It was only a matter of time I suppose but the IMF is now focusing…
The tax extreme wealth to increase funds for government spending narrative just reinforces neoliberal framing
Despite the rabble on the Right of politics that marches around driven by conspiracies about government chips in the water supply or Covid vaccines and all the rest of the rot that lot carry on with, the reality is that the well-funded Right that is entrenched in the deepest echelons of capital are extremely well organised and strategic, which is why the dominant ideology reflects their preferences. That group appears to be able to maintain a united front which solidifies their effectiveness. By way of contrast, the Left is poorly funded, but more importantly, divided and on important matters appears incapable of breaking free from the fictions and framing that the Right have introduced to further their own agenda. So, the Left is often pursuing causes that appear to be ‘progressive’ and which warm their hearts, but which in reality are just reinforcing the framing that advance the interests of the Right. We saw that again this week with the emergence of the Tax Extreme Wealth movement and with the release of their open letter to the G20 Heads of State – G20 Leaders must tax extreme wealth. This is the work of a group which includes the so-called Patriotic Millionaires, Oxfam, Millionaires for Humanity, Earth4All and the Institute for Policy Studies. It demonstrates perfectly how these progressive movements advance dialogue and framing which actually end up undermining their own ambitions.
The Open Letter doing the work of the Right while thinking they are pursuing progressive causes
The Open Letter is well intended I am sure.
It begins by noting that:
The accumulation of extreme wealth by the world’s richest individuals has become an economic, ecological, and human rights disaster, threatening political stability in countries all over the world. Such steep levels of inequality undermine the strength of virtually every one of our global systems, and must be addressed head-on.
No-one on the progressive side of the debate would disagree with that assessment.
They continue noting the failure of the ‘trickle down’ narrative to deliver on its word.
Who ever believed that ruse anyway?
And they also note the capacity of the top-end-of-town to exploit tax loopholes, tax havens and all those dodges that normal folk like us cannot.
Then it starts to go off the rails:
At the same time, the world has seldom had more need for the richest to pay.
And they talk about “extreme poverty is increasing” and “time running out for countries to make the necessary green investments”.
Those problems are clear and something needs to be done about them.
The solution is clearly within the ambit of government and would require more investment (spending) by the public sector.
The reason I say that the Letter starts to fail here is that the framing and causation is encouraging the reader to conflate the failure of governments to reduce extreme wealth and tax more to the lack of action on poverty or green transition.
In other words, the Letter is suggesting that if the government had more tax revenue then it could spend more on poverty reduction measures, for example.
And in doing that, they are encouraging the reader to construct the government as a financially constrained entity that requires our money in order to spend.
The Letter then urges the G20 leaders to continue to “raise taxes on the richest individuals” and to eliminate cross-border opportunities for rich individuals to shift to lower tax regimes.
And in closing they state:
An international agreement on wealth taxes would shrink dangerous levels of inequality while also allowing leaders to raise vital funds to tackle the multiple challenges facing our world.
And so the narrative of financially-constrained governments needing to raise “vital funds to tackle the multiple challenges” and the money of the rich being the only source of those funds is complete.
The Left doing the work of the Right.
Think about it like this.
In her book – Atlas Shrugged – anti-government Right winger Ayn Rand extolled the virtues of the private corporations who were coerced by governments rules and regulations.
The rest of us are “looters” or “moochers” who have a parasitic relation to these corporations – always desiring to feed off the productivity of the hard work of the corporate leaders.
She conveys the view of how important these ‘men’ of industry are to the well being of the rest of us and without their resources the rest of us would be confined to poverty and hardship.
Her agenda is an extreme liberatarianism.
But think about the framing – the rest of us cannot do without these captains of industry.
That framing appears in the Open Letter from the Tax Extreme Wealth movement.
It elevates the wealthy to a level of importance they do not warrant.
It makes out there is a necessary and sufficient link between the well-being of the rest of us and the fortunes of the extremely wealthy persons.
Without their money, we cannot have things that advance our own well-being.
