Reclaiming the Tax: Foregrounding the Public Covenant

Yves here. While some readers will recoil at the suggestion, late in the article, that the US Federal government move towards less progressive taxation, looking at taxes alone is a misleading guide as to whether government interventions are progressive or not. For instance, taxation in Europe is regressive due to the large role of the value added tax and other consumption taxes. However, most countries have very progressive spending. By contrast,:

US income taxes are progressive. Spending is not, so the system as a whole is not redistributive.

By Maxximilian Seijo, a graduate student in the Humanities & Cultural Studies Department at the University of South Florida

On November 15th, 2017, Paul Ryan spoke on the House floor in support of the Foundations for Evidence-Based Policymaking Act. He :

I want to especially thank Senator Patty Murray for her willingness to work together on this issue. We may be on different sides of the aisle, but there’s one thing we passionately agree on: what government does, it should do well. The taxpayer’s money should always be protected, and that is exactly why we came together to write this bipartisan legislation.

Perpetuated by both Republicans and Democrats, the orthodox conception of “taxpayer” money, as seen above, permeates contemporary fiscal discourse.

This conception concludes that federal spending is contingent on tax “revenue,” and calls upon the taxpayer to make sacrifices to ensure supposed “fiscal solvency.” In doing so, it artificially constrains the federal government’s ability to appropriate funds to meet the needs of its polity, and perpetuates continued unemployment.

Modern Monetary Theory (MMT) has long argued against this orthodox vision, attempting to educate academics, policymakers and the public at large that fiscal spending is not constrained by deficits, but real resources. Given the recent passage of the Republican tax bill, and Paul Ryan’s for entitlement cuts in its wake, this debate surrounding the taxpayer is as urgent as ever.

In order to shatter this orthodoxy’s stranglehold on it once and for all, I argue, we also need to construct an alternative image of the taxpayer, one that empowers everyone in a shared potential for public prosperity.

At the recent International Conference on Modern Monetary Theory (MMT) in September, 2017, some scholars on the – to which I also contributed met this challenge with nuance and vigor. During the panel, professor of rhetoric William Saas provoked attendees present and online by putting a positive spin on the “taxpayer” trope, which MMT expressly rejects. In his talk, Saas affirmed MMT’s basic theses on taxpayer money. Namely, money is an unlimited public monopoly and the taxpayer in no sense funds fiscal expenditures. Somewhat counter-intuitively, however, Saas then sought to recuperate the figure of the taxpayer in service of MMT’s broader political project.

First, Saas drew attention to the taxpayer trope’s wide social appeal. Next, he claimed that, rhetorically speaking, the trope’s function is not primarily to reify neoclassical conceptions of money and fiscal policy but, rather, to call government officials and policymakers to account for their stewardship over the economy. As he put it,

When people object to [Steven] Mnuchin’s government-funded getaway or the expenditure of trillions of dollars to finance our military, they are probably objecting first to the perceived bad behavior of their representatives and other officials in Washington rather than to the violation of some sacrosanct principle of home economics.

Last and most important, Saas argued that the taxpayer figure calls into being a far more capacious political subjectivity than either the generic figure of the “person” or the exclusive category of the “citizen” permit. Neither a de facto emblem of zero-sum economics nor a necessary lightning rod for sexist and racist resentments, the taxpayer is first and foremost a political subject who is capable, in Saas’ view, of making a “robust and inclusive claim on representative government.”

Saas’ intervention caused quite a stir, and his paper dominated much of the panel’s question and answer session. Many attendees rebuffed Saas’ challenge, cautioning of the dangers of attempting to turn the taxpayer trope toward positive ends.

However, MMT heavyweights like Bill Mitchell and Warren Mosler seemed more amenable to the provocation. To one attendee’s rejoinder that the taxpayer is not an open and inclusive political subject since not all persons are subject to a tax, Mosler asserted that taxation must be understood in a more general sense as any monetary obligation to government, be it a tax, fee, or fine. Because every money user owes the currency issuer in some form or another, Mosler suggested, the taxpayer does involve the sort of inclusiveness for which Saas is arguing.

Here, I want to deepen and complicate Saas’ critical gesture. To be sure, the taxpayer, and the tax that they pay, are central figures in the governance project MMT describes. Yet I would go further. I contend that MMT permits us to redeem the tax as a social form and to make it the basis of a political demand for full employment.

