According to MMT (Modern Money Theory), taxation is not needed to fund government spending. The "funding" is accomplished by the origination ex nihilo of new money at the behest of government.
Writes Warren Mosler:
Let’s start by looking at what happens if you pay your taxes by writing a check. When the U.S. government gets your check, and it’s deposited and “clears,” all the government does is change the number in your checking account “downward” as they subtract the amount of your check from your bank balance. Does the government actually get anything real to give to someone else? No, it’s not like there’s a gold coin to spend.[...]
Can you now see why it makes no sense at all to think that the government has to get money by taxing in order to spend? In no case does it actually “get” anything that it subsequently “uses. (pp. 14)
The source.
Government Spending Creates the Ability to Tax
Rather than the government requiring money from taxpayers in order to be able to spend, it first has to spend, before anyone is able to pay taxes. Put differently: government being the monopolistic originator of money, it clearly is required to first issue currency as legal tender before it can be paid by anyone in terms of that only admissible type of money.
Rather than the government requiring money from taxpayers in order to be able to spend, it first has to spend, before anyone is able to pay taxes. Put differently: government being the monopolistic originator of money, it clearly is required to first issue currency as legal tender before it can be paid by anyone in terms of that only admissible type of money.
It would appear that government is in a position to spend simply by creating new fiat money, precisely and only because no one else is allowed to originate money. It would be interesting to think through the implications of currency competition in the absence of a monopolistic originator of money; however, this a matter for later examination.
In the meantime, we must ask ourselves, why is there a need for taxation at all?
Why does the government tax the citizenry, if it does not require taxpayers' money to be able to act as government, that is demand certain activities from non-government parties involving monetary remuneration and thus incur costs in terms of its own currency?
Understanding the answer takes some effort of accustoming, and leaves a feeling with me as if my brain is getting twisted or hazed.
Taxation - Regulating Rivalry for Economic Resources between Government and Non-Government
If I understand Mosler correctly, what makes taxes necessary is the need to manage rivalry for the economic resources of society between non-government parties and the government.
Taxes are a tool that enables us to achieve or come close to a sensible balance between the competing demands that the private sector and the government make on the economic resources produced and offered in society.
Assuming a need for government at all, there are at least two types of parties that wish to draw on the resources of an economy: those situated in the government sector and those making up the non-government sector.
Which of the two sectors is going to get which portion of the resources?
By levying taxes, we force the non-government sector to give up some of the purchasing power it would otherwise use to command more of the available economic resources.
Ideally, if there were a right amount of consumption (of society's economic resources) by government sustaining an ideal contribution to the common weal, taxes should be so set that the rest of society is inhibited from pre-empting the resources needed by government to accomplish its desirable functions.
If taxes are set at the correct rate, society's economic resources will be advantageously divided between the government sector (GS) and the non-government sector (NGS).
Hence, Mosler seems to imply the possibility of a perfect division of labour between GS and NGS, some sort of equilibrium setting. Say, the proper claim of the GS is 30% of the economic resources of society, and 70% by the NGS. If taxes are "too low," the GS will be starved of resources and fail to provide the services it ideally ought to offer. If taxes are "too high," the GS is wastefully expropriating resources better left to the NGS.
To be continued at Government Spending and Taxation - MMT (4)
Taxation - Regulating Rivalry for Economic Resources between Government and Non-Government
If I understand Mosler correctly, what makes taxes necessary is the need to manage rivalry for the economic resources of society between non-government parties and the government.
Taxes are a tool that enables us to achieve or come close to a sensible balance between the competing demands that the private sector and the government make on the economic resources produced and offered in society.
Assuming a need for government at all, there are at least two types of parties that wish to draw on the resources of an economy: those situated in the government sector and those making up the non-government sector.
Which of the two sectors is going to get which portion of the resources?
By levying taxes, we force the non-government sector to give up some of the purchasing power it would otherwise use to command more of the available economic resources.
Ideally, if there were a right amount of consumption (of society's economic resources) by government sustaining an ideal contribution to the common weal, taxes should be so set that the rest of society is inhibited from pre-empting the resources needed by government to accomplish its desirable functions.
If taxes are set at the correct rate, society's economic resources will be advantageously divided between the government sector (GS) and the non-government sector (NGS).
Hence, Mosler seems to imply the possibility of a perfect division of labour between GS and NGS, some sort of equilibrium setting. Say, the proper claim of the GS is 30% of the economic resources of society, and 70% by the NGS. If taxes are "too low," the GS will be starved of resources and fail to provide the services it ideally ought to offer. If taxes are "too high," the GS is wastefully expropriating resources better left to the NGS.
To be continued at Government Spending and Taxation - MMT (4)
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