Surely we must pay more taxes!?

Mollygo

Do share your knowledge about that MaizieD since you obviously already know and therefore need no explanation.

Of course I know where the nation's money comes from. I've posted the information many times over the past few years in the hope that a few people might take an interest.

I don't have time to go into detail yet again but I will later on...

In the meantime, GG13 knows 😂

GrannyGravy13

I am politically opposite to MaizieD but I am in agreement when it comes to the economy.

Taxes do not fund spending.

The government cannot owe money to itself.

The economy of a country is nothing like the budget of a household.

It’s not about owing money to itself it’s about controlling the economy

I can't speak for anyone else, but I don't really want links to theory, or to answer abstract questions about where money comes from - I would prefer answers to more basic questions, such as why, when taxation is so unpopular, does every government of every stripe impose it on its voters if we could have all the things it supposedly doesn't pay for without it?

I understand that there isn't a 'public piggy bank' from which public services are paid, but tax is still a form of collective spending - whether that is on paying the heating bill on a public library in Hometown or on paying interest on loans that pay the bill via a circuitous route.

Either way, unless defence, education, the NHS etc are somehow free (in which case why do some countries not provide them?) then the cost of having them should be shared.

I can't speak for anyone else, but I don't really want links to theory, or to answer abstract questions about where money comes from - I would prefer answers to more basic questions, such as why, when taxation is so unpopular, does every government of every stripe impose it on its voters if we could have all the things it supposedly doesn't pay for without it?

The problem is, Doodledog that I am not linking you to theory, I am telling you a fact.

If you don't understand the fact of where the country' money comes from than you can't understand about taxation when taxation is of fundamental importance to not only the government's management of the economy but also is a means, if the government so wishes, of ensuring a fairer distribution of the country's wealth.

Any 'theory' concerns how the state manages the money, not where the money originates.

Economic Theory is just a way for the elite to justify their own existence. The simple reality is that if taxation does not equal public spending the government has to borrow more.

The only case for borrowing more is to improve the economic output - increase exports or reduce imports, the UK has done neither for decades.

MaizieD

^I can't speak for anyone else, but I don't really want links to theory, or to answer abstract questions about where money comes from - I would prefer answers to more basic questions, such as why, when taxation is so unpopular, does every government of every stripe impose it on its voters if we could have all the things it supposedly doesn't pay for without it?^

The problem is, Doodledog that I am not linking you to theory, I am telling you a fact.

If you don't understand the fact of where the country' money comes from than you can't understand about taxation when taxation is of fundamental importance to not only the government's management of the economy but also is a means, if the government so wishes, of ensuring a fairer distribution of the country's wealth.

Any 'theory' concerns how the state manages the money, not where the money originates.

While you believe there is room for significant government spending without triggering inflation MaizieD, others see this as a risk, particularly if the increase in money supply is not matched by increase in production. Most - because there are always more at the centre than any extreme - believe the truth lies in balancing spending with economic output, ensuring inflation remains in check.

My concern would be how you use your belief, your unwavering conviction in MMT, in discussion. It becomes dogmatism when everyone wanting to discuss other economic views are told they are wrong; that your theory is the one and only truth.

Holding an opinion should allow us to adapt, question and discuss. If should allow us to be open to change. Absolute belief entails a rigid adherence to the theory regardless of new evidence or reconsideration. GN is surely a place for the discussion not dogma?

PoliticsNerd I have just had a very quick google and cannot see any link between the government paying 80% of people’s salaries for them to stay at home during the pandemic from created money and an increase in inflation.

If the government injects created money into the country via infrastructure projects, job creations in the public sector etc., more people will be employed.

More people in employment, more money is spent in shops, hospitality, travel etc., thereby creating more jobs.

All of these will be taxed (both salaries and the majority of spending via VAT) therefore the created money is returned from whence it came.

I appreciate that my explanation is simplistic, but that’s as much as I can muster at the moment (confined to barracks and spending far too much time in GN)

If you are talking in facts, why do economists have different theories?

Like Historians, Sociologists, Politicians and others, theories are about perspectives, not facts. I don't know enough about Economics to know which theory has which perspective, but in general Social Science terms, Marxists see everything through the prism of the Bourgeoisie exploiting the Proletariat, Feminists look at how Patriarchy drives policy etc - both (and others) use facts, but select them to fit the overall perspective.

And I do understand - please don't patronise me.

