« Stalin's trick | Main | What's the point of Labour's right? »

January 01, 2016

Comments

Steven Clarke

I agree that a large amount of our incomes comes from social capital. I don't see that taxes are the only payment to social capital - unless you think social capital is synonymous with State capital.

Ian Macmillan

Without taxes, you wouldn't have roads to drive on. Without taxes you wouldn't have governments to make the laws. Without taxes the communities couldn't do anything for their people. Taxes are good in that they bring people together to achieve more than they can achieve on their own. Well said Irving Berlin

odeboyz

The USA's Inland Revenue have a sign above their door that says that 'Tax is the price of civilisation'. This just about sums up this piece.

David

Spot on..... nice...... absolutely socially correct.... I agree....
But of course we know that taxes are the means (the ONLY means) of controlling inflation and redistributing wealth.
I don't think that the many Hedge fund managers that I have met were remotely interested in the redistribution on wealth. Their second-hand Russian Yachts and their second-hand Russian girlfriends were their primary concerns.

Bob

Except that taxes contribute literally nothing.
They get thrown in the shredder. It is the real resources that are freed by taxation that matter. Taxing the rich's savings does nothing.

The problem he has is that he believes that tax has some higher religious or moral purpose. It doesn't. It's just garbage that needs collection. Just like putting out your recycling. You should do it, and should be reprimanded if you don't, but anybody who puts out loads of recycling and then struts around with a superior than thou attitude should be rightly laughed at. Because of course what they are actually doing is likely depriving others of stuff.

Taxation is depressive after all.

Nobody likes paying tax yet it has to be done and therefore it should be kept straightforward and to a minimum - much like cleaning out drains. The good stuff should be done on the spending side. Another reason basic income is such a silly idea - since it cripples the spend side auto stabilisers and requires a basic tax rate of at least 45%.

Minimising taxation is consistent with the loss aversion issues from social psychology - Everybody loves a bung, they don't like other people getting bungs and they certainly don't like having things taken away from them once they've got it.

MMT people understand all the redistribution very well, and it is of course a straw man to suggest that they don't. But we realise that it is not the only tool in the toolbox and that there are better and more specific tools that should be used instead - and that are consistent with human psychology. (Like asset restricting banks for example to make them narrower - which frees up space you don't have to tax into).

Bob

"To avoid redistribution's insecurity, social divisiveness and wasted resources, we could instead distribute income much less unequally in the first place. Then redistribution would be unnecessary and society could avoid all its negative aspects." http://www.truth-out.org/opinion/item/23725-better-than-redistributing-income

Antoni Jaume

"Taxing the rich's savings does nothing."

Sure? I think that at a minimum that ensures the power of the rich does not grows to be overwhelming against democracy.

aragon

Bob,
A Basic Income is a silly idea?

But a Job Guarantee is not ?

They are not mutually exclusive.

I must be missing some insight?

The protestant work ethic?

Or is a basic income like Limbo a circle of hell for the guiltless?

It is not a silly idea, but the minimum absolute requirement of a decent society.
You can implement it as a complex social safety net or as a simple universal payment.

As for automatic stabilisers.

The increase in Government spending just offsets the much greater loss of private spending (counter cyclical).

A Basic Income makes operates regardless of economic conditions and therefore acts as a stabaliser just as much as unemployment benefits.

As for the tax rate what matters is your disposable income, or post tax income, which potentially remains static, with an automatic payment from the Government balancing/cancelling, the extra tax take.

Of course only only those with more than a basic income would pay income tax, and we an not ready to abandon income tax, so that remains a cost regardless of the take.

The Basic Income is merely a computer that credits bank account, with very few changes to entitlement (births, deaths, emigration etc). Unlike the massive bureaucracy needed to manage Unemployment Benefit assessment, the sanctions and changes in demand.

As for co-operatives. Say we have two co-operatives, one is a hedge fund, another provides social care for the elderly, with the current disproportionate incomes. How is that making distribution fair.

Of course you could argue without a capital renter class society would be more equal but if hedge fund (co-operatives) or some other activity were still extract huge rents and social care (co-operatives) were not, large inequality would remain?

We do need to address inequality and distribution of wealth, at source, but (as per the old joke). I wouldn't start from here.

