A discussion led by Phil Stevens on terminology.
Sin taxes are taxes, but otherwise we should call it rent or royalties. There is a widespread belief that tax or borrowing is the only way governments can get money and it is false because governments can create money. It is just that 98% of our money is created by private banks.
There are a number of mantras that are equally false but have become the dominant discourse – e.g. that a surplus is good. Professor Steve Keen and others have explained it isn’t true but if you say it often enough people believe it. What is income tax then? Phil answers it is theft.
Unfortunately I missed this session.
I have a different angle on this subject. I agree that most people believe that the government taxes its citizens to fund its expenditure. In fact it’s around the other way.
As you say, Phil, governments can create money. They simply spend it into existence. Modern Monetary Theory would argue that the purpose of taxes is to pull money out of the economy, thereby regulating the level of economic activity, ie to stimulate or to dampen it, depending on what private households and businesses and imports/exports are doing.
That’s at the macro level. Within that, it’s a question of what level to set each tax/royalty/rent/etc to encourage or discourage certain behaviour. And there’s a huge range of possibilities, and a huge range of debate about what they should be.
I agree that the language used is important, as it encourages/discourages in itself. If it relates to the monopoly use of a common asset, “rent” is far more descriptive than “tax” or “royalty”.
I don’t know that income tax is theft. You could say it is setting taxes based on ability to pay, which is ok isn’t it? Rent based on productive capacity is not too dissimilar? Or are you saying that there should be no tax on income at all? What if rent and sin tax alone is insufficient for the government to regulate total economic activity?
Some thoughts
Marty
Income tax is never directly correlated to ability to pay, since the lower you are on the income ladder the greater proportion of your earnings are going directly to your living expenses. If you dissect the tax codes of any nominally democratic state, you’ll see all sorts of attempts to fix this and make them “progressive” on one hand, while at the same time littering them them exemptions which are only available (not to mention of any value) to higher income households.
The “theft” remark could be construed as facile (I like to use it both for its shock value and because it’s such a timeworn trope of the anti-tax libertarian school of thought). But I think in the context of what tax policy should be trying to achieve, the present system which puts most of its weight on taxing economic activity in the form of income tax and GST serves to inhibit these activities, or drive a fair number of transactions under the table. By taking money out of circulation via rents on monopoly use of the commons, or taxes on negative behaviours, we remove the drag on motivation and the circulation incentive.