The FT has an article this morning entitled 'The case for taxing the rich more'.
It has to be said that the article did not make that case. It is a rambling discussion around a disjointed set of observations that the FT says is meant to fuel debate. But if it was meant to do that then it should discuss the best reason for taxing the rich more. And that is because they are rich.
I stress that I am not saying that we should tax the rich because we need their money. That, we now know, is not necessarily true. Rather, I am saying that the fact that we have a small number (in proportionate terms) of very wealthy people is in itself a problem for the health of our society and economy.
Let me list the problems. First, wealth grows exponentially. Income from work does not. We have a society now designed to become more unequal.
This is problematic. By definition the wealthy do not so end all their income. As they capture a growing part of national income this means the return to those who really work will decline due to the negative multiplier effects of saving.
And the wealthy save, but do not invest. Savings guarantee that they do not lose their wealth status. Risky investments might. And since status is what really matters to the wealthy a supposedly wealthy economy is bad for innovation.
Then there is is the problem that having a wealthy elite who save creates: they seek to extract more and more rent as a result. One way we see this is in property rents, and their increase. These rents add nothing to the true wealth of society. For most they represent an oppressive burden. They are the inevitable consequence of excessive wealth seeking a return from those who work.
Add to all this the fact that there is a denial of capital to those who need it, meaning there are failed markets due to the inability of many to enter them.
Remember too that poverty is relative, but that hidden impact becomes real when rents extract any apparent gains those working make, as effectively (or more so) than any tax might do.
Wealth is, in that case, a problem in itself. Excess wealth stifles a society. Ignore all the arguments on how we get here and why for a moment, and I on the justice or injustice of it (which is not to dismiss those arguments; but just to ignore them for now) and the case for taxing excessive wealth exists in any case, and is purely economic. We need to do so because excessive wealth, matched by increasing wealth inequality, stifles an economy and the wellbeing of all within it.
Redistribution through tax makes sense in that case.
The FT article did not say that. It should have done.
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You are quite right that the wealthy do not spend and tend to save a lot. Presumably, then, if inflation arises MMT dictates that there would be no point in increasing taxes on the wealthy to try and curb inflation. MMT would require raising taxes on those earning less as they tend to spend more if controlling inflation is the purpose. Have I got that right?
There would still be real ppo9nt
When so much household spending is on rent measures that tackle rents could make a big difference
So, you have that wrong
But I would guess that rent mainly goes into savings or to pay a mortgage and so has a small multiplier.
Both are saving
They have negative multiplier effects
By negative multiplier you mean less than one? Which means with respect to Kristian’s comment, they might be right, i.e. if you wanted to control inflation via taxation, taxing the rich won’t help. That doesn’t negate the principle point of your article, that there is an economic argument for taxing the rich, which means resources are put to better use.
I was referring to saving
Very clear – and as expressed, should be blindingly obvious to all and sundry. Very much chimes with Picketty.
The ever increasing share of rent and unearned income choking off wages and investmet would be a powerful vision – a true and easy sell politically?
It is the extraction of rent that drives the growth of the wealthy’s money.
So reducing the wealth through taxation will help. If the idiots who run our economies think it’s just about dividing and allocating what money there is, tax has is the best way to redistribute to reduce inequality. But god old fashioned pay rises and more generous benefits should be there too.
But I’m also interested in taking their money in order to ensure that it does not go into funding undemocratic ideas, weird ‘think tanks’ and other dirty tricks.
I’d also be pleased to see the wealthy taxed more during QE (of which they seem to be net beneficiaries) and also during MMT investment cycles (if they ever come to pass) to ensure that they are no over benefiting from investment.
Am I right in thinking income from rent is counted as part of the calculations to determine GDP? As though it was like an income from selling goods? It seems to me it should be counted as a transfer of wealth, not an addition to it. But I might just be speaking from ignorance.
Rent is in GDP
It is a reason why labour in gdp is going down
The obvious reason to tax the wealthy is that they have the money to pay it. As things stand, we have a tax system that favours investment income and capital gains over earned income, and does not tax wealth adequately. Wealth inequality is greater than income inequality, and the tax system does little to address either: indeed, exacerbates both. I have every reason to expect my taxes to go up, but that is the cost of living in a reasonable society.
The most obvious way to reduce the economic damage of Covid was to impose a moratorium (not a holiday, as that creates a debt for the future) on both interest and rents. That would have helped save thousands of businesses and individual households from crippling debt. I do not recall a mention of such a measure in any source I read. Why was that? Because the elite would then have borne the cost DIRECTLY. Effectively, this would have operated as a wealth tax which, even in the so-called national debt crisis, still forms no part of the political narrative. The elite carefully manage the tax debate to evade redistributive discussions.