So, while the progressives don’t want to convey that sort of messaging, the reality is that the framing and language they use reinforces that message.
Why limit the attack on inequality by focusing on taxes
To state the concern in a different way, why do these progressive focus only on ‘taxes’ as a way of reducing inequality.
There are many ways in which government policy enhances the wealth of the richest individuals that don’t involve tax considerations at all.
Why not think about the causation that comes before the capacity to pay taxes?
For example, the wealth beneficiaries of capitalism can create massive wealth, in part, because they can create massive income streams.
And think about how capital has created a symbiotic relationship with government via procurement contracts, highly paid consultancies, and the like.
In his closing address as US President, Dwight D. Eisenhower (January 17, 1961) used the term – Military-industrial complex – to describe the powerful capital interests that he said might provide “unwarranted influence” on government but which were fed by government.
In 1966, Paul Baran and Paul Sweezy published – Monopoly Capital – which demonstrated how wealth accumulation relied on government spending via procurement contracts particularly in the military sector.
The next year, 1967, John Kenneth Galbraith published – The New Industrial State – which touched on the themes that large corporations relied on government assistance to achieve stable profits through long-term planning.
We could massively reduce wealth inequality by curbing the opportunities exploited by large corporations to engorge themselves on government contracts.
In Australia, we are currently debating the role of private management consulting firms in government contracts.
The industry is currently scandalised because PwC staff used the confidential information obtained by such a contract to on-sell to their clients to help them minimise tax.
More and more examples of the rorts in the consulting industry are now emerging.
Overly generous contracts, cheating on cost statements and the rest of it.
We now know that PwC was paid nearly $A1 million dollars to investigate a government scheme designed to regain welfare payments that were allegedly rorted by the beneficiaries.
That scheme has now been subjected to a Royal Commission and found to be illegal and heads are rolling (but not enough of them).
But PwC apparently only delivered an eight-page PowerPoint presentation to the government in return for the near million bucks.
And, the presentation has never seen the light of day in the public sphere.
I was in Sydney working yesterday (presenting to a major financial markets workshop) and happened to park in a pay station in the financial district.
In the reserved parking tiers I saw Deloitte, EY etc spaces all marked out and more Porsches, Mazeratis etc parked there than you would ever see anywhere else.
And these consulting firms gain billions each year for doing the work that public servants used to do before neoliberalism started on its purge of public employment.
We could eliminate billions in public expenditure by scrapping the reliance on private consultants and bringing those tasks back into public employment and decent wages.
Why just focus on taxes?
Why aren’t these progressive groups writing open letters about all of that?
Obviously I am not against taxing the rich!
The point is not that I oppose the ambition of the Tax Extreme Wealth efforts.
I have always argued that we should have wealth taxes and much more progression in the income tax structures (where enforceable).
I would also have an expenditure tax along the lines advocated Nicholas Kaldor in his 1957 book “An Expenditure Tax” published by The Macmillan Company.
He argued that we could replace the progressive taxes on personal income with a progressive tax on personal expenditures, which excludes from the tax system the portion of income that is saved.
Kaldor wrote (p.50):
… a changeover to an expenditure tax would undoubtedly have the most severe effect on the wealthy and not on the people who are only moderately well-off.
There are issues with such a tax which I won’t go into here but a carefully designed expenditure tax certainly is harder to escape.
My fundamental objection to the Open Letter narrative is the conflation between taxes and spending capacity.
Modern Monetary Theory (MMT) has demonstrated beyond doubt that such spending capacity for currency-issuing governments is not financially constrained.
Taxes do not fund government spending.
So why would we want to tax the rich more?
It is not because we want the government to have ‘more’ money – when we know unambiguously that it has all the ‘money’ it ever could want (infinity minus a penny)!
It is because we want the rich to have less money.
That is the reason.
And the purpose is to reduce the financial resources the rich have at their disposal so they have less capacity to fund lobbying organisations, buy off politicians, fund political parties, and the rest of it – which means we could reduce their political influence.
That political influence and leverage is one of the major contributing reasons to why the world is in such a mess right now.