Social justice can always be undermined, especially with the stupid, greedy, or mendacious in charge. It is not a justification for failure to act.

Basic Income a response to costs of punitive benefits regimes. And is not redistribution but a universal right available to all.

http://www.theguardian.com/world/2015/dec/26/dutch-city-utrecht-basic-income-uk-greens

Basic Income in Finland.
http://www.bbc.co.uk/news/world-europe-33977636

Bob

"A Basic Income makes operates regardless of economic conditions and therefore acts as a stabaliser just as much as unemployment benefits."
Nope. When people get jobs, their unemployment benefits stop. When people lose jobs, they go on unemployment benefit. Essentially with BIG you have to raise other stabilisers on the tax side.

You can push for BIG if you like. I just don't think it is likely to get implemented. Try pushing for child benefit to be universal again (essentially small BIG for a child.)

"Basic Income a response to costs of punitive benefits regimes. "

How big is your BIG going to be?

aragon

Bob, Bob, Bob...

I agree about child benefit, and it would eventually become part of Basic Income, paid to the mother.

Benefits act as a tax (80-90 marginal rates) as income rise and the tax system pays benefits, as incomes fall.

Don't automate, Obliterate - Business Process Re-engineering, in other words - Simplify.

Tax: raises Govt revenue, reduces private incomes.

Benefits: raises private incomes reduces Govt revenue.

Tax pays benefits (Tax Credits) but not all benefits).

Tax vs Benefit - That is a distinction without a difference. A Basic Income costs less to administer than Unemployment Benefit, or Universal Credit, due to it's simplicity and static nature.

Meet Alice under the Status Quo and a Neutral Basic Income.

Status Quo

Alice in Work

Gross Income(Pay) £20Kpa.
Income Tax/NI £07Kpa.
Income (UB) £00Kpa.
-------
Post tax Income £13Kpa.

Alice Out of Work

Income (Pay) £00Kpa.
Income Tax/NI £00Kpa.
Income (UB) £04Kpa.

Change

Alice - £9Kpa.
Govt - £13Kpa. (7+4)

Neutral Basic Income

Alice in Work

Income (Pay) £20Kpa.
Income Tax/NI £13Kpa.
Basic Income £04Kpa.

Alice out of Work

Income (Pay) £00Kpa.
Income Tax/NI £00Kpa.
Basic Income £04Kpa.

Change

Alice -£09Kpa.
Govt -£13Kpa. (-13)

And the administrative costs of a Basic Income are lower than the administration costs of Unemployment Benefit. Cost of Administrating Income Tax remains the same.

Council Tax applies at a reduced rate, VAT still applies Basic unemployment benefit is below 4Kpa. Housing Benefit applies.

NB: Same loss in aggregate purchasing power and it's distribution for the economy.


Deviation From The Mean

It is estimated that in Denmark, for example, state redistribution reduces the poverty rate by 25%. So we can hardly say taxes achieve nothing.

There is no relation between taxes being kept to a minimum and economic growth or standard of living. In fact, the UN standard of living index would point to the opposite, i.e. higher taxes equates to higher growth and standard of living.

So we could easily turn Bob's comment around and say, "We should keep taxes at a maximum" or "Not taxing literally achieves nothing" or "Taxes are providing people with stuff who wouldn't otherwise have stuff'.

I think Keynes used concepts like the marginal propensity to consume to articulate this kind of thing.

Economics is very upfront about 'efficient production' (though not really), productivity etc but it serves the ruling interests to have absolutely no concept of efficient consumption, other than in the workplace.

Bob

"So we could easily turn Bob's comment around and say, "We should keep taxes at a maximum" "
You could if you had absolutely no understanding of what I was saying. There is no need to tax savings. For whatever level of spending by government, keep taxes at a minimum. If you want a very high level of spending and high taxes, fine, but keep the taxes at a minimum.
"There is no relation between taxes being kept to a minimum and economic growth or standard of living."
And when did I suggest there was. Why tax more than needed? People don't like paying tax.

Bob

For example let take the case of the floods.

What Modern Monetary Theory tells us is that the state can command any resources available for sale in its own currency. And it tells us that the only constraint on what resources it can command is the inflation constraint - in other words multiple bids for the same item that causes the price to rise.

