One of my favorite Saturday Night Live skits had Phil Hartman interviewing Walter Mondale (played by Dana Carvey) on a spoof show called “What Were You Thinking?” The basic idea was that running for president while promising to raise people’s taxes isn’t exactly an intuitive political strategy.
Hartman – Mr. Mondale, you ran for president in 1984 on a platform of raising taxes.
Mondale – Yes, I know…
Hartman – Now traditionally candidates have succeeded by vowing to … lower taxes
Mondale – I know, I know…
Hartman – In fact, I believe this applies to all levels of government, including national, state,…
Mondale – I know.
Hartman – …city…
Mondale – I know.
Hartman – …municipal township…
Mondale – I know.
Hartman – …and unincorporated hamlets.
Mondale – I know, I know.
Hartman – So I suppose what everyone wants to know is, what were you thinking?
Mondale – Well… um… I don’t know…
I always thought the piece was hilarious but also highlighted the absurdity of the Republicans’ inflexible insistence on always wanting to lower taxes regardless of the situation, even when we are at war or they have just lowered them substantially or when we need substantially more revenue to meet the government’s obligations.
It’s obviously more difficult to convince people to support you when you’re asking them to sacrifice rather than offering to give them money, but if we never raise taxes and always lower them, eventually we’ll either have to slash people’s retirement security or spend most of our money paying interest on debt. Perhaps Walter Mondale was thinking about these things when he looked at the country’s financial condition in the early 1980s and concluded that we had to roll back Reagan’s tax cuts. In fact, Reagan reluctantly concluded the same thing.
Yet, perhaps we’ve reached a point in this country after several decades of Republican intransigence on taxes that the people are coming around to see Mondale’s point of view. How else would you describe this?
Ten months ago, when the Senate voted to pass a huge tax cut, Majority Leader Mitch McConnell declared, “If we can’t sell this to the American people, we ought to go into another line of work.”
They couldn’t. They tried convincing the public their tax cuts for the rich will mostly go to the middle class, but the middle class doesn’t believe them. “I would have bet you a lot of money going into this year that if you cut people’s taxes by thousands of dollars per year, that would be politically popular,” Republican consultant Ryan Ellis told Politico. “But it has not worked out that way.” As private Republican polling has confirmed, the party “lost the messaging battle” on taxes.
I am not finding a whole lot to be hopeful about right now, but I am comforted to see the American people rejecting the Republicans last tax bill. It seems like a fresh breath of sanity in an environment that has gone completely crazy.
I hope that sanity will extend all the way down to the level of unincorporated hamlets when people go the polls next week.
I feel quite confident you get that that’s in fact the goal — a feature, not a bug. Never mind that they’ll always lie to the contrary. With the lie usually following the classic formulation that “we have to burn the village in order to save it.”
We need to raise the top rates dramatically. Not because the government needs the revenue (it doesn’t) but because taking rich people’s money away from them is almost certainly the only way to prevent them from using their money to direct government policy in ways that wreck the economy for everyone else. And wreck the environment in the process.
The government doesn’t need the revenue? Where did you get that idea?
How money actually works. When the Federal Government wants to hire someone or buy something or pay benefits, it prints dollars and offers them as payment. In order to motivate people to accept dollars as payment, it demands–under threat of force–that taxes be paid with those dollars.
The conclusions are inescapable: Printing money, not taxes, finance Government spending. Taxes are not needed for revenue, they are needed to give value to Government money.
This reality is obscured by the fact that some of the money created by the Government is in the form of bonds. And by the fact that it is in the interest of certain powerful people that you not understand this reality; unreasonable fear that “the debt will burden children and grandchildren” constrains the Government from doing some things they would prefer the Government not do.
Right. No one says “we can just print money and allocate expenditures to things and lower taxes to zero and everything will be fine.” And it might get to a point that taxes we have now “aren’t enough” to finance current obligations. But not yet.
We can’t lower taxes to zero because then there would be no motivation to accept Government dollars, or at least insufficient motivation. Also, well before that point inflation would be a problem.
Taxes do have a purpose, it’s just not revenue.
Once again, this means that Repub fiscal management is optimal in your view.
That’s wrong.
No, the Republican fiscal agenda is aimed at cutting taxes and benefits. Their deceptions about Government being constrained by revenue and deficits burdening children and grandchildren are meant to further their agenda.