Conclusion
Tax the wealth. Sure.
But not to get their money!
By conflating the tax revenue with the capacity of governments to provide services etc, progressives just advance the conservative framing and agenda.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.
“The rest of us cannot do with these captains of industry.” should read “without”.
A timely blog. I might add that in the UK particularly, due to long history, it’s not the money accrued (earned would be misleading) by the wealthy and spent on luxury cars that is the key problem (though the heavier models are trashing our roads and environment) but their mansions and acres of land, and passing of such down generations in unearned windfalls. The government doesn’t have a shortage of money, but it does have a shortage of land. Also a shortage of construction service workers for the upkeep of hospitals, schools and affordable homes who are otherwise in the employ of the present day lords of the Manor.
There’s no shortage of land in England and Wales. Technically the Crown owns it all.
Hence Bona Vacantia.
You can’t own land in England. You can only hold an interest in land.
An interest that can be cancelled by Parliament without compensation – should the need arise.
I think organisations like Oxfam are to a certain extent trapped by the neoliberal narrative. That is what can be said is constrained within a narrow and confined space. The idea that Government’s are fiscally constrained, and we are therefore reliant on wealthy people’s generosity, appears in the dialogues of our political systems, and the media which sustains it – it’s constantly beamed into our homes.
The solutions promoted by Bob in the article sound to me (a non expert) entirely reasonable, however there isn’t an endless stream of media articles pointing out the detrimental impact of private consultancy on the integrity and proper functioning of public institutions.
It’s a bit like going into an international cuisine restaurant, only to find they have excluded the dishes from an entire continent from the menu, and instead keep bigging up how great their fried breakfasts are. Most diners would be unaware that they have another choice.
I think the issue of Oxfam is like that. They can ask for wealth taxes, because ultimately that is something Government’s will entertain, they might even have a consultation on it. Keeping the debate on inequality about taxes keeps the debate away from corporate profit gouging – wealth taxes might get some air in things like the Guardian where it will be harmless, the other things Bill proposes will get starved of oxygen…
… move along everybody… look at the bottom pinching MP everyone… focus on that instead.
I think organisations like Oxfam are to a certain extent trapped by the neoliberal narrative. That is what can be said is constrained within a narrow and confined space. The idea that Government’s are fiscally constrained, and we are therefore reliant on wealthy people’s generosity, appears in the dialogues of our political systems, and the media which sustains it – it’s constantly beamed into our homes.
The solutions promoted by Bill in the article sound to me (a non expert) entirely reasonable, however there isn’t an endless stream of media articles pointing out the detrimental impact of private consultancy on the integrity and proper functioning of public institutions.
It’s a bit like going into an international cuisine restaurant, only to find they have excluded the dishes from an entire continent from the menu, and instead keep bigging up how great their fried breakfasts are. Most diners would be unaware that they can choose anything else.
I think the issue of Oxfam is like that. They can ask for wealth taxes, because ultimately that is something Government’s will entertain, they might even have a consultation on it. Keeping the debate on inequality about taxes keeps the debate away from corporate profit gouging – wealth taxes might get some air in things like the Guardian where it will be harmless, the other things Bill proposes tend to get starved of oxygen.
The mass media serves as a mass distraction service … move along everybody… look at the bottom pinching MP everyone… focus on that instead.
Yes, as I try to remind people we want to tax the rich not because we need their money* but to prevent the threat and damage that plutocracy poses to democracy. Their wealth distorts our systems of governance and accountability.
* (it’s not really “theirs” anyway, is it? I like to observe that our currency doesn’t have pictures of billionaires on it, eh? There’s a clue right there as to whom it belongs)
“There are two novels that can change a bookish fourteen-year old’s life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs.” -John Rogers
“Yes, as I try to remind people we want to tax the rich not because we need their money* but to prevent the threat and damage that plutocracy poses to democracy.”
Just one small problem with that belief. If the rich really are a plutocracy, then they will have the power and influence to stop you taxing them.
If they don’t have the power to stop you, then they clearly weren’t a very good plutocracy.