As MMT demonstrates, taxation drives a currency by obliging persons to work for money that will satisfy their obligation to the government. It does so by disemploying the populace, creating unemployment as a ubiquitous condition involving all currency users.

What MMT reveals, then, is that the ubiquity of tax-induced unemployment lies at the heart of the money relation and the social production it enables. For this reason, I claim, it is essential to foreground the tax relation in MMT’s call for full employment. The result would reimagine the form of the tax itself. If approached thoughtfully, this reimagining could initiate a broad shift in social attitudes that frame the potential of governance with greater force and clarity.

We cannot continue to rely on liberals to define the tax relationship. We must reconstitute it on MMT’s own terms, divorced from failed concepts of “revenue” or “redistribution.” We must conceive of the tax as a ubiquitous socializing force and mobilize its potential for inclusive prosperity.

The Sacred Burden of Money

The link between the tax and unemployment emerges in the origins of modern chartalism, which consists of a fusion of the works of A. Mitchell Innes and Georg Friedrich Knapp. Knapp that money is the “definitive” means of payment originating from a “creation of law.” To create this “definitive” means of payment, Innes , the government obliges the populace to “become its debtors” by “levying a tax.” This initial debt forces subjects to work for the currency in which the tax is denominated. Thus the tax for these early chartalists sits at the center of social obligation and production.

In setting forth this argument, Knapp and Innes imply that the tax is a qualitative, in addition to a quantitative relationship. MMT would later tease out this qualitative dimension.

Whereas the quantitative understanding serves orthodox politics of redistribution, the qualitative character of the tax affords a wider array of policy possibilities. I want to place the qualitative dimension of the tax at the center of contemporary employment politics and rethink the structure of the tax in such a way that foregrounds the reciprocal obligation between the currency issuer and users. We are bound in a covenant wherein money users owe labor to society and the money issuer owes employment to its populace. What is the best way of making this qualitative relation felt?

We find hints of how we might do so in Innes’ own writing. In his canonical , “What is Money?”, he characterizes the money relation as a sacred one. He speaks of the “sanctity of the [debt] obligation.” The word “sanctity” being as “the state or quality of being holy or sacred.”

Within this context, Innes’ statement that “the sanctity of an obligation is, indeed, the foundation of all societies” is a radical claim that places the qualitative indebtedness of the tax central to all social existence.

Further, the sacred aura of this statement could be extended in ways that Innes doesn’t address. The broader historical context of modern Christendom provides an interesting frame in this regard. A recent essay published by Scott Ferguson and Brendan Cook contrasts the quantitative limitations of modernity with a more open and qualitative understanding of governance within Christendom.

Where the Reformation’s underlying zero-sum logic made “the limitation of public spending seem natural and inevitable,” the era of Thomas Aquinas and Dante envisioned “a capacious and expansive understanding of law, government, sovereignty, and, above all, of currency” as still possible. The possibility in the era of Aquinas and Dante can be to its openness to a co-present sense of being, a sense that God was everywhere all-at-once. Evocative of abstract money, this sense enabled an open and “expansive” understanding of currency.

To create taxation that mirrors this sacred sense, we must make evident that taxation and money are literally everywhere, at all times, furnishing social production and consumption through the sanctity of co-presence. It is often easy to forget, as we all rightly indict orthodox thinkers for claiming that taxation funds government spending, that taxes actually do fund government spending, but not quantitatively as orthodox thinkers suggest. Taxes fund government spending qualitatively by enabling this co-presence in the social covenant of obligation.

Emphasizing the qualitative dimension of the tax in this way should seem radical. Both money’s all-at-once-ness and Innes’ debt obligation are radically illiberal descriptions of modernity. They reject contracted reality and conceptions of will and voluntarism that form the ideological of liberalism. They make clear that societies do not form from amalgamations of marginal economic contracts, and that the realm of the political is not furnished by liberal notions of the “social contract.” One doesn’t choose to be a member of a society, membership is determined by a centralizing obligation to participate in a society, an obligation that exists everywhere in this sacred co-presence.

In deriving social understanding from these foundations of chartalism, we must recuperate the tax as a ubiquitous socializing mechanism. Because we are now free from the liberal confines of quantitative “revenue,” our tax policy must first and foremost be tasked with foregrounding this ubiquity.

Reclaiming Tax Policy

Before we rethink the nature of taxation and spending in this vein, it is worth asking how these notions take shape as policy.