“All of these will be taxed (both salaries and the majority of spending via VAT) therefore the created money is returned from whence it came.”

That is the trickledown theory and it doesn’t work because so much of our spending is not taxed sufficiently. Rent Mortgages, Food, etc etc etc, is not taxed and accounts for a very large part of consumer spending.
When times are hard consumers save, which is the case today, their cash is not contributing to the economy, only the interest is taxed. Even high income consumers don’t pay a great deal of sales tax

Well said, PoliticsNerd.

PoliticsNerd

MaizieD

I can't speak for anyone else, but I don't really want links to theory, or to answer abstract questions about where money comes from - I would prefer answers to more basic questions, such as why, when taxation is so unpopular, does every government of every stripe impose it on its voters if we could have all the things it supposedly doesn't pay for without it?

The problem is, Doodledog that I am not linking you to theory, I am telling you a fact.

If you don't understand the fact of where the country' money comes from than you can't understand about taxation when taxation is of fundamental importance to not only the government's management of the economy but also is a means, if the government so wishes, of ensuring a fairer distribution of the country's wealth.

Any 'theory' concerns how the state manages the money, not where the money originates.

While you believe there is room for significant government spending without triggering inflation MaizieD, others see this as a risk, particularly if the increase in money supply is not matched by increase in production. Most - because there are always more at the centre than any extreme - believe the truth lies in balancing spending with economic output, ensuring inflation remains in check.

My concern would be how you use your belief, your unwavering conviction in MMT, in discussion. It becomes dogmatism when everyone wanting to discuss other economic views are told they are wrong; that your theory is the one and only truth.

Holding an opinion should allow us to adapt, question and discuss. If should allow us to be open to change. Absolute belief entails a rigid adherence to the theory regardless of new evidence or reconsideration. GN is surely a place for the discussion not dogma?

Bits to unpick in your response, PN.

Firstly, this current non discussion arose from a complaint by a poster stating that the government saw the 'taxpayer' as a source of income. This way of thinking about the government and taxation is completely out of line with fact. Not only that, but believing that our taxes pay for government engenders all sorts of resentments and misunderstandings.

I don't see how one can have any rational discussion about taxation and government spending until the source of our money is established. It would be even better if the role of money in a political economy could be established, too, but that's probably too much to ask.

The establishment of the source of a county's money has nothing to do with MMT.

Holding an opinion should allow us to adapt, question and discuss. If should allow us to be open to change.

What on earth do you think I have done to reach the conclusions that I have? I didn't 'believe' the MMT case initially. Like everyone else I have been constantly told that government is funded by taxes. So I did some research. Read round the topic. Read economists, looked at economic research and exercised my judgement on the topic.

Whatever I have posted in the past I have backed up with links to the evidence that supports what I am saying. I think the work of that those who live by and study the subject has more validity than the 'opinions' given on a general forum.

What I have never encountered, despite continually asking, is an evidence informed debate.

GN is surely a place for the discussion not dogma? Such an ironic statement.

All I get in return for evidence is dogma! That's a pretty flimsy base for changing views... I think I try to set out a logical case for what I am saying. I'm happy to be countered with logic and evidence, but not with dogma.

That is the trickledown theory

That is not trickle down theory, David. Trickle down theory is that cutting taxes for the wealthy will get them to spend more and to set up more businesses to employ people so that their wealth will 'trickle down' to the rest of the population.

Trickle-down economic theory states that benefits for the wealthy trickle down to everyone else in the economy. These benefits for the wealthy include tax cuts for dividends, capital gains, high-income earners, and businesses.

A critique⬇

www.economicsonline.co.uk/definitions/trickle-down-economics-why-it-only-works-in-theory.html/

It would help if people didn't make up their own versions of established theories.

Maizie you are dodging the issue, if the government does not receive enough income through taxation how is it supposed to pay for public services unless it borrows/creates more money?.

The UK has already borrowed close to 100% of GDP are you saying it should borrow more.

I'm not dodging the issue, David, I am trying to establish a very basic FACT.

Then we can look at the validity or not of your statement.

Here is an explanation of MMT from the web I agree with it!.

Modern monetary theory is a heterodox economic theory which states governments should not worry about government borrowing but be willing to aim for full employment. Full employment should be achieved through expansionary fiscal policy and financed by creating money.

