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Tax Research UK Blog is written by Richard Murphy unless otherwise stated and published by Tax Research LLP under a Creative Commons Attribution-NonCommercial 3.0 Unported License.
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But what about Local Government budgets, they depend on local charges and Central Government largesse, don’t they? They are not issuers of a FIAT currency.
True
But precisely because you had to say local government you created a different category
The distinction between the central government and local governments with respect to their abilities to self-finance their spending is probably clearer here in the U.S. than in the U.K. State and municipal governments are currency users, not currency issuers. They have to accumulate funds via taxation, fees or borrowing before they can spend. So they are more like households than they are to the federal government. This manifests itself in legal form as provisions in almost all state constitutions to pass balanced budgets.
State and local government budgets in the U.S. are in the first stage of getting decimated by the COVID-19/Trump economic crisis. Income and sales tax revenues collapsing. Rents which support property tax payments not collectible. Public hospital and Medicaid expenses soaring.
What to do? Some measures would require no big intellectual leap; some would.
First, have the federal government absorb state and local governments’ shares of the means-tested programs Medicaid and Supplemental Security Income (SSI).
Second, acknowledge that Richard Nixon was right about some things and reinstitute Revenue Sharing.
Third, explore ways for state governments to take advantage of the federal government’s monetary sovereignty and currency-creating capacity. In the Great Depression, certain state and local governments issued scrip for purchases which they then accepted back in payment of taxes. Mixed results, to be sure, but we can learn from history.
In addition, legal scholar Robert Hockett, in his columns on Forbes.com, has been urging state governments to take advantage of the Federal Reserve’s Municipal Liquidity Facility (MLF) — what he calls Quantitative Easing for Communities (“Community QE”). Legislation has been introduced in the New York state Assembly to this effect.
https://www.forbes.com/sites/rhockett/2020/05/24/what-now-to-make-of-community-qelook-to-new-york/#699e10e7e466
Thanks for this
An excellent article on an issue of which i was unaware – and which I really appreciated reading
Please tell that to the BBC, who are by far the worst at promoting the myth.
Seriously, its not going to hit home until its repeated and repeated.
Speaking as a semi-retired schoolmaster, I think this is an excellent exercise!
Keeping with the American theme, perhaps this might be an interesting look at how MMT is being received and debated by some of our friends on the other side of the pond:
https://mronline.org/2019/05/02/modern-monetary-theory-mmt-a-response-to-henwood/
I’ll read it