Actually, I wrote all about this last March
This may be another area where you need to hone a clear step-by-step explanation for the average reader.
Your excellent descriptions of why governments don’t need to charge taxes to balance their expenditure unfortunately carries the risk that a reader won’t then be able to see why a government needs to charge tax at all, and even if so how much and in what way. The explanation about counteracting inflation doesn’t carry much weight at times when inflation is not an issue.
In particular, the idea of taxing the wealthy for a reason that boils down to “because they are rich” comes over as vindictive and ideologically driven to people with different politics. It needs you to develop an easy-to-understand and convincing explanation around economies working so much better when wealth is spread more evenly, that taxation in a way that achieves that is necessary for a government to meet its obligation to maintain the country’s prosperity. (To be honest, I have to take your word for it that that is the case, while I can see it could be I cannot see that it is necessarily the case; I look forward in hope to future blogs).
Beyond that there is a question of justifying how tax should be used to achieve the aim, given the very many points at which it can be and is levied (income, spending, capital gains, business margins, inheritance, etc).
I have done one….
I, and, I’m sure many others, would find this very valuable, Do you have the link to hand, please? Or a guide to search it? Thank you.
I can’t see what you are referring to when moderating
What are you asking for?
Asking for the post you refer to, “I have done one”. I may have seen it a while ago, and regret I didn’t save it. Thanks.
Wouldn’t a better title be
“We need to tax the wealthy because we believe in wealth redistibution”
– that may have some merit (or may not, depending on one’s view), but simply taxing someone because they are wealthy seems very odd?
Would it also not be more accurate to say that the wealthy have a higher propensity to save and a lower propensity to consume rather than the more extravagent (and easily faslifiable) claim that the wealthy do not invest. They clearly invest in both financial and non-financial assets.
I stand by the title
We are not doing redistribution per se
Providing benefits does not require tax: read some modern monetary theory
This is about taxing because people are wealthy
Well I stand by the observation, then and most MMT authors would too
Kelton: “So, MMT sees taxes as an important means to help redress decades of stagnation and rising inequality. Finally, governments can use taxes to encourage or discourage certain behaviors.”
As for the reading suggestion – thanks, Kelton, Randall Wray and Ehnts have been my main sources to date which is probably a lot more than most) but I was grounded in W Godley which is the more important core anyway. Even though one of the three listed above oddly denies the link to Godley’s financial sector balances.
So we can agree on the interesting bits but disagree on the somewhat crude – we will tax then for no other reason than they are wealthy – and then we/some wonder why sensible arguments get lost by the very easy “politics of envy” card which opponents play easily and with on-going success.
You will find I am saying exactly what Stephaniuen Kelton does on this issue
There isn’t the proverbial fag paper between us
My framing is pure MMT
I recognise you’re laying out principles here, but I think before this can progress a few key points will need to be addressed;
– what is included in ‘wealth’?
– what is the start point for the tax – e.g. £5m
– is this to be a one-off annual payment or charged to income?
Why?
I am talking principles
Well I have yet to find Kelton arguing to tax the wealthy for being wealthy – but would be very happy to see the link – but I have seen her comments about the role of redistribution and have added the quote. Hence, I am sure that MMTers would have chosen a better title and avoided, otherwise valid, points being trumped by the “politics of envy” card that would win each trick with ease.
I would also struggle to find Kelton or any leading MMT economists claiming that the wealthy do not invest. Why the need to such an extravagant claim?
This is a well observed fact
And Stephanie has been widely quoted on this
I am not sure what point you are trying to make. If it is troublemaking, why?
The point is simple – (1) there is a better way to introduce the same ideas* and (2) stating that wealthy people do not invest detracts from other arguments that may have some validity.
* The word wealthy is used 12 times in The Deficit Myth and the closest that Kelton comes to your argument is on redistribution, hence the recommendation on a more appropriate title to make the same points better.
One of the problem with MMT is that many who seem to be proponents of core, economic thinking that is at its centre, wrap it up in excess and easily falsifiable claims which means that MMT remains on the sidelines rather than at the centre of the debate. That helps no one.
This may surprise you, but Stephanie has written more than The Deficit Myth
You might also note my name on its back cover
And the reality is that almost nothing called investment actually results in real investment
So what are you trying to say?
