taxes are to low it can lead to inflation somewhere in the economy.
Say I need to buy food for 50 USD - if gov would not tax it ... does it mean inflation for food would go up? If gov taxes 10% and I pay 55 USD - how would it stop inflation?
And for luxury items, it seems that let's say Russian,Chinese, ... buy these good tax free - what is the result on the economy of raising luxury taxes, and what happens if people are not paying taxes for these goods at all?
The purpose of taxes in a monetary system is to release goods and services for the government to buy.
There is no need to tax anything if the government isn't in the market for buying things.
The horizontal circuit (as private spending is known) is stable in its own right. See http://www.debtdeflation.com/blogs/2012/01/11/guest-post-a-double-entry-view-on-the-keen-circuit-model/
Essentially spending stops when you run out of things to buy at a price you're prepared to pay. In that case savings act like taxation and stop any inflation.