One area of the world that partially elucidates how this conception of taxation could function is Western Europe. In Western Europe and Scandinavia, the burden of taxation is closer to being ubiquitously present than it is in the . In 2016, every OECD country with a tax-to-GDP ratio greater than the OECD average of 34.3% was European, with all but two (Greece & Slovenia) hailing from Western Europe or Scandinavia. In comparison, the United States comes 31st with a tax-to-GDP Ratio of 26%.

Many of these European countries with high tax-to-GDP ratios don’t spend nearly enough to overcome the un-employing and deflationary effects of this tax burden. In fact, this under-spending is directly tied to political constraints that have crippled many EU economies.

Notwithstanding, it is evident in the fiscal design of many of these nations that there’s a social and cultural openness to universal social programs and fiscal intervention that correlates with further foregrounding taxation as the central socializing force of social obligation.

In contrast, the vast burden of debt in the United States originates from private sources. One could even conclude that the US’ relative acceptance of privatization is significantly contributed to by this dynamic

My claim is, then, that baseline taxation regimes — excluding “Pigouvian” measures like wealth taxes, carbon taxes, alcohol taxes, etc. — should be less progressive and should foreground the indebtedness of all citizens in a sacred public relationship.

To make up for the inequality effects of these proposed burdensome tax regimes, government spending must nearly always outpace its “revenue” through even higher levels of money creation. In short, governments must spend even more to offset the un-employing, deflationary effects of an evenly distributed baseline of taxation that is qualitatively necessary. This could take the form of multiple structures, designed to address specific national needs. One design that jumps out as potentially viable is the per capita lump-sum tax.

Often called a “head tax,” the per capita lump-sum tax is lauded by orthodox economists for its supposed “Pareto efficiency.” Of course, I am proposing it here for vastly different reasons. In my mind, an equal lump-sum tax assessed to each man, woman, and child in the country gets closest to making complete the ubiquitous co-presence of the debt obligation.

It goes without saying that any regime that would ascribe a $10,000 tax bill to every man, woman and child in the United States would need complimentary spending programs that ensured that every man, woman and child had the means to pay such a debt. Such a tax would function as a social baptism that makes ubiquitously evident the nature of social existence within our modern apparatus of state governance. Now that we are free from the constraint of “revenue,” we are free to perform our taxation. The context of performance as conceived here owes much to Judith Butler’s post-structuralist gender theory. Butler posits that structures of gender are malleable, and that the best way to make evident their malleability is through “.” The most obvious example of this idea is the performance of a drag queen. When a biologically male person dresses flamboyantly and adopts the female gender “role,” they make evident that previously assumed gender structures are conceptions of orthodoxy that mustn’t persist as a rule of “natural law.” Likewise, my baptism of taxation “performativity” seeks to make evident that antiquated orthodox notions of taxation are failed conceptions of a liberal era. In transcending this failed era, we must understand that the form of the tax itself is the only thing that provides us with a claim on governance and employment. Without it, we are left adrift in the wind of uncentered privation.

Coda

When Saas noted that the category of the “taxpayer” is a more “robust and inclusive claim on representative government” than the category of the “citizen,” he lifted the veil on an idea with profound public policy implications. In fact, the tax is the most “robust and inclusive” claim on representative government. Therefore, if we are to “reclaim the state,” as MMTers Bill Mitchell and Thomas Fazi propose in their book, the left must re-establish the tax as the ubiquitous claim on governance that it always was.

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33 comments

  1. Jim Haygood

    Such a tax would function as a social baptism that makes ubiquitously evident the nature of social existence within our modern apparatus of state governance.

    … thus proving that statism is a secular religion.

    In the beginning Gov created the heaven and the earth.

    1. Lee

      Aren’t most religions at their core secular? They may make all manner of metaphysical claims (some more than others) but in the end they serve earthly purposes as regard behavior and power, as well as a means for groups to add to their number through recruitment or force, or to physically eliminate or subjugate other groups.

      1. Steve Ruis

        Religions aren’t secular, by definition, but if you ignore all of the supernatural claims as a distraction, religions serve one purpose: they are a mechanism to control the behavior of the masses for the benefit of the secular and religious elites. If they did not perform that function, they would be rapidly replaced by another religion. Consider that had Christianity not endorsed slavery, it would not have become a state religion of Rome, and then the state religion of Rome, and would probably still be an obscure Jewish sect, if it existed at all.

