What matters about the Paradise Papers

A cursory glance at the World’s leading tax havens illustrates the hypocrisy of politicians getting wound up about the revelations in the recently released Paradise Papers and the Panama Papers before them. Many of the havens are within the direct legislative jurisdiction of nations such as the US (which is itself a tax haven) and the UK, for example. And we should not forget that Luxembourg, Switzerland are key European homes of tax avoidance. Remember that the current President of the European Commission “spent years in his previous role as Luxembourg’s prime minister secretly blocking EU efforts to tackle tax avoidance by multinational corporations” (Source) ably supported by the Netherlands, another nation engaged in the practice. If the politicians were truly worried about this issue they could do something about it directly with the stroke of a legislative pen. Britain could, for example, eliminate Jersey, the Isle of Man, and its Overseas Territories from this corporate scam. The US could do similarly. The EU could bring in new rules to stop Luxembourg. But they don’t stop it, which tells you everything. But, the problem of tax avoidance and evasion is not fiscal. Progressives get stuck on that point. It is largely irrelevant. The real issues are inequality, power and macroeconomic stability. That is what this blog is about.

I covered my view on many of these issues in these blogs (among others):

1. Progressives should move on from a reliance on ‘Robin Hood’ taxes (September 4, 2017).

2. Modern Monetary Theory and Value Capture (November 11, 2015).

3. Governments do not need the savings of the rich, nor their taxes! (August 15, 2015).

4. Off-shore tax havens – be sure we define the issues correctly (July 23, 2012).

5. Robin Hood was a thief not a saviour (April 1, 2010).

The information in the Paradise Papers is shocking – no doubt. But what shocks me and what seems to shock the average progressive (if their voices indicate their impressions) are somewhat different.

The idea that the savings and tax receipts of the rich are in some way important in order for governments to be able to provide high quality services, public infrastructure and jobs to advance the well-being of society is a very dangerous and misguided narrative for progressives to engage in.

Please read my blog – Governments do not need the savings of the rich, nor their taxes! – for more discussion on this point.

I read a report from Canada where a ‘liberal’ senator said that the Paradise Papers showed that the Canadian government was letting “potential revenue slip through tax collectors’ hands … [and] … billions of extra dollars could be put to good use … There’s lots of things the government could be doing … retiring debt, lower taxes, fund new programs … It goes on and on” (Source).

In the same CBC report, another progressive politician said that if the Canadian government closed the so-called “$6 billion a year tax gap” which is a “heck of a lot of money … That might be enough to repair our crumbling infrastructure and sewage plants in Winnipeg, and to invest in a modern transportation system.”

The report presented a table entitled “What could an extra $6 billion buy?” and listed child-care places, affordable housing, MRI machines for hospitals, new water treatment plans, and military jets as options.

The arithmetic might be impeccable but the logic is sadly erroneous when tied to so-called ‘tax gaps’.

These views is representative of the vast majority of commentators on either side of the political spectrum. The Right think, inasmuch as they comment, think that tax cuts could be forthcoming if the governments stopped tax avoidance, while the Left, rave on about better public services etc.

Neither view has any merit.

If there are child-care staff available for hire in Canadian dollars, then the Canadian government can always afford to hire them.

Similarly the rest of the wish list – better housing (presumably there are available carpenters and materials) and the rest of it.

The same logic applies to all currency-issuing governments, which have the capacity to purchase anything that is for sale in the currency they issue – at any time.

The choice is political not financial.

The revelations in the Paradise Papers do not alter that reality.

The Paradise Papers just tell us what we have known for ever. The legal profession is used by corporations and individuals to devise ways in which the rich can get richer – in this case by being able to keep a higher proportion of their incomes than those without access to such expensive legal services.

The difference between the Paradise Papers and the Panama Papers is clear. They both disclose tax avoidance but the latter really only documented how a poorly-governed nation lured corporations and individuals in countries that similarly struggle with regulative capacities (for example, Russia, Latin America).

The Paradise Papers are about the mainstream elites use tax havens that are within nations that have coherent rule of law regimes and which the Peer Review process conducted under the OECD transparency policies do not implicate as being problematic.

The Paradise Papers tell us that the rich siphon a high proportion of their income and store their wealth in these offshore tax havens, even if the haven is still under the legislative remit of the nations they are citizens of.

Many of these schemes operate through financial products, which provide no productive purpose, and which I have long advocated should be made illegal.

The fact they are not made illegal is testimony that, in this neoliberal era, nation states prefer to legislate in favour of the rich at the expense of the poor.

