Comments by "Maria" (@maria8809ttt) on "Six reasons to tax" video.

'Other reasons for raising taxes, of course, include redistributing wealth - for example, to avoid avoid excessive concentration of wealth in the hands of the upper classes-and encouraging (or discouraging) certain industries and/or products (for example, taxes on alcohol or carbon taxes). None of these, however, have anything to do with the funding of government spending, at least as far as currency - issuing governments are concerned.' Professor William Mitchell, one of the world's leading heterodox macro economists.
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'As mentioned, this does not imply that a currency - issuing government should spend or incur deficits without limits, or that fiscal deficit s are desirable per se. Fiscal deficits 'in themselves are neither good nor bad', as ABBA Lerner wrote. 'Any assessment of the fiscal position of a nation must be take in the light of the usefulness of the government' s spending programmes in achieving its national socio-economic goals. This is what Lerner called the 'functional finance' approach. Rather than adopting some desired fiscal outcome (such as achieving fiscal surpluses at all costs), governments ought to spend and tax with a veiw to achieving 'functionally' defined outcomes, such as full employment. Fiscal policy positions thus can only be reasonably assessed in the context of these macroeconomic policy goals. Attempting to assess the fiscal outcome strictly in terms of some prior fiscal rule(such as a deficit of 3 per cent of GDP) independent of the actual economic context is likely to lead to flawed policy choices. Thus, from a progressive standpoint - that is, one that assumes the government's objective to be the pursuit of full employment and increased levels of well-being of its citizens - there might indeed be circumstances in which it is sound for a government to run a fiscal surplus, though more often than not ongoing fiscal deficits will be required. To appreciate this point, we need to understand the sectoral balance (or flow of funds) approach to macroeconomics as developed by British economist Wynne Godley.' Professor William Mitchell. One of world's leading heterodox macro economists.
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'Tax revenue tends to moves counter-cyclically - increasing in an expansion and falling in a recession. This creates an in-built or automatic stabiliser capacity within fiscal policy that attenuates the impact of sudden shifts in non-government spending. To understand this, let us imagine that non-government spending contracts sharply due to a wave of pessimism about the future. Production is cut back and employment falters. The lost tax revenue (and the increased demand for income support) pushes the government's fiscal position towards a deficit (if starting from a surplus) or a higher deficit (if already in deficit), which underpins (provides a floor) in total spending in the economy, without the government changing any discretionary policy settings. So this counter-cyclical nature of tax receipts helps to make the government's net contribution to the economy counter-cyclical, which, in turn, helps to stabilise aggregate demand. Ultimately, tax rates should be set so that the government's fiscal outcome (whether in deficit, balanced or in surplus) is consistent with full employment.' Professor William Mitchell who is one of the world's leading heterodox macro economists.
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The government demands the Bank of England to create a deposit (to that amount required) into the government treasury account.
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Continued :'This represents an increase in the non-government sector's net worth or wealth. The non-government saving of 20 initially takes the form of non-interest-bearing money holdings. The government may decide to issue an interest - bearing bond to encourage saving but operationally it does not have to do this to finance its deficit, as we have seen. An interest - bearing bond is just a piece of paper that says the government will repay a certain amount (the face value) at some specified time (maturity date) and will pay an interest premium in addition (the yield or coupon rate). The non-government sector exchange s cash for the bond if it wants to earn interest and has no use for the liquid funds, which may be held as deposits in private banks. The government deficit of 20 is exactly the non-government savings of 20. Now, if the government continued in this vein, accumulated non-government savings would equal the cumulative fiscal deficits. However, should the government decide to run a surplus (say, spend 80 and tax 100) then the non-government sector would owe the government a net tax payment of 20 and would need to run down its prior savings, sell interest - bearing bonds back to the government or run into debt to get the needed funds. Either way, the accumulated non-government saving (financial wealth) is reduced when there is a government surplus - that is, when the government spends less than it withdraws via taxation. Thus, contrary to neoliberal rhetoric, the systematic pursuit of government fiscal surpluses is necessarily manifested as a systematic decline in non-government sector savings. The government surplus thus has two negative effects on the non-government sector :1,the stock of financial assets (money or bonds) held by the non-government sector, which represents its wealth, falls, and 2, non-government disposable income also falls in line with the net taxation impost. Some may retort that government bond purchases provide the non-government wealth - holder with cash. That is true, but the fiscal surplus forces the non-government sector to liquidate its wealth to resolve its shortage of cash that arises from the tax demands exceeding current income. The cash from the bond sales pays the government's net tax bill. The result is exactly the same when expanding this example by allowing for non-government income generation, private firms and production, and a banking sector. In other words, the national government deficit (surplus) equals the non-government surplus (deficit).' Professor William Mitchell, one of the world's leading heterodox macro economists.