So the correct approach is to forget about the numbers. They just happen automatically as a consequence of taking action. And they always add up as a matter of accounting. What you need to concentrate on is the engineering resources required. Where are they and what else are they doing at this point in time?

If what they are currently doing is less important than fixing flood defences, then you suspend what they are currently doing and reallocate them to fixing flood defences.

Within construction that is fairly easy because everything needs the State's permission to proceed anyway - via planning and building control. That means you can delay any project currently proposed or operating via advanced policy tools rather than using the primitive price mechanism to bid away resources.

So the State can set a price for a job, and if it doesn't get enough bids from free resources it can suspend activity around the area to free up capacity until it does get enough bids for the job. Projects are then reordered in time with the state's requirements coming first. Since the mechanism used eliminates other offers there can be no multiple bids. Therefore no change in prices and no inflation.

The real costs are then borne by the businesses whose projects are delayed and by the banks whose lending volume will drop as projects are prevented from starting due to lack of available resources. Which would always be the case however you get there.

So, with a correct Modern Money understanding, you end up with a much more precise and direct approach to resource allocation. The correct people and stuff are found, surgically extracted and reallocated in a way that the carpet bombing approaches of 'tax the rich', 'cut foreign aid', or 'expansionary fiscal austerity' could never achieve.

In addition, by concentrating on finding the available actual resources at your disposal, you end up revealing that the engineering talent within the armed forces exists and is much better deployed repairing riversides in Rochdale than rearranging the rubble in some distant land.

It's all very straightforward once you think about it properly in terms of actually getting stuff done.

Bob

"It is estimated that in Denmark, for example, state redistribution reduces the poverty rate by 25%. "
What we want to do is reduce the poverty rate by 100%. The Danish have a foolish currency peg that gets in the way.

Bob

"I agree about child benefit, and it would eventually become part of Basic Income, paid to the mother."

You really don't get it do you. If we can't get universal child benefit then how the hell do you think we can get a basic income!

You have the political reality of operating a social security system in the real world with real human beings. It's not a matter of mathematics or accounting. It's got nothing to do with tedious technical economic issues about the nature of value. It is simply a matter that the default Basic Income Job - "spend the money I'm given" - is not seen as sufficient recompense by the rest of society - even when the payment is universal. That makes it a non-starter.

Much is made of all the 'trials' and 'pilot projects' of basic income. You'll note that none of them ever get any traction after that. This is why. It's a political turkey.

BIG fails in the same way that 'free markets' fail. Because you have these annoying things called human beings to deal with, operating in a social structure that requires a quid pro quo. Something that is innate and cannot be easily wished away.

Receiving money when you don't need it is seen as morally reprehensible, as is spending money and doing nothing of perceived value. Politically they get removed when they show up, or slowly chipped away at best. We've seen this in the UK since the Second World War - increasingly since the 1970s. Even the Universal Pension is moving the wrong way. The age at which you receive the pension is ever increasing despite having a clear contribution element that people can relate to.

If you can convince people that paying a multi-millionaire another £20,000 a year when you can't even give medium level earners £20 a week for their children, then of course you can do it.

The whole point of the comments I wrote is to point out that is politically impossible to do that in any society I'm aware of.

It's going to be hard enough convincing people that work that needs doing is worth paying for and certainly very difficult to maintain an alternative income support model - even though that is the humanitarian thing to do
I could come up with endless headlines, comment threads and quite a few TV shows that use the line: what are you doing that is of value to everybody else? Even the sympathetic press are often very keen to show people on benefits working for charities or volunteering in some way.

Deviation From The Mean

"If you want a very high level of spending and high taxes, fine, but keep the taxes at a minimum."

I don't even know what that means or how you go about determining what constitutes keeping taxes at a minimum.

"And when did I suggest there was."

I think you more than implied that the lowest level of tax results in the best economic outcome, and the evidence says it doesn't.

"Why tax more than needed?"

Maybe for the same reason you would have more hospital beds than are needed? Though how do we say how much is needed?

"What we want to do is reduce the poverty rate by 100%"

yes, but your proposals would take us to more like -10%.