But that is a choice that we can all influence.

I will come back to that.

Modern Monetary Theory (MMT) and tax havens

The Modern Monetary Theory (MMT) argument is outlined in the blogs cited above.

In summary, while the concerns of organisations such as the British-based Tax Justice Network about massive tax avoidance by global companies and individuals using various cross-country schemes is noted, progressives often push the wrong message in all of this.

The loss of tax receipts to a nation via tax avoidance is not the issue that progressives should focus on.

The notion that the ‘lost taxes’ in some way prevent a currency-issuing government from spending is just an application of erroneous mainstream economics thinking, which thinks governments are financially constrained.

In terms of Modern Monetary Theory (MMT) such terminology is grossly misleading.

The tax receipts foregone (lost) to tax avoidance just represents ‘numbers on a bit of paper’. The only issue that is important is the amount of purchasing power that is embodied in the tax cuts (or the reversal of them) and how it is distributed.

The rich do not provide the funds that allow the government to provide services, jobs and public infrastructure.

If the rich do not spend their incomes (and hide them in various tax havens) that doesn’t reduce the capacity of the government to spend.

In fact, the more income the non-government sector, in general, do not circulate back into spending, the greater is the need for government deficit spending to ensure that productive capacity continues to grow and total spending continually absorbs that capacity and maintains full employment.

In 1946, Beardsley Ruml published his 4-page article – Taxes for Revenue Are Obsolete – in the journal American Affairs (January 1946, Vol VIII, No 1), which carried the sub-title “A Quarterly Journal of Free Opinion”.

At the tine Beardsley Ruml was the Chairman of the Federal Reserve Bank of New York.

His argument was straightforward:

… given (1) control of a central banking system and (2) an inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore should be regarded from the point of view of social and economic consequences.

This was the same idea that Abba Lerner advanced in terms of his Functional Finance theories, which provide essential underpinnings to Modern Monetary Theory (MMT).

Please read my blog – Functional finance and modern monetary theory – for more discussion on this point.

Ruml also noted that:

The necessity for a government to tax in order to maintain both its independence and its solvency is true for state and local governments, but it is not true for a national government. Two changes of the greatest consequence have occurred in the last twenty-five years which have substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.

So, where the currency issued by the central bank “is not convertible into gold or into other commodity”, then Federal government “has final freedom from the money market in meeting its financial requirements.”

For Ruml, Federal taxes … serve four principle purposes of a social and economic character”:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

2. To express public policy in the distribution of wealth and income …

3. To express public policy in subsidizing or in penalizing various industries and economic groups;

4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

So the government might impose taxes:

1. To control inflation.

2. To redistribute purchasing power from the rich to the poor (high income to low income).

3. To alter the allocation of resources away from undesirable ends – such as tobacco taxes.

4. To provide some hypothecated public transparency for major projects/programs.

So from a functional finance perspective, taxation must be designed to advance these purposes and the public discussion must be about the idea of public purpose and never about raising revenue.

We thus have to view the revelations in the Paradise Papers from that perspective.

The hidden income and unpaid taxes do not alter the basic remit or capacity of the national government in relation to:

1. The need to balance nominal aggregate demand growth with the capacity of the real economy to absorb it.

2. The aims of social policy to ensure that the benefits of economic activity are shared in some reasonable manner (relevant to the distribution of the tax burden).

The two issues are interrelated because different income groups have different propensities to consume which influences the impact of fiscal policy. Which brings the question of inequality to the fore.

Inequality is the issue

At the heart of my concern is that the trends to offshore tax havens coincide with the increase in income and wealth inequality that has been recorded in most nations over the last thirty years or more.

What the Paradise Papers also tells me is that what we know in terms of the macroeconomic aggregates reported by national statistics agencies is only part of the story.

For example, national accounts, which estimate the Gross Domestic Product and Income generating performance of a nation, clearly under-reports such things given that the rich can hide income received (and thus production generated) in offshore tax havens.

These facts then lead to the next conclusion: our empirical understanding of income and wealth inequality is likely to be understated. The rising inequality measures are likely to understate the true degree of inequality.

In other words, if you were concerned on the basis of the official data, then you should be really concerned now.

Inequality is bad for social well-being.

Clearly, it is bad for growth.

Even the IMF these days has admitted this after denying it under the ruse of ‘trickle down economics’ for decades.