        Religions serve to control the behaviors of the many for the benefit of a few … period. The details are unimportant distractions.

    2. Adam Eran

      a) The root of the word “credit” is latin: “credere”…meaning “to believe.” Money is, in that sense, dependent on faith. Its historical roots are religious, too. There were money changers in the Jerusalem temple for a reason (and not just because God only takes exact change).

      b) Emile Durkheim, on of the fathers of sociology, points out that there are many opportunities for people in any society to rationally cheat each other (i.e. gain dishonestly), without getting caught. Functioning societies require a kind of irrational allegiance to the society (trust…faith…belief) Durkheim calls “religious.”

      This suggests successful societies rely as much on irrational belief as in rationality.

      1. Steve Ruis

        In part a) you failed to note that the “faith” you mention is not religious faith. As W.C. Fields once said “Everyone should believe in something; I believe I will have another drink.”

        One cannot operate in a culture at all without accepting that things beyond your control will happen in the future as they happened in the past (‘The sun will come up tomorrow, bet your bottom dollar …”). This is belief based upon passed performance which we might just call … I don’t know … evidence.

      2. icancho

        The root of the word “credit” is latin: “credere”…meaning “to believe.”

        … and, at least in the part of UK where I grew up, “credit” was used in that sense of “believe”, though usually in the negative: “you simply would not credit it!”

    3. yamahog

      “All significant concepts of the modern theory of the state are secularized theological concepts not only because of their historical development—in which they were transferred from theology to the theory of the state, whereby, for example, the omnipotent God became the omnipotent lawgiver—but also because of their systematic structure, the recognition of which is necessary for a sociological consideration of these concepts. The exception in jurisprudence is analogous to the miracle in theology.”

      Carl Schmitt, Ch.3 of “Political Theology”

      It’s frightening if he’s right, but he offers a path to salvation to that’s fortunate.

  2. Peter L.

    “It goes without saying that any regime that would ascribe a $10,000 tax bill to every man, woman and child in the United States would need complimentary spending programs that ensured that every man, woman and child had the means to pay such a debt. Such a tax would function as a social baptism that makes ubiquitously evident the nature of social existence within our modern apparatus of state governance.”

    I probably misunderstand Michael Hudson, but the idea I get from listening to him is that we ought to pursue polices of taxing unearned income, such as income that derives from renting out property, or owning a bond, things like that. Labor should not be taxed. Roughly, the point is that taxes should be levied on the right things, things that do not contribute to a healthy and productive people-severing economy, such as happening to have a property right in something that others must pay you for, without you doing any useful labor. Undoubtedly this involves a value judgment about what to tax, but this is something we ought to endeavor to do as a democratic society.

    Maxximilian Seijo is arguing that we should tax human existence itself. This seems fundamentally wrong, even if it did serve purpose of educating people about how taxes drive money and create unemployment and “make ubiquitously evident the nature of social existence.”

  3. masson

    Could the total absence of tax not also serve as a “ubiquitous claim on governance?” That seems like the flip side of this coin.

  4. voteforno6

    I’ve wondered for some time now about what is the best way to get the basic concepts of MMT across to the general population. After reading this, I think that there’s a more fundamental problem. Neoliberalism has smashed apart the idea of the social contract. Until we rebuild that, I have doubts that we would be able to garner widespread understanding and acceptance of MMT and, more importantly, the jobs guarantee.

    1. Mel

      Quite. Making tax debt a sacred obligation without closely examining all the other obligations in society seems like it would run us straight back to the neoliberal.
      A couple of elections back some Republican legislator was proposing that all Americans be sold shares in America for $1 each. That was meant to create a feeling of proprietorship, “skin in the game”, on the part of each American. I don’t believe proponents considered what I would think of my share when one hedge-fund boss would be getting 150 million shares per year.

  5. King

    Taxpayer makes me think of stockholder in that the more you own (or pay but you actually try to avoid that part) the more votes you get.