I believe that full employment and stable prices are optimal, and I believe those things are possible if the real fiscal constraints are understood.
The Repub fiscal agenda is the intentional creation of massive deficits, by tax cuts and bloated defense spending. Under your theory there’s nothing wrong with that as a matter of sound public finance, as long as Dems succeed in blocking attempts to cut social welfare spending. And what precisely is your recipe for a Dem Treasury Secretary? Obviously there’s no macroeconomic need to raise additional (tax) revenue from Trumpian levels, right?
You either accept there’s an ultimate monetary effect of annual trillion dollar deficits or you don’t. You don’t. Juggling the numbers making up the deficits shouldn’t matter very much.
Under your proposal, there’s no reason for a government with its own currency not to spend whatever it (and its people) would like on defense AND social welfare, as long as some (completely unspecified) level of taxation exists solely to (somehow) maintain the level of public “acceptance” of the currency. No government has operated under such “constraints”, other than failed ones. Nor has any professor of public finance started a course by saying, “well, this is all a charade for public consumption, but here’s the script. We intelligentsia ignore it as hokum. The reality is there are no constraints on the treasury.”
It certainly is true that a treasury with its own currency is not technically going to go bankrupt. And that Repubs intentionally destroy the fiscal position of the government time after time and then argue that social programs have to go. But the idea that there are no actual principles of public finance that a responsible government has to operate within over time if it wishes to maintain the value of its currency is wrong and not supported by any widely accepted macroeconomic model.
Look, we’re on the same team, and I don’t mean to be disrespectful, but putting yourself in the Cheney camp should indicate there’s a problem somewhere….but I think we’ve both made our views pretty well known at this point.
I think you are about there. One cannot simply create deficits forever without dealing with the consequences. At full capacity (employment is a surrogate) further deficit spending will create inflation. So that is the limit. But until then, spend away, the more the better. If you can’t spend, cut taxes and let people spend. Republicans know this.
I think the republicans have a great plan. Reagan, Bush and now Trump have all cut taxes and in all cases at least for a time the economy was great. They then want to cut spending to cut the deficit. Bad they tell us. And we are convinced as Clinton and Obama told us. It almost sounds like the two parties are in violent agreement. But note when the republicans are in power the rules of the game change a little. The dems still haven’t figured it out.
You hear Nancy telling the dems we need paygo. Everything needs to be paid for. And when there is a dem president, like Obama, that is the game plan. It is bullshit just bullshit and we should wake up. The truth is a budget surplus will lead to a recession, so yes we likely need deficits all the time and as large as we can without inflation. We are a capitalist and consumer economy. spend that money to keep it going. The republicans figured this out in the 80s. We still haven’t got a grip on it. But they drive us around with it, like a bull with a ring in his nose.
What you’re missing is that deficits funded on the issuance of debt causes the federal treasury to spend an increasing percentage. of its revenues paying interest payments, and interest payments do not feed, educate or medicate anyone, and don’t build a bridge or airport.
We don’t want gigantic deficits for this reason alone. Since we can print money, we don’t have the same concerns about simply running out of money that most nations have, but that doesn’t mean that we can just print money without it costing us money.
The GOP talks all the time about how entitlements chew up a bigger and bigger slice of the budget, and they do. But they don’t talk at all about how financing our debt does the same thing without anyone benefitting from it.
Not so for two reasons. First the gov can always fund whatever is needed in dollars for interest and still have more raindrops for other things and secondly the fed controls the interest rate. There is a circumstance in which the gov would have to take steps to control interest, but it too can be avoided. In fact what stops the gov from simply no longer issuing debt? I don’t advocate it, but it is possible.
Entitlements could take up the entire budget and we could still pay for it. Now at that level you would likely have to increase taxes to avoid inflation. That is certainly a controlling variable. We control inflation with increases in the interest rate. A better way would be to increase taxes a little and take money out to the economy.
Quite right.
If the government wants to decrease the interest it pays without changing interest rates or the rules of accounting its payment as debt, there are more options.
The government can either borrow directly from its central bank, or if the rules forbid that, set up a bank that it owns that borrows money to the government and borrows money from the central bank. Either of those options means the interest payments ends up being payed to the government, minus the costs of the bureaucracy involved.