The trickle down claims made at the outset of the neo-liberal period are lies. Please read my blogs – Trickle down economics – the evidence is damning and Inequality and growth and well-being – revolutions have occurred for less – for more discussion on this point.

Rising economic inequality undermines the capacity for individuals to invest in education, which is the most reliable source of economic development (skill development).

A redistribution of national income can increase or decrease aggregate demand and the final impact thus depends on the different consumption propensities and the number of people who are affected.

A tax cut will inject a certain amount of extra spending into the economy which then induces further spending via the
multiplier process
, which I explain in this blog – Spending multipliers.

If you put a dollar of extra disposable income into the hands of the lower paid workers the multiplier effects will be greater than if you put the extra dollar into the hands of high income earner because less will be lost to the rest of the world via imports.

Not only will the low income earners spend more of every extra dollar on consumption per se than the high income earners less income will be lost to the rest of the world because the import propensities are also different and align with their consumption propensities.

Attacking tax avoidance is one path to take in this regard – forcing the rich to declare more of their income and pay more tax. But that path is complex.

A more obvious path is to use the legislative capacity to allow workers who do not use tax havens to increase their share of ‘reported’ national income.

For example, ratios such as the wage share in national income are likely to be overestimated as a result of the off-shore activity.

Given that the distribution of income has been firmly biased in the neoliberal era towards profits (as real wages growth has fallen well behind productivity growth) this means that this redistribution towards profits has been even greater than is disclosed in the official accounts.

The more effective way to resolve that problem is not via tax law enforcement (given its complexity) but through wages policy. The state could legislate to force companies that produce within its borders to share productivity gains with workers via proportional real wages growth.

Sure enough, the vexed issue of measuring productivity growth would arise – as usual. But governments could come up with reasonable estimates that could be used for this purpose.

If the companies didn’t want to play ball then the government has the capacity to stop their productive and sales activity within its borders.

No government in this era has shown the fortitude to do that. But they can and that capacity should be promoted by progressive political forces.

Further, this principle can also extend to specific tax reporting issues.

If, for example, Nike wants to sell its shoes in Australia then it should be required to pay some reasonable proportion of its sales in tax or have its shoes removed from retail outlets under law.

Yes, on-line sales are tricky. But even those can be monitored.

The Tax Justice Network proposal is interesting in this regard (Source):

An alternative system of taxation, called “unitary taxation” instead calculates the tax liabilities of companies based on a proportion of the company’s global profits. The formula used to work out the tax is based on the real economic activities company, for example the sales it books in each country.

See their November 2017 report – Ending multinational tax avoidance through unitary taxation – for further detail.

Further, practices such as the use of intra-group debt and transfer pricing to shift liabilities, while complex are not beyond the legislative capacity of the government to reduce.

For example, tax authorities could simply reject any intra-company loans that pay interest rates that are obviously only set for tax avoidance purposes and bear no relation to reality. If a company can borrow externally at, say, 2 per cent and are creating intra-group loans at, say 10 per cent, then clearly that can be stopped by authorities.

The other obvious path to pursue is to break the link between tax and income. In order for the rich to enjoy their wealth they have to spend it. Spending tends to be localised.

If the government introduced more coherent consumption taxes – with equity parameters such as ‘luxury tax inclusions’ and exclusion of essentials – this would get at the rich more quickly than trying to tax their incomes.

No-one of meagre means buys private jets, luxury ocean-going yachts, cars that belong on race tracks but are driven on city streets, expensive golf club memberships and the like. Most of these things cannot be ‘off-shored’. Consumption is here and now.

By cutting the capacity of the rich to actually realise their hidden incomes in the consumption of goods and services, there is more non-inflationary space for the rest of us to enjoy our material lives.

And if we do not want to spend more, then the public sector has more real resource space in which to spend and provide public goods and services.

Taken together this strategy would reduce inequality and advance the well-being of the lower income groups. It would be more easily to enforce than trying to close down elaborate tax avoidance schemes.

Further, I would substantially increase the penalties for any illegal behaviour by companies and their owners – serious prison time not just fines – which would also provide disincentives to engage in nefarious behaviour.

Inequality is also bad for democracy because it further tilts the power into the hands of the wealthy, who, arguably, have little need to see general well-being advanced ahead of their own interests.

Several reforms are necessary in this regard, including the banning of political donations, breaking up of media empires etc.

I will write more about how progressives have to address power imbalances in societies in a later blog. We address that issue in some detail in our new book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017)


The Introduction tells us that many of these so-called tax havens are actually within the legislative remit of national governments such as the US and the UK.