Catch 22.
The problem is that the wealthy own all governments. There is no such thing as democracy because you cannot vote for anyone who will ever do anything that would even inconvenience anyone with money. You literally can’t even talk about doing anything that would inconvenience the wealthy, certainly not on the news and the way social media censorship is going, probably not there for much longer. I want to make murdering anyone with a net worth >100mil legal and incentivized.
@Neil Wilson “If the rich really are a plutocracy, then they will have the power and influence to stop you taxing them.”
I think in the UK that 22 is pretty much caught.
They got rid of the leader who would have been up for wealth taxes, so that now your electoral choice, if you can call it that, is between two Conservative Parties. Since Labour have been attracting large private donations, they have suddenly sworn off wealth taxes; I can’t think why.
And of course once they do get into Government, they don’t really need a policy unit, because they can let the Policy Exchange do all the heavy lifting for them.
Yes, if we are already in a plutocracy, then we cannot “democracy” our way out of it. I guess I remain hopeful that the rot hasn’t quite set that far in just yet.
Another Catch 22 to this “money grows on rich people” argument would be if you keep taxing wealth each year, supposedly in order to ”fund public services”, what then happens after a few years, once that wealth has been fully or partially taxed away (or the rich have emigrated, and sold off their land and property at a loss), there are no more hugely wealthy people left and property values have dropped?
Permanent cuts to public services?
I just got reminded about grotesque levels of inequality when I heard someone paid vetenerian 500$ too see their dog for 5 minutes, which in grotesque when we humans have so many of our species without medical care.
Hi Bill,
The persistence of the tax-more-to-afford-to-spend-more belief, and concern about the level of federal government debt denominated in our own currency are very resistant perennials. I had a conversation with a very progressive person a few days ago about her concern re debt levels in Canada.
In March I had one with the assistant to a member of Parliament about his belief in the need to increase taxes to fund a national public drug plan (Pharmacare). When I said we don’t have a special tax for doctors or hospitals and don’t need one for Pharmacare he changed to “well the rich should pay more”. Sure, except that the Conservatives use the higher tax argument to counter the need for a public plan saying we already pay too much tax and a new public plan will increase them. My answer was that the level of taxation is another issue, we shouldn’t mix them up and in any case the general public already pays enough tax.
Many of the allies in our coalition for Pharmacare accept we don’t need additional taxes, something I remind them of from time to time. I’m quite hard core about it, thanks to you Bill, and your insistence on the importance of getting that right.
During two years of Covid the Bank of Canada created hundreds of billions of dollars to fund people so they could make ends meet during shut-downs. We had several pretty good programs. No taxes involved. But today only a year later no dots are connected even by honest progressive people, such as where did all that money come from?
The repetition of the household analogy by big business, their think tanks, their media and their political representatives is relentless. We still need your analysis as much as ever, Bill.
Thank you yet again for it.
I think that this statement about why we tax the rich is ideological nonsense:
“….the purpose is to reduce the financial resources the rich have at their disposal so they have less capacity to fund lobbying organisations, buy of politicians, fund political parties, and the rest of it – which means we could reduce their political influence.”
What the goal of taxation should be is to redirect consumption of resources away from one area and into another area i.e. to free up resources for areas deemed to be socially valuable.
What we want is taxation incentives to redirect the capital of the rich into socially valuable enterprises and to discourage unnecessary consumer gratification by all classes. It is not only the rich that are the problem here.
We live in a consumer society, a society that is based on unconstrained consumption.
What we want to do is to redirect resources away from low social value objects such as smart TVs, SUVs and houses by the sea to high social value objects such as wind farms, solar farms, public transport and affordable housing.
“Yes, if we are already in a plutocracy, then we cannot “democracy” our way out of it. I guess I remain hopeful that the rot hasn’t quite set that far in just yet.”
If you can impose a tax on wealthy people then you are not taxing wealthy people because they have excessive power and influence. Clearly they don’t if they can’t stop the tax.
At that point you want to tax wealthy people because you don’t like wealthy people.