  6. Dan Lynch

    Disagree with the article. Progressive taxation and redistribution (either directly or through spending on programs that help the 99%) are the cornerstones of progressive policy. Progressives should never support regressive taxation.
    .
    Partly disagree with Yves: “taxation in Europe is regressive due to the large role of the value added tax and other consumption taxes.”
    .
    Europe also has progressive income taxes and wealth taxes, or at least they did before neoliberalism came along. Finland even has progressive traffic fines.
    .
    Partly disagree with Lee: “US income taxes are progressive.”
    .
    Warren Buffet pays a lower rate than his secretary, and that’s even before you include the regressive payroll tax, the regressive state and local taxes, child support (a tax by any other name), and the regressive “fees” that neoliberals like to charge. So no, US taxes are not progressive on the whole. I’m below the poverty level and I pay a higher overall rate than many billionaires.
    .
    The only economic justification for a regressive tax is to throttle aggregate demand when the economy is at full capacity — which has never happened in my lifetime. I would support indexing the payroll tax to the unemployment rate thusly — when unemployment is > 4%, the payroll tax rate would be zero, or possibly even negative. If unemployment fell below 4%, the payroll tax rate would start to kick in, gradually ramping up as unemployment approached zero. That would be one way to implement functional finance, which MMT supposedly believes in but has never laid out a policy to implement.
    .
    I believe it was platinum coin thinker Carlos Mucha who first suggested indexing the payroll tax rate to the unemployment rate.
    .
    Of course, there is no economic reason the payroll tax could not be made progressive, too!

    1. Yves Smith Post author

      *Sigh* What makes the effect rate of the rich lower is not that they are taxed less on income. It is that some, and in many cases, most of their cash flow comes from capital gains, which are taxed at a lower rate.

  7. Paul Cardan

    Perhaps I’ve misunderstood, but the author appears to argue that a $10,000 tax per person will lead to more favorable attitudes towards redistribution via government spending. I’m inclined to say that he’s got the cart before the horse. That is, more favorable attitudes to towards taxation are to be expected when those paying the taxes are on the receiving end of universal concrete material benefits.

    If I have misunderstood, I can’t say that I’m entirely to blame, considering the manner in which the article is written. What, for instance, does this paragraph mean?

    Where the Reformation’s underlying zero-sum logic made “the limitation of public spending seem natural and inevitable,” the era of Thomas Aquinas and Dante envisioned “a capacious and expansive understanding of law, government, sovereignty, and, above all, of currency” as still possible. The possibility in the era of Aquinas and Dante can be tied to its openness to a co-present sense of being, a sense that God was everywhere all-at-once. Evocative of abstract money, this sense enabled an open and “expansive” understanding of currency.

    I find myself at a loss, in particular, when it comes to “openness to a co-present sense of being” and “evocative of abstract money.” The first of these phrases isn’t English. Sounds a bit like Heidegger (which means it’s not even a Germanism – Heidegger only seemed to write in German). Perhaps it’s intended to be an “evocation” of the great thinker, and thus a way to score points with certain readers (the same people who are impressed by references to Judith Butler). Or maybe this is just symptomatic of how people in the humanities are trained to write. And what is meant by ‘abstract money’? Is this meant to refer to a distinct kind of money, as opposed to the kind I have in my wallet? Or is all money abstract? If so, then from what has it been abstracted?

    1. Juliania

      I am also at a loss with the statement asserting that the concept that God is everywhere present arose with Dante and Aquinas, and can somehow be applied to universal taxation.

      If this is an attempt to counter Michael Hudson’s excellent suggestions for a jubilee year in which unpayable debts are forgiven, it falls very sadly short of reaching its target.

    2. Jeremy Grimm

      Reading this post makes me feel like I’ve stumbled into some kind of “Man for All Seasons” drama — “sacred” … “covenant” … “sanctity of debt” … Acquinas and Dante … “a sense that God was everywhere all-at-once. Evocative of abstract money” … a reference to courvee. Without looking at the content of the post’s argument I have grave misgivings with its context. The idea of taxpayer as more “robust and inclusive than citizen” in the Coda is bizarre. Do Corporations and Cartels exist in this economic universe and if so how do they fit in? I’m not sure how MMT ties in with this melange of arguments — one means for constructing the sacred obligations between government and taxpayer?

      Neoliberalism is not an economic theory but a full-fledged Ideology. While I trust that Thomas Acquinas could have Neoliberalism declared heretical and anathema and bring out bell, book, and candle that exorcism will not work against this devil.

      MMT theory is economic theory and not an Ideology — although it might be used as the basis for a new political-economic Ideology. For constructing an Ideology to counter Neoliberalism I much prefer the language of Thomas Paine, Mills, and Chris Hedges and some of the arguments of Veblen and Marx over a return to the arguments and language of the Medieval Schoolmen. [I exaggerate this post’s uses of the Schoolmen — but do they even belong in this chain of argument?]

