This article is in the Guardian this morning:
This crisis did not happen by chance. It is the cumulative consequence of years of austerity that has targeted local authority services, in particular.
The response from the authorities is to suggest even more cuts: to libraries and to free home to school travel, which would hit rural communities especially hard.
My response is different. The question posed is very obviously about what size of state we want. The Tories have continually assumed it is a small one. But that quest is now reaching the point where services that make life possible in a modern mixed economy possible are ceasing to function well, if they function at all.
The question is, what level of services do we want? And are we willing to pay? If so, what is it that we are willing to forego to allocate the required resources to supply what people need, let alone want?
My suggestion is that people want very much better health, social care, education, justice and defence systems. They also want functioning administration of local authorities and tax, health and safety, migration and similar such services.
I also suggest that people know this has a cost and more tax will eventually have to be paid to cover this: if the government spends more into the economy as this would require then it has also to extract more tax from the economy if it is to eliminate the resulting risk of inflation. That's a fact.
Admittedly, people would like those extra taxes to come from those able to pay them in the first instance. So taxes should increase on income from wealth, whether that be capital gains or income from interest, dividends, rents, trusts and the like, all of which are massively undertaxed (by at least 20% on average) when compared to similar levels of income from work.
People would also like equity in the tax system, so that companies pay their fair share (which they do not at present), those on higher incomes do not enjoy additional states of tax relief not available to others (which they do right now), and subsidy is not given by tax exemption to inappropriate causes, like public schools. And yes, abolishing the non-dom rule would help too.
In other words, a programme of tax justice would be good. But let's not pretend it is enough to tackle the scale of need in public services, because it is not by itself.
If we are to have decent public services, we will need more tax. That is a fact. Without it the economy will get out of balance. But we also need to create the capacity to pay that tax. And that means cutting out some of the rent-seeking activity in our economy to make additional space for tax payment.
Rent-seeking activity is that part of the economy that demands payment for a service that does not require the expenditure of effort on the part of the person supplying it, but which is instead a return to that supplier because they have economic control of a resource (whether appropriately or not) that others want. There are three big rent-seeking activities in our economy.
One, of course, is charging rent itself.
The second is charging interest for the use of money, all of which is ultimately created by the state.
The third comes from the exploitation of monopoly profits, most of which are incredibly well protected by the state's supply of law to reinforce those profits on patents and copyright.
If payments for these were reduced, or alternatively they were taxed more, the need for additional tax out of people's earnings could either be created, because their disposable incomes would increase, or be eliminated by those who earn income from rents paying the tax instead.
We can cut interest rates.
Rents can be controlled.
And large companies can be required to pay more in tax, most especially if rents are involved (as is the case with many tech companies, for example).
In that case, we could create the capacity to pay the tax needed to have the public services we need, but not by allowing that the status quo remain as it is.
In effect, we have a choice. We can have the world we need by controlling the unearned returns to capital or by taxing those returns more, or we can suffer the collapse in those services that we need whilst the owners of capital see their incomes and wealth increase.
The question is, which is it to be? And which political party is going to pay this option on the table at an election?
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The amount of personal and company tax has reduced massively from the fourth quarter of last century. Whilst reforming taxes, would it be more equitable for companies to pay a sales tax? I heard that used to be the method of taxing companies up to the middle of the twentieth century. All taxes paid by companies come from their customers anyway, so a tax on sales would not necessary be more burdensome or inflationary. There is no way companies like Amazon or Starbucks would pull out of the UK market – they would adjust – and if they didn’t there would be many willing to replace them. It would cut out almost all the loopholes big companies are able to benefit from and help small business compete on a more level playing field.
And while you’re at it, reform business premises taxation. It’s easier and cheaper to trade from an industrial unit than a high street shop. And cheaper still to trade for your home. So perhaps a sales tax could rectify this anomaly.
a) The evidence is very strong that shareholders pay corporate tax – customers and employees do not. See work by Kim Clausing
b) Sales taxes are deeply regressive and so unjust
c) You will make the tax system much more inequitable with your proposal
All agreed but the problem is also that people want that new SUV being advertised on TV every half hour or so, or that holiday or something else that they are being encouraged to want.
The unwritten war in all this is the war for our income – tax versus disposable income. Capital wants it all. If wages are shrinking, then a small state is an opportunity to create services that create rent. Capital wants the output all for itself.
You’d think that capital would be interested in supporting services that saved people money and then had more cash to pay out for their ‘stuff’.
