Claire Connelly is a young journalist specialising in economics and finance. An MMT sympathiser, she has written popular pieces about it.
She wrote “The Case Against Income Tax” about the need (or lack thereof) for income taxes. Although she has “no hard opinions on whether or not to abolish income tax”, as she says towards the end of her piece, it’s evident she finds that possibility attractive, particularly within the Australian context, where tax cuts have been a thing lately.
It’s understandable then that she produces a list of income tax criticisms (going as far back as Henry George, whom she mentions approvingly). A bit more worrisome is that she presents no argument in favour of income taxes.
Ironically, though, she links to an article of a leading MMT proponent, Prof. L. Randall (Randy) Wray, dealing precisely with the need (or lack thereof) for taxes. There Wray explains some misunderstandings about taxes in general and income taxes in particular, and their legitimate uses (because, against a common misunderstanding, taxes do have legitimate uses within MMT, beyond driving the demand for money).
To that end, Wray discusses the work of Beardsley Ruml (whom Connelly also mentions) and asks (my emphasis from here on): “Why, then, does the national government need taxes?”
Ruml -- Wray says -- gave four reasons:
- “As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
- “To express public policy in the distribution of wealth and of income as in the case of the progressive income and estate taxes;
- “To express public policy in subsidizing or in penalizing various industries and economic groups; and
- “To isolate and assess directly the costs of certain national benefits, such as highways and social security.”
Which, one gathers from Connelly’s piece, seems to be what Dr. Steven Hail, apparently a local MMTer, tried to tell her.
Without being an expert, I’ll try my hand at some answers to Connelly’s questions and comments.
Connelly asks: “If income tax were really important, how come those who make the most often pay the least?” The fact that those who earn (not make) the most often pay the least does not prove income taxes are unimportant. It is, instead, an argument for the closing of the loopholes in taxation law allowing that to happen and it’s a demonstration of the influence those who earn the most have on lawmakers and bureaucrats. Wouldn’t the elimination of income taxes only play to their hands?
“[Henry] George argued that a land-value tax” -- writes Connelly -- “should replace all other forms of taxation, ‘leaving labour and capital to flourish freely, and thus ending unemployment, poverty, inflation and inequality’.” If workers and capitalists don’t pay taxes wouldn’t their inducement to demand money be reduced?
Moreover, wouldn’t that increase inequality?
Which lead us to this comment: “In the current climate, with wages stagnating or in some countries even going backwards, it makes little sense to take money away from people already struggling to pay their bills for the sake of an almost permanent deficit.”
That’s all very truth. But there are tax cuts and tax cuts. The one already approved in Oz precisely cuts the taxes the least for people struggling to pay their bills as their wages fall, and the most for those whose salaries have been rising lately. These are tax cuts, the question is: are they good? I fail to see how inequality can fall with that.
That is a misunderstanding that may come back to haunt MMTers: when they say “taxes drive the demand for money” people tend to hear “the only purpose of taxes is to drive the demand for money”. Often -- as I’m sure is the case with Connelly -- it’s an honest mistake which a little thought, hopefully, can correct, thus, this post.
I fear, however, sometimes there’s more than a little equivocation behind it; which may have something to do with its zombie-like resilience.