These governments could close the tax avoiding capacity of their states, dominions etc whenever they wanted to. Why couldn’t Britain just close down the incentives to hide cash in Jersey for example?

They cry poor in terms of lost tax revenue but then do not do the single most obvious thing they could to stop this practice.

The reason is that the crying poor is about setting up depoliticised justifications to reduce public spending, while enjoying the massive lobbying funding that comes if they make political choices that enhance the rich..

This is the classic neoliberal strategy. Progressives should meet it head on. There are things governments can do if they are so motivated. Our task is to provide that motivation for them, ultimately, via the ballot box.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

This Post Has 31 Comments

  1. “If the rich do not spend their incomes (and hide them in various tax havens) that doesn’t reduce the capacity of the government to spend.”

    But, isn’t the money just “invested” in a merry-go-round of asset price inflation?

  2. If the government introduced more coherent consumption taxes – with equity parameters such as ‘luxury tax inclusions’ and exclusion of essentials – this would get at the rich more quickly than trying to tax their incomes.

    When the rich buy gold-plated Rolls Royces, or whatever, that is an essentially benign use of their money: an economic stimulation that benefits everyone in the supply chain. The problem is that there are other less benign luxury goods – donating money to political candidates, in order to influence policy (“one dollar, one vote”), and even direct political intervention (paying lobbyists to write legislation).

    If the market in these luxury goods is left unregulated, then the outcome will be fewer child-care places, less affordable housing, fewer MRI machines for hospitals and new water treatment plans, and maybe even fewer military jets. The main point in taxing the rich (other than one of equity) is to stop them using their money to dominate policy-making. If you won’t contemplate a general wealth tax, then the activities to target are those involved in buying influence.

  3. I would argue there is another vital reason why income inequality has to be addressed: the rich end up having a different sense of the value of money to the poor and that causes inflation.

    If £20 is your entire income for a day, you want a day’s worth of goods and services in exchange for that money and you will not give it up easily for less. But if £20 turns up every few seconds like magic you will be less likely to demand sufficient value for it – and that leads to inflation and a skew of goods and services towards those who think £20 is confetti.

    We can make a very good argument against income equality on a value of money basis. The value of a currency comes largely from what you have to do to get it. We propose a labour standard under the Job Guarantee, but it is important that those within the currency zone have to expend sufficient effort to get the currency if it is to keep its value.

    Spendable income in a currency zone has to be in a Goldilocks zone – neither too much, nor too little – to aid stable prices and to ensure the mix of goods and services slants towards what people need, rather than what rich people want.

  4. I note you have many ways of spreading the word but no link to Twitter. Is this intentional?

  5. “If, for example, Nike wants to sell its shoes in Australia then it should be required to pay some reasonable proportion of its sales in tax or have its shoes removed from retail outlets under law.”
    If Nike wants to sell its shoes in Australia why not have a law that requires Nike and other importers to pay its workers in other countries wages and benefits equal to those paid to Australian workers? I am talking about raising wages in other countries and not cutting them in Australia.

  6. Dear Jim Hagart (at 2017/11/13 at 7:48 pm)

    There is a link to Twitter. It is the first icon in the array.

    best wishes

  7. “…national accounts, which estimate the Gross Domestic Product and Income generating performance of a nation, clearly under-reports such things given that the rich can hide income received (and thus production generated) in offshore tax havens….”

    Would not national accounts estimates of Gross Domestic Product be inflated by somewhat countering ‘unproductive’ FIRE sector transactions – especially during speculative housing bubbles?
    Past Bill Mitchell and Michael Hudson (youtube) lectures have indicated that ~98 to 99% of all FIRE sector transactions are speculative profit-taking, unproductive of nationally beneficial/’real’
    This 2015 research paper by Jacob Assa examined FIRE sector transactions impact on U.S. GDP. http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_012015.pdf

  8. The MMT understanding of taxes levied by the currency issuer is that taxes(functionally, at least) serve to drive demand for the currency, and therefore its value, and that taxes provide non-inflationary space for government spending by removing spending power from the private sector. Having accepted the MMT understanding of what purpose taxes serve, I end up with some unsettling implications.
    – the most functional taxes would be those levied on the things all people, rich or poor, need to live. Things like food and shelter and clothing. In modern society they include things like electricity, phone service, fuel for heat and transportation, and medical care.
    – the most effective taxes also are those that end up taxing the people who save the least, and those who spend the most as a percentage of their income. These are the poor, usually.
    – the most effective taxes would be regressive taxes in terms of income.