The moral high ground is incompatible with the reality of the action you wish to undertake. One or the other is incorrect.
Not sure about morality or the high ground.
but if morality means anything to me it starts with not liking rich people
I am not persuaded by morality. but the moral high ground is not incompatible with disliking rich people.
We can introduce luxury taxes on cars and houses, asset taxes, property taxes, taxes on SUVs, and introduce tax discounts for investments in renewable energy, green manufacturing, affordable housing, smaller cars, smaller houses, etc. But ultimately what we have to do is to change the behaviour of the majority of voters – the middle and working classes. But as Ben Chifley (Australian Labor Prime MInister (1945-1949)) pointed out, these are motivated by the “hip pocket nerve” and I would add by a desire for upward social mobility.
@Neil Wilson According to http://www.gov.uk ‘Bona Vacantia’ means vacant goods (I’m assuming it’s correct on Latin translation) and is the name given to ownerless property, which by law passes to the Crown. Land doesn’t become ownerless unless the owner dies intestate and without known kin. Yes, Parliament can acquire land by Act of Parliament, and has done so in the past for infrastructure, housing development (slum clearance) and most recently HS2. Even with Enclosure, tenants often had rights on the land so had to be bought out. Various rulings make clear that, certainly in peacetime, the rights of citizens are such that (compulsory) purchase is always necessary.
The Crown/MoD and aristocracy of course already own much of England. The ownership of some land is traceable but for many other acres it’s exceedingly difficult.
@ Bill,
Everything you say is true. Taxes on spending, such as Value Added Tax, are much more effective in regulating demand than are taxes on wealth, as the wealthy spend a much lower proportion of their assets on consumption.
However explaining how the economy works to those on the left does present a political problem. We haven’t done this very well and have created a rift between MMT advocates and the only political grouping which is likely to ever give it any credence. We therefore should, IMO, be more mindful of it.
On the one side we have MMT supporters claiming that “we don’t need the money of the rich to spend”. On the other there are those on the left who call for wealth and higher income taxes. We aren’t doing ourselves any favours with accusations of neo-liberalism etc. There have been some depressing Twitter spats between us and those who should be our allies as a consequence.
We should take another look at the need for wealth taxes and taxes on higher incomes. It’s not as if the uber-rich park all spare cash in buying up Government bonds. They spend lots of it in the property and land markets, even space travel and dangerous submarine trips. This spreads out into the wider economy and does have very real effect on aggregate demand. So the use of wealth and higher income taxes to help regulate aggregate demand might be difficult but it’s not something we should rule out entirely.
I read your blogs and like your writing, so it could be said that l am a Chartalist as you are; I support most of your arguments which make so much sense. But sometimes I must take exception to what you say: you addressed only part of the story about PWC.
I have a relative who worked for PWC until the debacle in government. Whilst that relative is sworn to secrecy, I am assured that if it weren’t for outside contractors, the government would flounder, as the amount of ‘dead wood’ in their employment ranks – who could not care less – is rife. In addition, to that chronic problem, there is the lack of skills which the governments have failed to develop over many years. If government rewarded skills then this debacle might not have risen.
My relative worked horrendous hours and if it weren’t for that party and their colleagues the government would cease to function effectively.
As for the reference: more heads should roll – without the facts you have made a sweeping statement. I suggest you wait for the investigation before criticizing the entire group. My relative agrees with you about the protagonists who were involved, including their management, should be dealt with according to law. But the men and women initially involved were roundly and justifiably condemed and dealt with.
Not all employees engaged in such reprehensible behaviour, and do not deserve such criticisms as you say. My relative does not own a Maserati and was and still is a dedicated patriotic Australian, as are many of the former colleagues.
I repeat: if the government were to reward skills then maybe they would not require contractors so please look at both sides of the argument.
“However explaining how the economy works to those on the left does present a political problem. We haven’t done this very well and have created a rift between MMT advocates and the only political grouping which is likely to ever give it any credence”.
True. But, how to do it? It’s not easy.