      And since much of this post seems to hover around the role of taxes and taxation in the good society [term not used in the post] — what about taxes to serve more purely social-political ends as opposed to the economic ends taxes serve and that MMT addresses? Money conveys political power in our society. Taxes on the rich may not make productive capacity available to the needs of government, and need not be used to redistribute wealth. But taxes on the rich can and should siphon off the excess of political power money conveys. And taxes to support government use of productive capacity can serve not to redistribute wealth as much as to provide for the Common Good. And I don’t feel the need to create a sacred burden to argue that government should work to promote, even provide for full employment in the Good Society.

      1. Paul Cardan

        Machiavelli, Discourses, Chapter 55: “[He] who would want to establish a Republic where there are many Gentlemen, cannot do so unless he first extinguishes them all . . .” There are various ways of extinguishing “Gentlemen,” taxation being one of them. I believe Ricardo and Picketty have similar ideas on how to deal with “forces of divergence.” And I agree that great disparities in wealth are politically dangerous, at least if we’re concerned with maintaining something resembling citizen self-rule (which is basically what Machiavelli means by ‘Republic’). Putting the point differently, a democratic society cannot long suffer the likes of Bezos, Gates, Buffett, etc. One way or another, they have to go.

      2. Jamie

        Taxes on the rich may not make productive capacity available to the needs of government, and need not be used to redistribute wealth. But taxes on the rich can and should siphon off the excess of political power money conveys. And taxes to support government use of productive capacity can serve not to redistribute wealth as much as to provide for the Common Good.

        I suppose it does matter on some level what the stated purpose of taxing is, but even if the stated purpose is to siphon off exorbitant political power and provide for the common good, the result is a new, more equitable distribution of wealth. We need to stop fearing the word ‘redistribution’ and reclaim it as a right and proper function of government.

        As usual I follow Herman Daly in my understanding of this, who said we need to optimize not maximize our economy. There were three dimensions along which he suggested doing this. An economy has an optimum allocation of natural resources (for which the market is a superb instrument) an optimum size (bigger is not always better and we need to stay within ecological limits) and an optimum initial distribution of wealth (the market will only perform its allocation magic correctly if everyone has a more or less equivalent access to its goods and services). And it is very much the government’s business to make sure the economy runs near those optimums, which means periodically resetting the distribution. Taxes are the simplest way to accomplish this.

        If I had my druthers we would recognize the redistributive function of taxation as perfectly valid and it would be the unapologetically stated purpose of progressive taxation, along with the prevention of the concentration of political power, a more or less equal distribution of wealth being the necessary precondition for a market’s proper functioning.

    3. artiste-de-decrottage

      Yeah – the language of the article takes it too far with various far-flung abstractions and definitely overdid it with using “foregrounding” about 10 times to an uncertain effect.

      Like Dan Lynch said above, specific policies are needed and the politicians to enact them. This article may be a somewhat intellectually entertaining exercise but ultimately seems to be off base.

      I have this question: how does one compare a $10,000 mandatory tax on everyone to a $10,000 universal basic income for everyone? It seems to me that either idea is a futile attempt to control human societal and economic behavior with arbitrary numbers – if that were the answer, we would have found it by now.

      1. UserFriendly

        I think a lot of people miss the point of this article. Say we tax everyone $10k a year and bump up the minimum wage to $25/hr (or whatever adds it up) and add single payer and a job guarantee and counting looking after children and the disabled as JG jobs, ect to make sure people don’t fall through the cracks. SS could also get a huge bump. Then quadruple the standard deduction on income taxes. eliminate the payroll tax for employers, ect.

  8. Jamie

    One doesn’t choose to be a member of a society, membership is determined by a centralizing obligation to participate in a society

    Actually, membership is determined by accident of birth. All this crap about a “sacred” obligation does not help his case.

    On the other hand, I have recognized the disempowering effect of being excused from taxation. It is true that, whatever the MMT reality is, politically, “taxpayers” have clout that non tax payers don’t seem to have. I have told everyone who will listen that I think federal taxes should be universal and progressive. Even the poor slobs in abject poverty should be taxed $1 (even if they are the recipient of a BIG) so they can lay claim to the respect and influence of being a “taxpayer”, know that they have contributed and therefore deserve to be listened to and served by their government.