The reality is that the stock market and most property ‘investment’ is actually the purchase of second hand assets
MMT is not an excuse for putting forward wrong arguments, and mine are right
You need to look beyond the MMT horizon. It’s important but it’s very weak on tax, redistribution, and to be honest, wealth. I am all fir it. But can also see it us nit a finished product as yet
‘We need to tax the wealthy because they are wealthy’ – Because wealth is power & a society that is unequal economically is unequal democratically. The wealthy own & control the political system to a greater or lesser degree depending on the scale of inequality. And in a time of increasingly sophisticated means of brainwashing & control, the wealthy can increase their wealth & control to a point where it is probably irreversible.
Hopefully not quite yet.
It doesn’t surprise me at all – why the need to be rude to people who make suggestions on how to present an argument more effectively.
I have read much of Keltons material. Why? Because when I first heard MMT being presented (incorrectly) I dismissed it. Then I went to the source material and read it several times and realised that I agreed with pretty much all of the descriptive element and some of the prescriptive element. My frustration is the fact that the misrepresentation of MMT and the hyperbolic political packaging that often goes with it means that it remains on the sidelines not the centre lane of the debate.
Clearly she does not think me guilty of that……
My fear is you have fallen for MMT as a sect
Some do. It is not a good idea
Your fear is ungrounded so you can rest easily.
The idea that the stock market is simply second hand misses one of its primary functions – raising equity capital for an initial time and as a secondary offering.
With respect – that is a complete fantasy
For decades now the number of shared on offer has been declining, as have the number of companies quoted
Your claims are not making any sense because they are not backed by facts
I might add that in the current climate, if the rich are seen to continue to ger richer and avoid tax then it may at best be bad for social cohesion, at worse lead to unrest.
Correct the number of shares has been falling
But the fact remains that over £4bn has been raised this year alone. And IIRC a slightly lower figure in 4Q20. No fantasy, just hard numbers Richard.
And what was that used for?
First, the sum is tiny
Second, it was almost all M&A
And how many shares have been repurchased in the meantime?
I am very confident
Misplaced confidence can be a dangerous thing
There may be or may not be valid arguments for raising taxes but neither should rely on blatant untruths. Your narrative has two – one that wealthy people do not invest and one that the stock market is solely second assets. You hold others to high account re specifics, rightly so, and you should be prepared for others to expect the same from you. Fairs fair….
With respect Chris (and reads that as you will) it’s you who is throwing the aspersions
The claim I made was that the wealthy are risk averse and so save and do not invest (I am not sure you know the difference between the two).
The overwhelming evidence is that this is true, from economics, psychology and data on who takes risks in society. Of course there are exceptions but Veblen got this one right: status, and its loss is what matters most to the wealthy and doing anything so rash as investing is rare as a consequence. We notice those wealthy who do invest precisely because it is so odd.
And as a matter of fact the number of quoted companies and the average number of shares they offer are both falling.
Fairs fair that you should get your facts and theories right
You haven’t.
Now rove me wrong, or don’t bother me with false claims again
How should I interpret “with respect”? Are you suggesting not at face value?
It’s not me who is being rude or patronising about what others may or may not have read.
I pointed out a more appropriate wording and corrected false statements. Anyone can read your wording and also the fact that I chose to speak about the different propensities to save and consume rather than falsely claim that the wealth do not invest.
I have made no other claim about the number of companies quoted. Indeed I agreed. I simply corrected your false assertion about the stock market being solely second hand. It isn’t and the facts are clear.
I have proved you wrong twice with hard facts. Your core arguments regarding tax do not need false assertions and extravagant claims. The question is on your court as to why you chose to make them and then fail to accept errors when they are politely pointed out
With respect, I have you fair warning that you needed to correct your claims, which are wrong
You haven’t
Please don’t call again
We deal with reality here – not works of fiction
I have been watching this spat with bemusement because I think you both broadly agree with each other. The differences are largely ones of emphasis or presentation.
We need to tax the wealthy because they are wealthy, because that addresses inequality, and for other reasons too.
The wealthy tend to save a greater proportion of their income than spend, because they can survive easily without spending it all. They also tend to acquire assets that protect their wealth rather than the sort of productive but risky investment that Richard refers to (although more risky investments would be part of any well balanced portfolio, and many but by no means all have active business interests too).
Demonstrably, there are some primary stock market listings, and secondary issuances, to raise equity funding for the company. It is also true that the vast bulk of stock market transactions are not raising new money.
True
But you too are ignoring the role of share buy backs…..
Richard, you may like this article from Dean Baker on deficits, debt and patents. He poses some interesting questions.
https://www.counterpunch.org/2021/03/24/the-debt-whiners-fools-or-liars/
I do like it