But no, we’ve learnt over the years that capital is one eyed and does not think holistically – it’s all about competing to the bitter end for market share and creating markets where they are inappropriate.
The stupidity of this is that it’s meant to be competition by price; lower prices, means lower wages (or no jobs) and before you know it the workers you have been robbing from can’t afford your stuff.
But don’t worry – the market has an answer and will then push you towards credit and debt and debt service – slavery – for the rest of your life.
Even then – as long as people can have stuff, many will kid themselves they are doing well even though they will be in debt to the eyeballs. And the next generation may not even have any assets (property) to sell. Their collateral may only be their desire to consume – imagine that! Eugh!
So, you are right – we need a new system but what drives this for me is what happens to politics with that unpaid tax by the rich. They manifestly use it to twist our democracy to their favour. It is this factor that needs to be taxed out of existence in my view.
Some good points Richard but it is not a fact that good public services need more tax. That is a fallacy not a fact. As you have note many times, this is a choice and largely an ideological one.
Strip a away the rhetoric and is there evidence that a Tory government in the U.K. (or a Republic administration in the US) has delivered a significant reduction in the size of the state in either economy?
I made clear what I meant
If the government injects more money into the economy by additional spending and we want to control inflation we will eventually need more tax paid
Let’s not pretend otherwise. MMT does not say that. Full employment can be reached. It does not help to pretend what is not true
Thanks for reply, but I m not sure that you did. Hence the need to clarify with the addition of the inflation constraint.
By all means argue the case for taxes addressing income inequality. As you have stated clearly in the past, there are clear reasons why governments tax.
“If the government injects more money into the economy by additional spending and we want to control inflation we will eventually need more tax paid”. Yes – but the modifier “eventually” is critical. During a recession (as now) – government increases in expenditure (injections of money into the economy) are unlikely to result in inflation. Current inflation is not endogenous – as you know, so an increase in general taxation now would, I think, be more likely to deepen the recession. In addition to controlling inflation, however, taxes presumably have a social function related to inequality or – in deference to the current zeitgeist – levelling up”. Generating taxes from the sources you cite – large corporations, high earners, income from rent etc, is, I would argue, unlikely to have a large effect on controlling inflation because the funds collected would not, in any case, have been spent in the national economy.
I did not say ‘now’
I said eventually
I am arguing for tax cuts now ion all built the wealthy
Why not read what I write?
I wonder if the PM will redirect some funds from less favoured areas to Hampshire and Kent?
You write: “this has a cost and more tax will eventually have to be paid to cover this”.
Rather than “cost” would it be more appropriate, and is it practical to talk about “value for money, or standard of living”? These might be of more interest to more people?
No, it would not
MMT exists in the real world
“MMT exists in the real world”
Yes and no, Richard.
Yes, since MMT is essentially an accurate description of how a modern monetary system works that predates many of those associated with it.
No, despite the above, MMT remains marginalised (at best). None of the current debate is, and none of the next general election debate will be, set within the context of how MMT describes the world. This is a major, major problem here and elsewhere. Admittedly Newsnight made a half-hearted attempt recently.
It’s not a political issue, since no major party here (or anywhere?) frames the narrative correctly. Labour, for example, are terrified of being seen as profligate and/or to use the great misnomer, fiscally irresponsible. Hence one should not expect Reeves and/or Starmer to frame the debate correctly any time soon.
But it has become associated with politics since the prescriptive elements of MMT are largely associated with left wing politicians. So for the media, and many others, it is easy to dismiss (eg magic money tree etc).
The U.K. needs a non-political voice here but that is probably a pipe dream. The US has Kelton and Wray, Europe has Ehnts, Australian has Keen and Mitchell. Their writing ranges from the sensible but challenging for the layman (Keen), the sensible and more accessible (Kelton, when she is not getting too excited) to the more argumentative and hence easier to dismiss (Mitchell).
While you do your best, thank you, who else is leading the U.K. mission to create the correct understanding of money and monetary systems? This is a very real problem that needs an urgent, non-political, solution.
No one
But Andy Verity is doing good stuff on the bbc and Abrew Levimis good on Twitter but neither are theoreticians
The Gower Initiative for Modern Money Studies (GIMMS) is UK based. https://gimms.org.uk but none of their advisory board.
I was an advisory board member but so was Bill Mitchell and I find him very difficult to work with
Somerset County Council faces a £44 million deficit. The new Council replaces the existing County Council and the four District Councils, next April. Being Liberal Democrat run it might have to be at the back of the queue.