    I think he is absolutely right that

    …the category of the “taxpayer” is a more “robust and inclusive claim on representative government” than the category of the “citizen,”…

    But an immense head tax does not follow naturally from this. Nor do I take this as an eternal truth. It is true here, now, but should the understanding of MMT become widespread would it still be true? I believe it is a cultural artifact that “taxpayer” is a more valued category than “citizen”, and I certainly envision a future in which this valuation is reversed.

    …the realm of the political is not furnished by liberal notions of the “social contract.”

    Rousseau was unambiguous about the “burden” of taxation. He stated that it was not the absolute amount of taxation that mattered, but the difference between what was taxed and what was returned to society in the form of public services and amenities that made taxes either acceptable or unacceptable to a people. I don’t know what he is tying to get at with his furniture metaphor, but his proposal to both tax and simultaneously provide the means to pay the tax in order to cement a relationship of obligation does not remove the social contract, it simply amends it. I think he is right that we need to think about ways to bring the true taxing and money relationship to light, but changing the social contract so that citizens are more obligated to the government, rather than so that government is more responsive to the will of the people, seems to me the wrong way to go at present.

  9. Grumpy Engineer

    Taxes actually do fund government spending, but not quantitatively as orthodox thinkers suggest. Taxes fund government spending qualitatively by enabling this co-presence in the social covenant of obligation.

    If the purpose of taxation is primarily to generate a “social covenant of obligation”, which is fundamentally an emotional response, could we not do that with a mere 1% income tax on both earned income and capital gains and have no payroll taxes at all? As the tax code exists today, I hand over a substantial fraction of my income to the US government, which unquestionably inhibits my ability to spend money at businesses where an increase in revenue would enable them to hire more employees or give their existing employees raises.

    As for a fixed $10000 per-head tax forcing “complimentary spending programs that ensured that every man, woman and child had the means to pay such a debt“, how would that actually work? Would the government simply write a check to each person for $10k? [Which would be a round-trip no-op.] Would they lend it? [Debt slaves forever!!] Would they somehow improve the economy so that paying a $10k tax bill wouldn’t be a big burden for anybody? [Like they’ve tried and failed to do for the rising health insurance premiums and college tuition costs that are crushing people?]

    Are federal taxes truly only necessary to manipulate our emotions in hopes of generating a sense of social obligation? If so, I’ve gotta tell you, it’s not working. The predominant emotion that comes through is a sense of anger. If they’ve seized over 20% of my income year after year after year… and it wasn’t quantitatively necessary? Wow. People are going to be really mad.

    If you really want to get people on this bandwagon, start advocating tax cuts. Start with the payroll taxes, which are fundamentally regressive in nature.

    1. paulmeli

      If they’ve seized over 20% of my income year after year after year…

      Seized taxes from income you likely wouldn’t have had in the absence of government spending. Seems like a fair tradeoff.

      Federal spending accounts for about (at least) 50% of GDP for all modern economies. I wonder how the other half would fare with that level of unemployment?

      1. Grumpy Engineer

        @paulmeli:

        Oh, but you misunderstand my point. Read Seijo’s article. He says, “fiscal spending is not constrained by deficits“. And from a strict MMT standpoint, this is true. The government can print money to pay for whatever spending it desires. Because of this, the Feds can continue their current levels of spending regardless of the level of taxes paid. Indeed, they could continue spending at today’s expenditure levels even if tax revenues were ZERO.

        Of course, there might be a downside to printing money to fund 100% of federal government spending, but if there is such a downside, Seijo fails to mention it. According to him, “money is an unlimited public monopoly and the taxpayer in no sense funds fiscal expenditures.” If this is true, why not set taxes to zero? After all, there are millions of people out there who are hanging by a thread financially. Why seize portions of their income (and make their lives more difficult) when government spending doesn’t require it? Or might there be a downside to super-large deficits after all?

        1. paulmeli

          @Grumpy Engineer

          Apologies, I missed your original point completely. As to your response a couple of thoughts:

          Although the government COULD spend without taxation, at the current levels of taxation (not very progressive) TPTB just keep piling money up until now they can buy entire countries, including Congress. And so they do.

          The official MMT position on taxation is pretty benign, apparently because they don’t want to send mixed messages about the necessity for taxation re spending. There is some logic in disconnecting the two because change would otherwise require overcoming two obstacles with legislation. “How are we going to pay for it?” kills all of our dreams.

