Take Bernie’s tax plan. There is a very big problem with it. It effectively says to Americans that their taxes don’t have to rise (apart from maybe factoring in healthcare) to achieve something like a social democracy. But that is very, very unlikely to be true.
I have always known this day would come when I had to disagree with you, and that it would be about economics. I know you have a degree in economics, but that involved studying the works of economists who had to work within the framework of gold standards and fixed exchange rates. America’s monetary system changed drastically in ’34 when FDR ended the convertibility of the currency to gold to gain the freedom necessary to overcome the great depression and later to mobilize industry for the war effort.
Since that day, and especially since Nixon removed us from the gold standard internationally by ending the Bretton-Woods agreement, the spending of our Congress has been completely disconnected from any revenue position. Treasury debt ceased to be a funding mechanism and taxation as well. Many modern economists are calling for an end to Treasury bonds, or a permanent zero base interest rate.
As long ago as ’45 it was recognized by major economics players that taxing for revenue is obsolete because taxation only draws down the money supply and can’t fund anything past that. Beardsley Ruml, a former chairman of the New York Fed, even wrote a paper titled “Taxing For Revenue Is Obsolete” in ’45. This was not made common knowledge because it was feared that the people would make unreasonable demands that their elected politicians would have to cater to if they really understood economics at the federal level with a fiat currency. Private sector debt is also much more profitable to banks than is public debt and nothing sells private debt as well as austerity.
The price of a true social democracy is simple. People give up somewhere close to half their income to enjoy expansive public goods. That wheel, my friends, can’t be reinvented. To suggest that the average American can pay maybe 25% in taxes — and enjoy European levels of public goods just isn’t a very good one.
This may well be true, but not for the reason you are forwarding. The monopoly issuer of the currency has no use for its own currency back to enable it to spend. It only needs us to need its currency to pay taxes and uses those taxes collected to control inflation. All “revenue” of our government (and yours) is destroyed by paying down the debt that created it in our dual entry spreadsheet accounting system and can’t be recycled to spending after that.
“ALL” spending at the federal level is via new currency creation and new debt. Simple logic would inform one that currency that doesn’t yet exist cannot be collected as taxation or borrowed to fund anything. (Federal) spending “funds” taxes and deficit spending funds Treasury debt, not the other way around. The private sector “funds” the government in terms of real resources, but the government “funds” the private sector in terms of currency and the ability to store value from our commerce.
So half the economy is made up of public healthcare, media, retirement, childcare, transport, and so on — while half is your everyday capitalist iPhones and designer handbags and whatnot.
If we discount the military budget the mix in America would likely prove to be more like 30% public and 70% private funding since the neoliberals highjacked our economy back around ‘75–’80. Their whole purpose is to give as much control of our lives as possible over to “the market” and private funding. Banks, of course, cannot actually create money, so the reserves they pull from their backsides to loan must be paid back, with interest, in “real” dollars created by our federal government.
The federal government’s dollars only account for about 12% of the money circulating, with the rest being created by bank credit. Odd how the debt hawks never predict doom and gloom related to private debt as they do for our public debt.
Americans are not generous people when it comes to their society.
This is primarily because they have been convinced that “they” are paying for the benefits to others with their tax dollars that they “earn” from their employer or their customers. This causes them to be watchful for any waste or fraud and merely hinting that some beneficiary of “their” tax dollars is not deserving can motivate resentment.
It is easy to convince someone that the employer is the “job creator” when they view the money flow in this way. If they better understood the monetary system and the role taxes play in it they would be more generous and thankful for the injections of public money that stabilize the economy and smooth out the ups and downs of the business cycle.
He has to resort to that rhetorical tactic precisely because Americans dislike paying taxes, because they hate their government — because, and this is the part they don’t get — they still distrust the idea of collective action and public goods, deep down.
Bernie would love to sidestep the whole “pay for” discussion completely because he understands the reality of our system and knows that it is reserved entirely for progressives who want the working class to receive some benefit from their government. One never hears the question directed to a conservative who wants to spread some public largess around the MIC or the “job creators”. I am confident in this because I know his econ advisor, Dr. Stephanie Kelton, and have spoken with her about it in social media. He has stuck with her, even making her a fellow of his foundation, for too long to imagine that he doesn’t agree with her.
One cannot blame him for not wanting to get deep into the weeds of economic fine points during a Presidential campaign, especially with a theory that goes against most of what people “think” they know about it. It is much wiser that he just point to people and entities he intends to tax heavily anyway as his source of “funding” for the programs he proposes.
Dr. Kelton is the primary public spokesperson for a branch of economics that is growing rapidly in government and business interest worldwide called MMT, or Modern Monetary Theory. MMT is simply an accurate descriptive lens through which to view the economy and the roles of the various players involved. It is not political or depend upon an ideology, although it does show that we have much more latitude in public spending at the federal level than currently thought and it presents the national debt as a net positive, not an obligation to future generations.
You can’t have an economy that’s a social democracy — half capitalist, half socialist, one where labour has just as much power as capital — unless people are also willing to share up to about half of what they have. It just isn’t possible, by definition.
Once you realize that the system most modern economies/governments now use, fiat currency and central bank clearinghouse, doesn’t actually use tax revenue or public debt to “fund” anything it becomes obvious that avoiding inflation is the only reason to even have taxation of the working class. As long as the real resources exist to realize a goal of the people the money is never the issue for a currency-issuing government preventing that realization.
Any misery in such an economy that can be mitigated with federal spending is entirely a political decision, not economics. The objective for federal spending should be full employment, not a balance of numbers. That is best achieved with a federally funded guarantee of a public service job paying a livable wage with benefits to anyone who wants one. This sets the floor for private employment in every facet, not just wages, and anchors the economy with the hourly wage. It injects newly created money into the economy in a countercyclical manner to the business cycle, making it the primary cost setter as well.
You can’t go much lower than 25% because then you don’t have roads, teachers, and police at all. Going from 25 to 50% is how you have healthcare, college, retirement, childcare, and so on.
Another problem America faces is that it is a Republic consisting of 50 state governments and those states have thousands of smaller governments within them. Each of those governments has taxing authority and provide a considerable portion of the social fabric, but none of them can create the currency to pay for their infrastructure and programs. When those state, county, and local taxes and fees are included the percentage goes much higher than your projected 50% for the average household.
Conservatives have staunchly defended this arrangement to provide control closer to the services. Funding imparts a sense of control and they feel keeping it out of the hands of the federal government prevents unpopular intrusion into operations, especially in education. The only method these smaller governments have to fund what they provide is taxation.