    Is this true? If it is true, how can I square that with my sense that those kinds of taxes are the most unfair- that they burden those who benefit the least from society relatively more than those who benefit the most?

  9. From an MMT perspective, the worst things about these tax avoidance schemes is that they give the plutocrats a disproportionate advantage in consuming scarce real resources, as opposed to the idea that the lack of those revenues “starves” the gov’t of the ability to generate jobs, proper healthcare, infrastructure, etc.

  10. ” those kinds of taxes are the most unfair- that they burden those who benefit the least from society relatively more than those who benefit the most?”

    That’s true, as far as the monetary theory goes.
    I think, contrary to a pure neoliberal position, that society exists outside and around the market, that society has duties beyond maintaining the money system, and that society has a duty to judge and correct the market. By understanding the monetary theory, we know what handles we have to control society’s market, and to get society to act as we need it to.

  11. “In other words, if you were concerned on the basis of the official data, then you should be really concerned now.”

    Yes, and I am really concerned after reading both Eurozone Dystopia and Reclaiming the State which also created an interest in the “what” and “how” of becoming depoliticized. Especially, because 20 odd years ago I was a member of a working council and managed to get the CEO fired because of management malpractice. Currently I am reading “de Miljoenennota 2017/2018” or what is called the Proposed National Budget Plan of Government and already noticed that the official data in this plan is not at all consistent with the statistics bureau CBS. Not to mention that they downplay issues like income inequality, unemployment, underemployment, debt and such. As such, I am not concerned about this bogus data fetish but on the government betting on influencing our behavior, so that we remain the docile sheep that we are now. This pompous show of tax evasion is one such example, show business to accumulate attention to the TINA mantra and adding complexity to simple things. What is though interesting is that they have these initiatives concerning open data projects for citizens, which are great opportunities in framing narratives and power games if you can interpret them in context. So, if you are interested in our history of becoming depoliticized I can recommend Victoria the Grazia’s Culture of Consent – Mass Organisation of Leisure in Fascist Italy, which elaborates on the history of the concept taken up by Bill and Thomas and probably will make you even more concerned.

  12. Yes taxes drive the currency giving state money value and allowing the state to direct resources
    available in that currency .The point of progressive taxation and welfare is to limit the wealthy’s
    access to real resources and increase the poor’s access.Ultimately we should tax the rich to lesson
    their future claims on the labour of the poor.

  13. Dear GLH (at 2017/11/13 at 7:52 pm)

    Yes, that is one of the principles of Fair Trade, which I support.

    best wishes

  14. Look at the perverse logic that follows when government does not understand its role in job creation, price setting and currency issuer:
    You have state level or city government creating ‘tax-free’ zones, hoping that someone will move in and make the jobs for them. Instead the companies go in create a front (paper start-up) and use it as a tax haven. IT industry multinationals thrive on programmes like this:
    10 years tax free, what a scandal.

    Or you have local governments battling it out to offer the best deal in what is essentially tax evasion (as with amazon and its new headquarters):

    The neoliberal logic is purely lip-service to any reform to reduce inequality. Most of the the time the tax evasion is packaged up as the solution to all woes.
    This sort of stuff really damages local government suffering from budget constraints. Local economies suffer in a plethora of ways that outweigh the scant advantages.

  15. Andy,

    Whether they consume or hoard, the impact is the same. I’m simply trying to point out the real economic basis for criticising these tax havens. There are loads of good political reasons as well, but I just want to keep the debate away from the nonsensical idea that these tax havens “starve” the government of “needed” revenue. They certainly provide more political cover for the imposition of austerity (i.e. we’re “running out of money”), but as Bill has eloquently pointed out many times, that just pure BS on economic grounds.

  16. Prof. Mitchell’s analysis fails to mention his tacit assumption that the proceeds of tax evasion/avoidance/fraud are invested/saved in assets denominated in currency of the home country.
    He thus neglects important additional consequences which arise when the proceeds are converted into foreign currency or commodities, as is manifestly the case with the Panama and Paradise Papers.
    Imagine a situation where clever and/or dishonest accountancy led to the entire tax revenue of Australia (or a large proportion) being used to buy foreign currency. There would then surely be a large devaluation of the A$, higher import prices, more resources devoted to import substitution and exports, less resources available for government and consumption expenditure, and thus a decline in Australian living standards.
    These effects go far beyond Prof. Mitchell’s valid concerns with income and wealth distribution and morality.
    Moreover, these effects justify the popular concerns about “potential revenue slipping through tax collectors’ hands”. Prof. Mitchell unfairly criticises these concerns at the start of today’s blog. The economic costs of tax evasion/avoidance/fraud may not be exactly the same as the tax loss, but it could be quite close.