          I look at taxation at the top as a means to keep the top from becoming too powerful. Savings just piles up. Only about 5% of the $ in existence are invested every year. The money may as well not exist as far as the 99% is concerned.

          “the taxpayer in no sense funds fiscal expenditures.” If this is true, why not set taxes to zero?

          I think zero taxes on the working class would be highly inflationary. I think it’s interesting that we’ve been cutting taxes on the rich since about 1965 and it hasn’t increased GDP growth one iota, in fact growth has declined over that period.

          Reducing or eliminating FICA taxes should bring the economy back pretty quickly but the problem is we don’t know how to make anything anymore. Something has to be done about the massive profits being taken not shared with workers or the rich will just keep piling it up. That’s where our deficits re going.

          1. artiste-de-decrottage

            There are many other problems with bringing the economy back. A huge one is, in the US, your house more and more tends to be your retirement savings vehicle. In Silicon Valley and many other urban areas, even if you paid no FICA taxes, you could still not afford the median home on a median household income. Will you spend more if you have more but still cannot afford what you essentially need? Spending on trinkets and cars and eating out changes nothing.

            Economy and governance are ecosystems, not a mechanism with a handful of cogwheels to tweak. Obviously considering taxes in isolation from the rest of the economy will change next to nothing.

  10. JEHR

    I have always thought that paying taxes was the means be which we become good citizens. I felt that my taxes paid for the public amenities that I enjoyed. I am still confused by those who feel that paying no taxes should be the main goal. It is interesting, however, to be told that we become indebted at the moment of our birth but that that indebtedness suggests we all should be employable in order to pay our debts. It all sounds quite exciting even without the spiritual qualities of ubiquitous debt implied by the article.

  11. Jim

    It will be fascinating to see how the MMT community deals with the issue of the use of language to define political and economic reality.

    If they admit that the language of problem identification can be metaphoric (that it does not transparently reflect a situation that exists in the real world independent of a particular formulation– (for example, a particular conception of the word taxpayer) it seems to throw into question their overall empiricist claim of primarily engaging in pure description when discussing their framework and raises the further issue of why certain decisions about a particular definition or use of a word are adapted–taken that there may always be choices involved in such a decision.

  12. Synoia

    My claim is, then, that baseline taxation regimes — excluding “Pigouvian” measures like wealth taxes, carbon taxes, alcohol taxes, etc. — should be less progressive and should foreground the indebtedness of all citizens in a sacred public relationship.

    A special word about property taxes paid by renters as a part of rent: with landlords getting the tax write off as a business expense appears very non-progressive.

    How progressive is Taxation in the US? With Property taxes (paid by all, including renters), sales taxes and social security taxes, a progress income tax dose not make for much “progressiveness”.

    Further this statement about using MMT needs to be qualified:

    that fiscal spending is not constrained by deficits, but real resources

    Part of the real resources is debt service for the non-sovereign denominated trade.

    As I understand MMT, debt denominated in non-US dollars is a constraint on all governments on the planet which run trade deficits, except the US.

    Or in other words, your country either has a trade sur, is sovereign in US dollars, or it is not sovereign and it’s economy is driven by the demands of the country’s (neo-liberal) creditors.

  13. Mark

    Disregarding the language the article makes two points
    a)taxation is only necessary to force citizens to adopt money created by the government, not to fund its operations.
    b)therefore everyone should pay the same tax and whatever political (e.g. progressive) aims are looked for can be achieved by the right kind of government spending.
    While the first point might be true in the specific circumstances of the current United States the second warrants critic. Both taxation and spending offer ways to implement policy, so why would one ever choose not to use both and govern with only one hand instead? Furthermore it is quite impossible to address the imbalance of power that results from vastly different income by spending alone. As an example: (current USD and prices) person A has a net worth of $1Bn and achieves capital gains of $50mm a year, person B only has a net worth of $50k mostly tied in assets like a car or furniture and hence no capital gains but instead achieves income of $80k a year by selling their labour. Both persons are able to pay a head tax of $10k a year and given enough government spending on health care, transportation, housing, utilities etc. both can achieve a good standard of living. Yet the order of magnitude difference in purchasing power does not change at all or to use a quote Person A is still quite capable “of hiring half the working class, to kill the other half” – not a progressive outcome from my point of view.

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