There are no constraints on money creation for a monetarily sovereign government, by definition. There are consequences. I absolutely accept that deficits (or surpluses, if that’s the case) have consequences for critically important things like inflation, unemployment, and boom and bust business cycles. So yes, there are principles of public finance that a responsible government must follow.
But Republicans (and too many Democrats) posit that one of those principles is that the Federal Government is financially constrained like a business or household. It isn’t. It has fiscal policy options that are not available to businesses or households (or monetarily non-sovereign governments like state and local governments and Eurozone countries).
Those policy options could create a better economy than we currently have. A big reason it hasn’t happened is that there are powerful people who benefit from the status quo and are actively working to prevent those better options from being seen as feasible.
The first step in fixing this problem is to understand that the Federal Government is NOT constrained like a business or household. It’s constraints are different. And fiscal policies should be evaluated only on their effects on things like employment and inflation. Whether they increase or decrease the deficit is immaterial.
As far as what tax policies I’d recommend, that would certainly include large increases in top rates and cuts in rates for the 90%. Not for revenue purposes, but to make it harder for rich people to bribe congressmen to the detriment of everyone else, and to stimulate demand in the broader economy.
OK, we are now pretty close to broad agreement.
Agree. And tax away some of that inequality in income.
I guess I am being read as some balanced-budget nut. That’s another “conservative” chestnut that has no basis in reality, and ignores the need for increased deficit spending at certain points of time. Keynesianism contemplates deficit spending. I’m sure you agree.
But Keynes would not agree there are no monetary constraints whatsoever upon a public treasury throughout all time…
Agreed. The constraint is inflation. In Keynes time there was also a gold constraint which he basically figured out how to ignore.
. . . a “purpose” of taxes.
But correct that the direct linkage of tax revenues to expenditures, and the Banana Republican pretense that it’s important for those to be in balance (which is a transparent pretext for cutting government services) is wrong.
Well not so much. For discussion of four reasons for taxes. Don’t need taxes to spend. I think it is more one of emphasis,since you can follow it all through and maybe come back to same thing.
http://neweconomicperspectives.org/2014/05/taxes-mmt-approach.html
. . . “need taxes to spend”. I said taxes bring in revenue to the treasury, and that is one of their purposes (i.e., it isn’t just to maintain citizen-consumers’ confidence in the currency — though it does help with that, obviously).
So the question is, why would a government that can print money at will need revenue? Or need to “borrow”? Neither seem to make sense. The government does need to tax, in order to motivate people to accept the money it prints and to control the amount of money in circulation. But revenue? “Borrowing”? Why?
. . . The immediate question here, was in my subject line of the comment Jonf replied to above:
Prompted by him seeming to want to dispute something, somewhere in this earlier comment, but being completely unclear about what it was he was disputing, and not actually offering anything that was in conflict or contradiction of what I had actually said:
The larger question, i.e., the one that I initially weighed in on in response to your assertion of the negative (somewhere upthread there), was whether generating “revenues” is a “purpose” of taxation. It is. Obviously. Approaches self-evidently so.
The questions you now (somewhat irrelevantly) pose have already been validly answered, several times now — including in your own comment I’m replying to — elsewhere in the thread.
Saying “It’s obvious” isn’t an answer to the question why, and you know that.
When I submit a tax payment to the Treasury, some electrons are manipulated in my bank’s records. Then some (presumably other) electrons are manipulated in the Treasury’s Tax and Loan accounts. How does that differ from simply cancelling some of my money and creating some new money? And what does that say about your theory of revenue?
I’m not trying to be cute here, but to understand what’s actually going on below the accounting.
When we were under a gold standard, we could coherently talk about revenues, at least in terms of claims on physically existing gold. But with fiat money, even the idea that the Federal Government “has” or “doesn’t have” money makes no sense, and the idea that the government “needs revenue” or would even have any use for it makes no sense.
What makes this an important point instead of just a dumb philosophical argument is that an entity that “needs revenue” is fiscally constrained in ways that the Federal Government is not. And understanding which constraints are real and which are not is key to optimizing economic policy.
(I.e., the question that I actually weighed in on.) It’s whether generating “revenue” is a “purpose” of taxation.
It is. Obviously. Here, I’ll even drop “approaches” and just state it flat-out that that’s self-evident.