MMT argues the only limit of higher government borrowing is the effect on inflation. Thus if the economy is depressed with unused resources, the government should immediately create jobs through creating money to finance extra government spending.

++The UK is not using many resources that it could, instead importing far more than it needs to++

As the economy gets close to full capacity and inflationary pressures start to rise, the government should increase taxes to take excess money out of the circular flow and thereby reduce the budget deficit.

++We have had full employment for many years migrant labour has been filling many jobs++

MMT argues the only limit of higher government borrowing is the effect on inflation. Thus if the economy is depressed with unused resources, the government should immediately create jobs through creating money to finance extra government spending.

++Agreed, but it hasnt happened for decades++

As the economy gets close to full capacity and inflationary pressures start to rise, the government should increase taxes to take excess money out of the circular flow and thereby reduce the budget deficit.

++Agreed, that’s what Reeves is doing++

MMT only works when the economy is expanding faster than inflation, successive governments have been ignoring MMT for many years seeking short term fixes to attract votes. Most of the debt has been spent expanding public services not expanding the economy.

I don't need an anonymous article on some anonymous person's interpretation of MMT, thank you, David. It tells me absolutely nothing. I'll bite, though.. but not at the moment

(perhaps you could give a link to it, though)

MaizieD

I don't need an anonymous article on some anonymous person's interpretation of MMT, thank you, David. It tells me absolutely nothing. I'll bite, though.. but not at the moment

(perhaps you could give a link to it, though)

No problem with a link
www.economicshelp.org/blog/162341/economics/modern-monetary-theory-mmt-explained/

You may or may not agree, it seemed a straightforward explanation that most would understand.

What stands out to me is that the emphasis is creating money to expand the economy, that is precisely what successive governments have not been doing, ever since Thatcher, more so since 2008 borrowing/creation has increased to expand public services, not expand the economy.

As I said I agree with Keynes and MMT it hasn’t been applied buy government.

Well, what David has posted is not a million miles from how I feel. We can't have a society in which more people are taking out than putting in. However much we might all feel we should be able to 'choose' how we live and be supported in doing so, the basis of that choice has to be funded, and the more people who fund it, the more there is to go round. It is fundamentally unfair that some can 'choose' to opt out and expect others to pay for their choice of lifestyle.

Going back to the OP's topic, in last weekend's Economist there was an article called "The new inheritocracy" with the sub-heading of "Inheriting is becoming nearly as important as working. That is dangerous for capitalism and society."

This should, I believe, be the driver towards reviewing our tax system and closing down loopholes that cut IHT.

The article comments ".... taxes are so unpopular that, instead of enforcing them, governments have introduced loophole after loophole, raised the threshold at which they apply, or dismantled them altogether."

It comments that "More worrying still is how an underclass of non-beneficiaries is becoming increasingly left behind—and increasingly disaffected. If property becomes ever harder to buy, and a comfortable life harder to achieve, the incentive of young, aspirational workers to strive will be blunted."

I would also add that we see large numbers of young people people, leaving school, college or university and not going into that first job. It's so much easier than it once was. If Gran has left Mum and Dad a large nest egg they are in a position for children not to move out. This may not be us explicitly but, with more than 850,000 youngsters not in education or employment in UK, this may be part of the reason why.

I pretty much agree with that article, in addition one extra problem is that our generation is living too long, which means our children are already retired before any cash is passed on. It would be better for the economy if much more was passed on sooner.

Going back to the OP's topic, in last weekend's Economist there was an article called "The new inheritocracy" with the sub-heading of "Inheriting is becoming nearly as important as working. That is dangerous for capitalism and society."

Well, that is one thing, among others, that Pikety points out in his massive and extensively researched book, ‘Capital in the 21st Century’ as leading to the concentration of wealth in the upper percentiles of the population. As the Economist points out, this is dangerous for capitalism, when ‘capital’ is commonly thought of as money invested in productive plant and machinery. This is because, Pikety found, the wealth is less likely to be invested in productive industry, preference being given to equities, bonds and rentier assets such as land and property. This inhibits productive growth in an economy.

It is, of course, dangerous for society because a wealth distribution in which fewer members get most of the wealth leaves the ‘have nots’ open to manipulative populists and the possibility of revolution. You only have to look at the situation which led to the rise of Trump, and Brexit. Brexit being as much a product of relative poverty and flattening monetary reward for employees as it was for dissatisfaction with the EU.

