Tag Archives: taxes

Modern Monetary Theory, Taxes, and Inflation

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Japan is examining MMT in its debate over its upcoming sales tax increase [emphasis added].

Some members of Parliament, led by ruling conservative-party lawmakers, argue Japan doesn’t need higher taxes because the country’s inflation is less than 1%. The theory suggests tax increases are needed only when inflation is out of control.

Notice that: MMT says increasing taxes is a means of controlling inflation.  The idea is that taking money away from the citizens reduces demand and so inflationary pressure.  There are a couple of problems with this concept.  One is that government revenue gets spent so Keynes’ aggregate demand goes unchanged, except for a bit of Government-as-middle-man friction.

The other is that, as our own Progressive-Democratic Party annually demonstrates, lowering raised taxes (or simply lowering taxes) is deucedly hard to do.

I offer an alternative solution to combatting out of control inflation, or even inflation that is simply higher than we want it to be.

To the extent Government (I’m omitting the Federal Reserve System on the naïve theory that it is independent of Government machinations—it is intended to be) intervention is useful at all in combating inflation (that utility is not established), here’s an intervention technique that any modern Keynesian should love: instead of raising taxes, cut Government spending.  After all, goes the Keynesian song and dance, Government spending is stimulative, so the increased demand is inflationary.  Cutting the stimulus ought to reduce inflation.

Puzzling Through Tax Breaks

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The Progressive-Democrats, and too many Republicans, in Congress are trying to sort out what should be done about expiring tax breaks.

Here are some of the expiring or about to expire tax breaks:

  • incentives for biodiesel production
  • deductibility of private mortgage insurance
  • tax credits for investing in low-income areas
  • employers’ family-leave plans
  • expansion of the earned-income tax credit

The answer is really quite simple and straightforward, if extremely difficult politically: let them all expire. Our Federal tax code should not be used for social engineering; it should be used solely for its constitutionally mandated purpose: to fund our Federal government.

Economic Performance

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…and one Progressive-Democrat’s tax proposal.  Although, the fact is that these effects aren’t unique to Senator and Progressive-Democratic Party Presidential candidate Elizabeth Warren (D, NM): the trend of effects are the outcomes of all the Progressive-Democratic Party’s proposals, differing only in detail.

Warren’s particular proposal is to tax business profits above $100 million at 7%.  Here are some outcomes of such a thing, according to the Tax Foundation, with the FoxBusiness cited.  A tax like this would

  • reduce incentives to invest, so GDP would shrink by ~1.9% over the long-term
  • reduce a firm’s capital by 3.3%
  • reduce wages by about 1.5%
  • eliminate as many as 454,000 full-time jobs
  • reduce after-tax income across the entire economy by 0.93%, with the biggest reductions on the top 1% of taxpayers
  • considering that shrinkage of our economy, after-tax income reduction could be an even larger 2.16%

But, hey, it gets after that hated 1%, so it’s all good.

This is of a piece with all Progressive-Democrat tax ideas, based as they so much are on their belief that the money really isn’t the business’ money, anyway.  They didn’t earn that.  They had (Government) help.

Fair Share of Taxes

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Senator and Progressive-Democratic Party Presidential candidate Bernie Sanders (I, VT) says the rich should pay more taxes than they do already and that if only they paid “their fair share” Party’s socialist dream programs could all be paid for.  He repeated that demand on last Monday’s Town Hall with Fox News.

On the other hand.

According to data released recently by the Internal Revenue Service, compiled by the Tax Foundation, the bottom 50% of taxpayers paid about $43.9 billion in income taxes 2016—which accounts for roughly 3% of all income taxes paid.

The top 1%—Bernie’s second favorite target, at that Town Hall and everywhere else he speaks—pay

37.3% of all income taxes paid during the same year

That works out to $545.8 billion.

Those are dollars.  Here are the tax rates actually paid by those two groups.

the top 1% paid at a 26.9% individual income tax rate
the bottom 50% paid at a 3.7% rate

The rap on President Donald Trump’s and the Republican Party’s tax reform is that it gave the bulk of the tax cut to those Evil 1%.

Well, duh.  The reform’s tax cut here was an across the board reduction in rate and a consolidation of brackets, so that all taxpayers got essentially the same reduction in rates—with many middle-class taxpayers getting pushed into a lower bracket for an even greater reduction in rate.  However, those 1%-ers remain in the highest tax bracket, they still pay the most, by far, dollar amount—and so of course they saw the largest dollar reduction.

Beyond that, the personal income tax rate reduction is only temporary, and if the rates and brackets revert to their previous levels, it’ll be the middle-class that’s hardest hit.  Nevertheless, Progressive-Democrats in Congress refuse to allow the personal tax reductions to become permanent so they can have a talking point about their own second favorite target for the 2020 elections.

From that, it’s only natural that Sanders and his Progressive-Democrat cronies constantly avoid (refuse?) saying how much is “fair share,” just that it’s more, more, more, gimme, gimme.

Progressive-Democrats are the modern epitome of an 19th century railroad magnate:

Anything that ain’t nailed down is mine, and if I can pry it loose, it ain’t nailed down.

Tax that Rich Man Behind the Tree

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Now the Progressive-Democrats, in their fever pitch to increase taxes, want to tax phantom profits.

Oregon Senator Ron Wyden (D) [is] reviving plans to make capital gains taxes due annually….

Another Progressive-Democrat, Jon Summers (ex-Communications Director for ex-Senator Harry Reid (D, NV)) rationalized this chimera tax this way:

We’re spending way more money, billions of dollars more, a year than what we are actually bringing in in revenue. We’ve got a debt of $22 trillion, a record debt that has only skyrocketed under this administration. So, Democrats are trying to come up with a solution to bring some sanity back[.]

No, they’re not.  They just want to tax anything they can dream up. Were they serious about trying to come up with a solution to bring some sanity, they’d look for ways to cut spending—but that’s literally inconceivable to them.

Most Americans—the vast majority of us with a sane understanding of revenue flows—know that there are no gains, capital or otherwise, unless and until the underlying asset is disposed.  Until then, any perceived change in value is nothing more than hope or dismay.

Most Americans—the vast majority of us with a sane understanding of the American sense of property—know that the asset, the unrealized gain or loss, and the eventually realized gain or loss are those of the asset owner; they’re private property.

Sadly, Wyden and his cronies don’t believe that.  They act as though the asset and the associated money is Government’s, and those men of Government only let a citizen use the things for a time.