For example, what is going on at The Australia Institute? I would have thought they were well placed to explain MMT, and that it would be a good fit with their agenda. They certainly understand MMT and even used to write about it, but now they have annual “Revenue Summits” devoted to hand-wringing about the difficulty of raising taxes to fund policies (last year’s keynote: “Expenditure and Revenue: You Can’t Have One Without the Other”).
I’ve asked them (TAI) about this and the answer, roughly, is that MMT confuses the issue and that it’s more important to fix the tax rules. I don’t think this lets them off the hook, but I can see their point.
So, we need another decade of MMTed – and more articles about unnerving truths in The Conversation – but is that the best we can do?
@Neil “You can’t own land in England. You can only hold an interest in land.” All that matters is beneficial ownership. The only thing that obscures beneficial ownership in the Land Registry is ownership by trusts where beneficiaries are not in the public domain. There is a campaign to address this issue.
I cannot see that mass compulsory purchase of individual hereditaments is something that government would ever undertake. Under present legislation the compensation even includes ‘hope value’.
1% own 70% of UK land by acreage; over 60% of UK wealth is vested in land.
I have just become, again, guarantor for my oldest grandson’s student accommodation in Brighton: £7,200 pa – 6 sharing. Council tax is not levied on student accommodation, but even if it were tenants are liable not the landlord. Property tax in the UK is a scandal.
Land value tax is a far simpler solution to the problems of landownership (significantly the housing crisis). Land is easier and hence cheaper to value than buildings.
@Patrick: “The Crown/MoD and aristocracy of course already own much of England. The ownership of some land is traceable but for many other acres it’s exceedingly difficult.”
85% of UK land is registered, most of the rest consists of big rural estates, mainly owned by trusts created to avoid requirement to register when ownership changes under 1925? legislation. The ownership of agricultural land is known to DEFRA as owners claim whatever subsidy has replaced the CAP.
When LVT is introduced there would be enabling legislation to require full registration. Unregistered land would be claimed by the state and sold or rented. In the meantime LVT bills could be sent to tenants with permission to deduct from the rent (which would usually mean no rent passed on at all, so best the tenant tell Registry who they pay the rent to!).
To add to story about grandson’s accommodation: classes start next Monday, he was supposed to gain entry today but one of the 6 is unable to find a guarantor, so he has no idea when he’ll be able to get in. He already has £100k of student debt. But I feel anguish for that poor student who has no one to help them get a room to enable him to start. They would have paid the first instalment of the £9250 tuition fee and have had to apply for a maintenance loan, probably at least another £10k. I’ve asked the estate agent to pass on my contact details to see if I can help and to let me know if ‘management’ refuses.
Apropos “that MMT confuses the issue and that it’s more important to fix the tax rules.”. Please explain the point that TAI is making as I am unable to see it.
To Fred Schilling:
Re: “Please explain the point that TAI is making as I am unable to see it.”
I think TAI’s point is that, if you are trying to change tax policy (e.g. stage 3 tax cuts for the wealthy, or whether the mining industry should be taxed), in the real political world where “the scarcity of taxpayers’ dollars” is an unquestioned article of faith, it is easier to make the case that we need taxes to fund spending than to argue the MMT understanding that there is no scarcity of dollars – and that they’re not the taxpayers’ anyway. It may not be true, but it avoids the impossible task of trying to teach economics in the middle of a political campaign.
Presumably this is an aspect of what Peter Martin was referring to.
It is a standard short term / long term problem. TAI is probably right about the politics in the short term (whether they are successful in changing the tax policy is another matter), but in the long term, if there is ever going to be rational debate about these matters, somebody – I was hoping TAI – is going to have to put in some long term effort to provide a wider public understanding of what money is and how it works.
Thanks Bill. Very useful insights.
Wealth accumulates through market failures. By the time it is in place the tail is wagging the dog. Government can look at its participation in and creation of these market failures. The stage three tax cuts are a good example. Yes, the government can print more money to spend, but without addressing the market failures that money Just ends up in the same place. And the result is an even more powerful tail.