Perhaps you should go back through and read everything I’ve written in this thread. Perhaps then you’ll stop arguing against things I haven’t argued, with arguments I’ve agreed with throughout, with the slight revisions I’ve stipulated.
I basically started out where you and euzoius ended up in consensus (or close enough), if that’s any help.
All this was well known to the people who arranged the financing for World War II, except at that time they mostly used appeals to patriotism to get people to accept the dollars. WWII was, by the way, an excellent example of the power of the Government to create full employment, which is probably the number one thing corporations don’t want the Government to do.
Sorry, you’d get an F in every macroeconomics course in America. There is actually such a thing as public finance. Guns vs. Butter is actually a real thing, incredibly!
We’re talking about money. Guns are not money, and butter is not money. Availability of guns and butter are real constraints. People’s energy and ingenuity are real constraints. The Federal Government’s ability to buy guns or butter is constrained by availability of guns or butter and by people’s energy and ingenuity, not by availability of money which it can print at will.
The levels of Federal spending and taxes are independently determined purely by political decisions, not by external circumstances. What it is able to buy with that money is constrained by external circumstances.
I’ve taken classes in macroeconomics and in money and banking. Incredibly, they almost never talk about money and when they do it’s nonsense, along the lines of “umm, money is kinda like gold, only made out of paper, or something…”
The point being that if people understood the real constraints vs. the fake constraints, they would demand better economic policies from the government. But again, there are certain powerful people and institutions that benefit from those fake constraints and don’t want Government policies like full employment.
Best way I can think about it is taking the usual “health care” question of “how will you
pay for it?” and instead asking “how will we get more nurses and doctors trained?” since that’s the real constraint, not imaginary “pay fors”.
Exactly. And if there are people with excess energy and ingenuity that is not being employed, there is no reason the Government can’t purchase it and put it to use.
For the benefit of us as well as for the benefit of our children and grandchildren.
Ok do,it, but keep in mind that we already pay for health care — every damn nickel and all $3.3 trillion or over ten thousand dollars per person. So the real question here is how do we pay for it more equitably and expand it to include everyone and everything. We now pay twice or more than anyone else in the developed world. IMO that is the result of inefficient use of resources. Think insurance companies and the waste or drug companies and others charging whatever the market will bear.
So the pay for as I view it is to kick insurance companies out and exercise more control over billings for procedures and drugs, as in a single payer and single negotiator. We could keep the pay for about where it is now. Let corporations contribute to Medicare what they now pay to insurance companies and charge a payroll tax on employees. My bet is we save a trillion a year, enough to fund what is missing and no new taxes. But someone needs to do the leg work. Simply saying we will increase taxes to pay for it is not reasonable. Let’s do it first and let it evolve. Deficit? Good that will soak up the unemployed it creates and increase the gdp growth rate. Besides why should grandma suffer if the elites can create a trillion dollar deficit for fun and games?
No he is absolutely correct. Money is like raindrops. You can have as many as you like. In fact most money is created by keystrokes,in a computer and transferred to someone’s account. You can create a trillion dollars in the time it takes to type it ( of,course there are some rules we can ignore here). The real question is do we have the resources to do it. Like I heard Professor Kelton explain it this way. If you have an infrastructure project, do you have the half million labor and steel etc available? Bc if not you will trigger an inflation. So what you mean by guns vs butter is you may have to cut one or the other if you are short of real resources, certainly not money. So in WW2 they rationed the butter so more resources were directed to making bombs. These days the fed raises interest rates when they see inflation coming, like now. And that creates unemployment as more money and resources go to pay it.
Modern monetary theory, MMT.
Deficits and the Debt are just accounting columns.
If the Federal government printed $1T (not creating Treasury Bonds and debt with it), and spent it into the economy without announcing it, there would be just about 0% inflation because of it, and voila, the economy now has an extra $1T floating around in it.
If the government does it well, it can allow the poor people to at least have the cash flow through their hands first, helping with the poorest peoples’ debts. And the money would, as always, end up in the bank accounts of banks, corporations, and the richest people. As it does when the government creates debt with the $1T as it typically does.
MMT is a better model of how a fiat currency economy works. But, because the gold standard was the default for essentially forever before fiat currency, we’re stuck using an old model and method of creating cash.
