One reason I started a blog – really the only one (I have no fantasies about influencing the flow of public affairs) – was to get things clear in my own mind. At the moment, it’s quite hard. I am a card carrying liberal, so am against Trump & Brexit, and in favour of public spending and open debate. This does not mean I have a list of beliefs that all fit neatly together, and I think that’s a good thing. At present, controversialists of both sides appear to believe things according to how it affects their tribe. An example – conservatives who believe in balance budgets say that cutting billionaires’ tax will expand the economy, create more wealth and reduce the budget deficit. Er, sorry, it won’t. On the other hand, though, progressives who have spent years saying (rightly) that far too much is being made of worries about government budget deficits and the National Debt are now apparently alarmed that Trump’s tax cuts will increase the National Debt and leave our children with a financial millstone round their neck. No, no, no – that’s what brainless conservatives say. We know it’s not true, and it doesn’t become true just because the government, outrageously, gives tax cuts to billionaires.
Another lot are Modern Monetary Theorists, who tell us that the government does not need to tax to fund public services, as it can effectively print money. The function of taxation, in this mindset, is to control inflation. OK, it’s arguable, and even the Treasury is now leaning their way on a theoretical basis (though good luck entering an election by telling the voters that there really is a magical money tree). But if tax is there to control the price level, it surely acts by restraining spending, and billionaires actually spend a very low proportion of their income. We’ve been saying it for years, us progressive folk. That’s why tax cuts to the rich don’t reflate the economy. But if that’s true, increasing taxes on the top .01% won’t reduce consumer spending. Logically, if we are using tax in the way that MMTers say, we don’t need to tax the super-rich. Or have I missed something ?
(My view, for what it’s worth: you sometimes need to make a choice between public services and private consumption. If (at a time of full employment) you want to allocate more resources to public works, than you have to throttle back on private expenditure. A progressive tax system is quite a good way of doing that. In fact, it’s the only good way).