"The Danish have a foolish currency peg that gets in the way."

What that gets in the way of them falling lower in the standard of living index? And Denmark are not the only example. Virtually every nation that tops the standard of living index taxes more than is needed and DOES NOT keep taxes at the minimum required. Though been as they top the standard of living index I guess we could say that the minimum taxes required are way above the minimum taxes required. And this paradox explains why your argument leads to nonsense.

"If you can convince people that paying a multi-millionaire another £20,000 a year when you can't even give medium level earners £20 a week for their children, then of course you can do it."

Well the Tories won the election by pledging to reduce the tax burden on multi-millionaires (or in other words giving them money) while they also pledged to hammer the poorest. So on those terms I guess we can do it and it is a starter!

There is a grown up debate to had had over basic income, the problem with the likes of you Bob is that you can't imagine a world where grown ups debate. You take the dimmest view of people and proceed from there.


Calgacus

Bob:It is simply a matter that the default Basic Income Job - "spend the money I'm given" - is not seen as sufficient recompense by the rest of society - even when the payment is universal.

That "is not seen as" is not really why Basic Income can't work. That is not how the real, academic MMTers argue. It is not a matter of how things appear, but a matter of how UBI / BIG would quickly wreck the economic structure of society in reality.

Deviation From The Mean: There is a grown up debate to be had over basic income.

Not really, not in the universal give $30,000 say to everyone form. It's not a grown-up idea. Grown-ups know it's a horrible idea that can't work. Bob is not arguing against the moronic idea of (Big, untaxed) Universal Basic Income strongly enough.

And if it is not in the crazy form, then BIG is just another name for "welfare". Big deal.

David

Yep... yep... agreed... yep!
But in the end.....
BI or REVOLUTION!
A simple choice brought on by interminable erosion of post ww2 social norms.
An understandable mistake?
No... a neo-con train-wreck.
P.S. or War!

Bob

"yes, but your proposals would take us to more like -10%."

I suggest we should have a Job Guarantee scheme where the state guarantees that some sort of 'useful work' will be available to everybody who needs it, as they need it and for as many hours as they want.

Working full time for such a Job would be paid the minimum wage, which would be the minimum required to be out of poverty.

All benefits and minimum wages would then be scrapped and people would be required to be engaged in 'useful work' if they want any money at all. And that would be it - no specific benefits. Pensioners and disabled people would be treated as working full time.

Where the 'minimum' lies and what is 'useful work' is up for debate. Does it include caring and how does it treat single parents. At what point would you be expected to give up your kids for adoption because you can't afford to bring them up?


"Virtually every nation that tops the standard of living index taxes more than is needed and DOES NOT keep taxes at the minimum required. Though been as they top the standard of living index I guess we could say that the minimum taxes required are way above the minimum taxes required. And this paradox explains why your argument leads to nonsense."

Taxing saving does little good or bad. It is just that it is harder to get elected and it seems silly to take a hit on tax when you don't need to.

Bob

"You take the dimmest view of people and proceed from there."
"Bob is not arguing against the moronic idea of (Big, untaxed) Universal Basic Income strongly enough."

To be clear Basic Income does not a feasible idea *at the moment*

Bob

* is not

Also a very good point here

"Well the Tories won the election by pledging to reduce the tax burden on multi-millionaires (or in other words giving them money) while they also pledged to hammer the poorest. So on those terms I guess we can do it and it is a starter!"

I understand the BIG people are frustrated. Me too. But rich people, especially large landowners, are a political powerful group with excellent PR.

Calgacus

Don't understand what you are saying, Bob. A Basic Income appreciably different from (targeted) welfare spending as it exists right now, as it has always existed, is always a terrible, stupid, sadistic idea. That's not because people need to see other people working. And a JG doesn't require that other benefits be removed, academic MMTers specifically say they do not propose that.

Such a UBI/BIG has two constituencies:

1) morally degenerate plutocrats with normal or above intelligence, who know it is a great way to do the opposite of what group 2 want
&
2) Well-meaning "progressives" or academics, who think their wonderful good intentions excuse them from thinking. Idiots useful to group 1.

The comments to this entry are closed.

blogs I like

Why S&M?

Blog powered by Typepad