As I pointed out a few days ago, Pikety found that the greatest moves towards more equable distribution of wealth came in the 3 decades post WW2 when there was very high taxation of wealth and inheritance in economies which followed Keynesian economics. Most noticeably the US and the UK.

The abandonment of Keynesianism for Hayek and Friedman’s market based, small state economic theories in the 1980s has seen a reversal of this. These theories have become the ‘orthodoxy’ which people defend when I post…

It cheers me to see people sympathetic to the need for more equable distribution, even if they criticise my adherence to MMT.

Thanks for the link, David. I’ll try the same exercise as you.

Modern monetary theory is a heterodox economic theory which states governments should not worry about government borrowing but be willing to aim for full employment. Full employment should be achieved through expansionary fiscal policy and financed by creating money.

That is an incorrect and incomplete interpretation. The interpretation, crucially, doesn’t identify the very basic element of MMT, which is that it is a description of the source of money in a country with a sovereign currency . Having identified the source it then describes how the money gets from its source into the economy.
This first paragraph doesn’t mention that at all.

All this paragraph describes, not particularly accurately, is how the basic knowledge can be used to drive a particular policy. In fact, on reflection, I think that it is a completely muddled understanding of MMT ‘s insights into government ‘borrowing’. That ‘borrowing is a misnomer in that the government, with its power to create and issue its sovereign currency has no need to borrow any money at all. That far from ‘borrowing’ it is, by the issue of bonds and provision of savings accounts, it is providing a safe facility for investing personal and institutional funds. Payment of interest at a fixed rate is guaranteed, as is full repayment of the principal invested either on demand or after a fixed term. Investment in any other instruments always has risk attached. The ‘national debt’, which is calculated on the extent of ‘borrowing’ represents the amount of money the government has issued into the economy which has not been taxed back. But as this is money which people have put by for future use , if it were to be repaid what would people and institutions do with the money they received?

MMT argues the only limit of higher government borrowing is the effect on inflation. Thus if the economy is depressed with unused resources, the government should immediately create jobs through creating money to finance extra government spending.

As this is basically Keynesianism I can’t see a problem with it.

As the economy gets close to full capacity and inflationary pressures start to rise, the government should increase taxes to take excess money out of the circular flow and thereby reduce the budget deficit.

The bit about reducing the deficit isn’t really anything to do with taxing to control inflation. And as inflation has more than one cause it should be stressed that taxation will only control inflation caused by insufficient resources available to purchase. It can’t do anything about inflation caused by pricing shocks, such as OPEC’s oil price rises in the 1970s, or increased interest rates.

MMT argues the traditional view of government borrowing is a mistake. It is not really ‘borrowing’ like a household but the government is ‘borrowing’ using its own debt instruments.

I’m mystified by this statement. No, it isn’t ‘borrowing’ as in a household or business. But the bit about ‘its own debt instruments’ is obscure.
What is interesting is that government bonds, issued at a set price can be subject to secondary trading (i.e speculation) and subsequently sold at a higher or lower price.

Some MMT theorists argue that bond issuance is unnecessary as it is just a hangover from gold standard days. They propose a straight government savings account would do the job.

MMT is a controversial economic theory, criticised for ignoring effects of crowding out

‘Crowding out’ is the market economists belief that government spending depletes the resources available to private enterprises. I’m not altogether sure of its validity as government spending always involves spending with private enterprises, but I suppose there may be occasions when they are both competing for the same resources. I just can’t think of an example.

‘^inflationary pressures^

I’ve already covered this I think.

and unrealistic world view.

Now that’s a nice unevidenced sweeping statement 😆

It has become more significant since the financial crisis of 2008 and 2020 have necessited very high levels of government borrowing to deal with falls in economic output.

Someone can’t spell ‘necessitated’..
QE was a sleight of hand operation whereby the BoE bought bonds with newly created money in order to put money into the economy to keep it afloat. The created money was recorded as having been lent to the government. As the BoE is owned by the state and created the money on the orders of the government it really does look like the government owing itself that money.. Which is absurd…

(When MMT talk about government – it includes *government and Central Bank acting as one.)^

See previous point. QED…

I shall leave this to those who keep returning to rather pharisaic posting.

Hmmm. Self satisfied and hypocritical?

What a charmer you are, PN

PoliticsNerd

I shall leave this to those who keep returning to rather pharisaic posting.

wow I haven't seen that word used on here before...