Taxes are just a way to prevent runaway inflation if the government is creating and spending hundreds of billions/trillions of dollars.
It is silly, though, to think that the government actually has a bank account that gets deposits from taxes, that becomes “revenue” which it can then spend.
Or: the “debt” is simply the amount of money the Federal government has created without pulling it back out of the economy as “taxes”.
The reason they didn’t sell it wasn’t because the public at large suddenly got some level of egalitarian unselfishness and realized we’ve finally reached a point where taxes can’t be cut without doing serious harm. No, the reason was the vast majority of the public realized that they would see no benefit from it. And what small bump in their paychecks they did see was eaten away before they got it, in increased prices in gas, food and utilities.
The tax cuts were a hit though, at the 1% and above level, as these people realized substantial benefit. McConnell didn’t need to do anything; it sold itself to them. But its not enough of them to make the tax bill popular. But dig this: the same people who swore Obama raised their taxes when he didn’t are the same people who now say they see a benefit from Trump’s tax cut, when they don’t. These people are not so much bamboozled as they are willfully ignorant. But this group plus the wealthy is not enough to make the bill popular.
When McConnell made the statement about finding another line of work (I wish they would!) if they couldn’t sell the tax bill, what he really meant was not so much selling but hoodwinking and bamboozling the vast majority of the voters. In the end, they overreached with the tax bill, and really played themselves thinking they could fool the public yet again.
There’s also a bait-and-switch to these GrOPer tax-cut tales. They lower the income tax, and raise FICA. Yeah, guess which takes a bigger chunk out of most Americans’ paychecks?
Sigh.
And then there’s that shitbird Kasich: lowers Ohio income taxes, raises sales taxes, and towns all over the state have to raise local taxes, impose service fees, in order to cope.
It’s not about “lower taxes”. It’s about “lower taxes for the rich on the backs of the middle class and poor”.
Then the point of living in an unincorporated hamlet would be…?
Is it possible that “messaging” can’t always overcome “substance?”
Repub Congressional ads don’t particularly mention their reckless tax cut, but are full of the dire threat that the (particular) Demonic Dem of Chaos + the Witch Pelosi will raise them on Hardworkin’ American Families(tm).
Who knows why this particular “conservative” tax cut fraud didn’t pass muster with the American boob. The fact that it was a very radical reworking of the post-WWII tax code was in the news at the time of passage, but the boobs have yet to file a return under it, since it was conveniently timed to explode after the 2018 midterms.
There was reporting at the time that the repeal of the longstanding deductions regime was done to damage high service Blue states, making this the first expressly partisan tax bill in history. We’ll see how the 2018 tax returns play out in Blue states, whose citizens can no longer deduct state and local taxes and have their (higher value) mortgage interest capped. If Repub calculations are correct, Blue state residents should be getting royally fleeced, while Red staters will see an actual reduction. Obviously the 1% see a massive cut, but the 1%ers living in Blue states will not benefit nearly as much as Red state billionaires.
This partisan aspect of the bill has not been made a feature of the Dem campaign at all. Indeed, Dems, too, have to promise another middle class tax cut, all of which is a charade, as there isn’t any way to further cut federal taxes. The Repubs have recklessly and intentionally wrecked the finances of the federal government, and the tsunami of looming deficits can already been seen, again hitting very conveniently after the 2018 midterms.
Since taxes cannot be raised by one House of Congress alone, the finances of the government are in free fall, and will have to be covered by massive borrowing or cuts to social programs, since both parties insist that the bloated, abusive military is sacrosanct. This means a falling dollar, rising interest rates and inflation under conventional macroeconomic theory, which I know not all here agree with….
The failed electorate is propagandized to “care” (i.e. have manufactured outrage) about the federal budget/deficits when Dems are in power, and oblivious to the issue when the reckless Repubs are running the show. That dynamic looks to continue into the indefinite future as democracy becomes more and more of a failed system. We can turn to the history of the Spanish and British empires to see the final result of extended militarism coupled with fiscal and monetary mismanagement–although the leaders of those vanished empires had far less macroeconomic data and understanding to work with than our Repubs, whose economic misrule is completely knowing and intentional. In any event, that is our future.