  17. Dear Kingsley Lewis (at 2017/11/14 at 12:56 pm)

    The impacts you mention are possible but they are already in the system and one hasn’t observed massive currency instability.

    Also I noted in the blog that I would make many financial products illegal that were vehicles for these sort of currency movements.

    I didn’t neglect them – but I have written about that issue in detail previously.

    best wishes

  18. Margaret Hodge has won the right to hold a two hour debate in the UK Parliament tommorrow on the subject of the Paradise Papers.

    I had to laugh at the small number of Tory MPs in the Commons when MPs were asked to approve the holding of the debate. Those that remained were mute…

  19. Taxing rich people for me is about preventing them from buying things that shouldn’t be for sale, like democracy, or creating a two-tier market for services that should be equally available for all, like health care, education, and advancement opportunities. Other than punitive taxes, I don’t see a way to prevent rich people from doing these things.

  20. Creigh Gordon, one could implement an excise tax on the items felt to be luxuries and, therefore, not really needed. This is a highly specific punitive tax on spending rather then income.

  21. “Imagine a situation where clever and/or dishonest accountancy led to the entire tax revenue of Australia (or a large proportion) being used to buy foreign currency.”

    Imagine the solution where you charge VAT on foreign currency purchases – which any legitimate business could offset.

  22. “Could we not switch from taxing profits to taxing revenue instead?”

    Why do you want to tax corporations at all? What do you want them to release that you need for the public purpose.

    If they have something, then just ban them from using it. Stop trying to ‘nudge’.

  23. “how can I square that with my sense that those kinds of taxes are the most unfair”

    By acknowledging that your sense is wrong. Just as it is when you have to turn into a skid to catch it even though that feels ‘wrong’.

    Taxes are a very poor way of freeing up resources. You need the taxation to have a wide impact across the population to promote acceptance of the currency. But beyond that it is about freeing up resources for the public good, and there are better tools available: planning controls, limiting what banks can lend money for, and simply banning things.

    Taxation to free up resources is a bit of a carpet bombing approach. There is no guarantee the ‘market’ will free up what you need.

    The trick is to fix the system so the initial distribution is more appropriate. And that’s where the Job Guarantee comes in. Once you no longer need the jobs of the private sector you can turn the competition up to 11.

  24. “”how can I square that with my sense that those kinds of taxes are the most unfair”

    By acknowledging that your sense is wrong.”

    Neil, that is a surprising answer for me, and an honest one- not that I am surprised about your honesty 🙂

    I will have to think about it though. After spending most of the first 50 years of my life as a left wing Democrat, I will not drop my objection to regressive taxes on just your say so. Of course I recognize that me wishing something was true is not the same as that actually being true. Thank you for the response.

    What do you think about the implications of MMT theory I mentioned- that the theory implies that the most effective taxation would actually be the broadest and end up being regressive in nature? Do you think that is true?

  25. Hi Jerry

    Thank you for your interesting and important comments on tax. They prompted me to do a brief search on this blog and then on New Economic Perspectives on what tax or taxes are sufficient to drive currency and whether there is anything about the rates of tax that are needed to achieve that purpose.

    I couldn’t see anything on this blog, though I may well have missed it, but I did find a series of blog posts by Randal Wray from 2014 on tax and this one http://neweconomicperspectives.org/2014/06/tax-bads-goods.html#more-8344, I think concludes an effective tax to drive currency would be a tax on occupation or exclusive rights over use of property. It isn’t mentioned in that post, from a cursory read, but earlier posts in the series refer to Beardsley Ruml’s 4 purposes to tax.

    So, maybe, having established a currency, (I am reading that as “As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;” his first purpose, but maybe that refers to inflation?) other taxes can be used to help achieve other aims, Ruml lists them as,

    “-To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
    -To express public policy in subsidizing or in penalizing various industries and economic groups;
    -To isolate and assess directly the costs of certain national benefits, such as highways and social security”

    I’m sure more knowledgeable readers will be able to reference other commentary and the scholarly sources as well, I’d be interested to know if they know of any that would be suitable for a non-academic non-economist like me.

    PS thanks again to Bill and other commenters for insightful, thought provoking and in my view important discussion.

    Thanks, John

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