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THE SECTORAL BALANCES APPROACH : WHY FULL EMPLOYMENT REQUIRES GOVERNMENT DEFICITS. 'Macroeconomists simplify the myriad transactions and relationships that camprise a socio-economic system by focusing on broad sectors, which aggregate all these transactions. If, for simplicity' s sake, we split the economy into two sectors-government-and non-government - then the impact of fiscal deficit and surpluses can be seen more clearly. The former is comprised of the central bank and treasury, while the latter encompasses households, firms and private banks (we will leave the rest of the world, that is, the external or foreign sector, out of our analysis for the moment). A very simple example of such an economy, which captures the essence of the relationship between the government and non-government sectors, is an economy with a population of just two: one person being government and the other being the non-government sector. If the government runs a balanced fiscal position (spends 100 and taxes 100 dollars) then non-government accumulation of Fiat currency (money) is zero in that period and the non-government budget is also balanced. Thus, there is no non-government saving in the currency. Let's say the government spends 120 and taxes 100,then the non-government surplus is 20,which can accumulate as financial (monetary assets. This represents an increase in non-government sector's net worth or wealth. Professor William Mitchell, one of the world's leading heterodox macro economists.
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'We have all seen that a sovereign government doesn't really need revenue in its own currency to spend. Some who hear this for the first time jump to the question :' Well why not just eliminate taxes altogether? 1, tax drives the currency. If we eliminate the tax, people probably would not immediately abandon use of the currency, but the main driver for it's use would be gone. The imposition of a tax obligation in currency of the government creates an immediate demand for that currency and a desire to transfer goods and services (including labour) from the non-government sector to the government sector, in order to get hold of the currency." Professor of Economics. One of the world's leading heterodox macro economists. Professor William Mitchell was one of the very few economist that correctly predicted the Global Financhel Crisis, and the way in which the global crisis unfolded. If power had of listened to such Professors the crisis could have been avoided. Mainstream economists missed the build up completely, and were blind sided when the mass private sector debt default levels increased to such a level it caused a liquidaty crisis (panic), as private sector investors removed their investments. At this point central banks step in and absorbed the unprecedented debt default risk with in the global economies. Fiat was used by all advanced sovereign central banks to hold asset values and currency values, while the default risk was absorbed.
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Continued:'It should furthermore be noted that, precisely because of the intrinsic relationship between the government and non-government sector, the fiscal outcome is largely beyond the control of government. For example, if private domestic spending is weak then the fiscal deficit will typically rise as tax revenue declines, irrespective of what government does, and vice versa. The failure to recognise this relationship is a major oversight of mainstream economic analysis. There is another important aspect of the relationship between the government and non-government sectors that is often misunderstood but crucial to understanding the suite of options avaliable to a currency - issuing government. In any monetary system there are financial assets and liabilities. These are specified in monetary terms and can take a multitude of forms. A financial asset could be a bank deposit, some money in your pocket, a government bond or a corporate bond. A financial asset is different form a real asset, such as property holdings or a work of art, because it has no tangible expression. For example, a bank deposit is a virtual statement of wealth. A financial liability is usually a bank loan or some other debt that is owed. The difference between total financial assets and total financial liabilities is called net financial asset. It is different to total net wealth or net worth in that it excludes real assets. Financial transactions within the non-government sector cannot create new net financial assets or destroy previous net financial positions. For example, when a bank agrees to a loan it creates a deposit that the borrower can draw upon to fund spending. The loan is an asset to the bank but also an equal and offsetting liability for the borrower. There is no net gain in financial assets for the non-government sector as a whole from this transaction. Transactions within the non-government sector may alter who owns the financial asset and the form those assets are held in, but they do not alter the net position of that sector overall. For example, a household might use some cash it holds in a bank deposit to purchase a corporate bond. The person's financial asset is now a bond rather than cash and the liability shift from the bank to the corporation that has borrowed the funds. But there is still the same quantity of assets and liabilities in the non-government sector overall.' Professor William Mitchell, one of the world's leading heterodox macro economists.
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'The second reason to have taxes is that it provides the government with a capacity to manage non-government spending to ensure price stability. Taxes create real resource space - that is, free up real resources in the economy (labour and capital), which otherwise would have been used by the non-government sector for private ends-because the non-government sector is deprived of purchasing power. This 'space' is what MMT calls 'fiscal space', and it allows the government the non-inflationary access to real resources necessary for it to fulfil its social - economic mandate. It stands in contradistinction with the neoliberal view of fiscal space, which erroneously assumes that the government can run out of money.' Professor William Mitchell, on of the world's leading heterodox macro economists.
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