I agree with the most of that, in particular the republican plan. It was really clever and the Dems were caught flat footed, as usual. And the ” fiscally responsible” Dems will now agree to a bi partisan bill to cut spending in return for some bullshit, even for further tax cuts on the middle class.
I recall arguing your points on FB with my conservative pals. They all said I was nuts and besides who cares about NY or Calif.
Harper mag has a really interesting article on the coming civil violence emanating from what they see as a permanent.loss of the senate and Supreme Court owing to the small and red states the republicans control. Dems get the house but whatcha gonna do with it? Pass Medicare for all or impeach Trump? Get a life.
Here’s a scary thought. Trump could lock it all up by passing single payer Medicare for all and leave the Dems in disbelief and a dead party, maybe forever.
I want to mention one thing in favor of the tax cuts. I believe the lower corporate tax rate was the right thing to do. In fact there are those who think the corporate rate should be zero.
As the economy becomes ever more corporatized, taxes on corporate operations become ever more important, if only to take all that cash away from deployment for ill by our abusive CEO class. And as for the old double taxation bugaboo, I want double taxation on the rich. And as discussed ad nauseum above, I cannot agree that governments actually have no need of significant tax revenues.
But had we both been in Congress I’m sure we could have agreed on some reduction in corporate taxes on the grounds of doing it to ensure the goddamned things actually pay some! Reduce corporate deductions, and make sure they had to pay the old rates on everything they had abusively off-shored over the decade and, yeah, reduction in rates could be seen as sensible. Of course, we got neither of those things.
I agree we will always need significant taxes, but it is a question of how much you need. I look at it the other way. How big should the deficit be? My answer is about enough to pay for what is being taken out of the economy for things like negative current account, savings and pensions. Maybe more when below full employment which I would solve with a federal job guarantee.
Corporations pay their executives high salaries and take a tax deduction for it. Why allow them to do that? They have get aways for their executives and staffs. Why do we pay for it? So no taxes no boondoggles. And then there is the question of how we compare to other countries, not good last I looked. It makes us less competitive and increases our trade deficits. And corporations pay lots of money to their tax accountants to find ways to avoid taxes, which they have gotten good at but that money is a waste for productivity. There was recently a few trillion dollars kept overseas that if there were no taxes would be brought home and possibly reinvested.
I think I missed a few but Trump lowered the tax to 21% which was a step in the right direction. I will look into what corps actually paid.
Here are taxes collected in 2017 and 2018 per CBO in billions:
2017 2018 Change
Individual taxes 1587 1643 96
payroll taxes 1162 1170 8
Corp taxes 297 205 -92
Other receipts 269 269 1
Total 3315 3328
2018 is preliminary. Maybe that explains why tax receipts are up. Anyway you can see corps are not heavy payers. There is enough baloney in it to look again in a few months. Total spending in 2017 was 4.0 trillion versus 4.1 trillion this year. more baloney I think.
If lower income taxes always leads to higher growth and revenues for the federal government, as the Republicans and conservatives aver, why not just take income taxes to 0%? That should send federal tax revenues on a moonshot, like a beam of collimated light being sent into the void of space. Then, ask the conservatives just how they plan to spend increasing amounts of money of a defense program which doesn’t seem to be defending the nation very well because we keep spending more and more and getting defended less and less. All conservatives want to do is plunder the US treasury for their own bank accounts.
Got a basket to carry your money around? Seriously though, inflation. That stops it.
In 2009 California was facing a budget crisis. The citizens had long supported raising taxes but the GOP refused to allow them to even vote on it. The citizens voted to change the rules in 2010 (Prop 25) which allowed Proposition 30 to be finally put on the ballot in 2012 as a constitutional amendment to raise taxes mostly to save California’s schools.
It passed and a funny thing happened. It fixed the budget crisis.
https:/newrepublic.com/article/112257/california-balances-its-budget-how-progressives-balanced-book
s
https:
http://www.washingtonpost.com/news/wonk/wp/2016/06/17/one-state-raised-taxes-the-other-cut-them-gue
ss-which-one-is-in-recession?utm_term=.951c149e7b25
And now it has a $9B surplus… Kansas? Not so much….
I too hope sanity prevails next week. It still can be done in America.
When I read
I thought the sentence would end with
Dunno why.
P.S. I live in Oklahoma.
. . . to be from.