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A reminder that taxes don't fund the government they curb inflation. The government funds itself by printing money and taking out loans.

JumpCrisscross 2y ago
> reminder that taxes don't fund the government they curb inflation. The government funds itself by printing money and taking out loans Sort of. Modern monetary theory ignores any stocks of money or money-like instruments at the government, focussing instead on flows. Spending and paying debt is inflationary, taxing and issuing debt deflationary. As an economic model it’s nice. As a policy framework in a democracy it’s nonsense. Practically nobody during the inflation scare proposed raising taxes to destroy cash.
- aldonius 2y ago
  Also there is more than one government (and currency). And sometimes people would like to trade goods and services internationally...
- AnthonyMouse 2y ago
  > Practically nobody during the inflation scare proposed raising taxes to destroy cash. They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action. Capital gains tax includes a tax on inflation. If you own a $100 asset and its real value doesn't change but you have 10% inflation, its nominal value is now $110 and the next time you do a transaction the government will call this a $10 capital gain and collect tax on it, even though the real gain was $0.
  - chii 2y ago
    and that's why it's valid to have a capital gains tax discount. It prevents you from making a loss in real terms due to taxes.
    - AnthonyMouse 2y ago
      It doesn't actually do that though. It doesn't in the example above, for example -- the real increase in value is zero so any capital gains tax collected is a loss in real terms. And it would be trivial to fix it; just adjust the tax basis for inflation when calculating the capital gain. But reasonable tax policy is not a thing that we have.
      - chii 2y ago
        > just adjust the tax basis for inflation when calculating the capital gain. which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. Not to mention that it takes a lot more effort to do this. Simply discounting capital gains tax is sufficient as a simplification.
        AnthonyMouse 2y ago
        > which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. The BLS publishes the inflation numbers monthly. Higher granularity than that is negligible and hardly even measurable; the main issue is when you hold something for many years and the rate of inflation is in the double or triple digits. Also, this stuff is already being done by computers. The computer needs the dates to determine if it's a short-term or long-term capital gain so it can use them to calculate the inflation using the official numbers. > Simply discounting capital gains tax is sufficient as a simplification. The difference is enormous. If you hold something for 18 months and the inflation was 6%, you get the same discount as if you hold it for 50 years and the inflation was 600%.
  - JumpCrisscross 2y ago
    > They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action Those gains also fuel wealth effects. Our tax take as a fraction of GDP has been flat since WWII [1]. An MMT anti-inflationary cash-destruction programme would involve hundreds of billions, perhaps trillions, of borrowing or tax increases (with no increase in spending). That didn't happen for obvious reasons. [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S
    - AnthonyMouse 2y ago
      "As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue by 10% and caused 10% more nominal dollars to be removed from the economy. The part that didn't happen is that the government then needs to not spend that extra money, or else it goes back into the economy and continues inflating prices.
      - ffgjgf1 2y ago
        What exactly is the government spending that money on makes bug difference on inflation, though
        AnthonyMouse 2y ago
        That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
        ffgjgf1 2y ago
        > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.
- oezi 2y ago
  > Spending and paying debt is inflationary, taxing and issuing debt deflationary. Don't these pale in comparison on the flows created by Quantitative Easing?
  - yxhuvud 2y ago
    No, not at all as QE didn't change the amount in circulation. From an inflationary standpoint they are mostly a no-op.
    - JumpCrisscross 2y ago
      > QE didn't change the amount in circulation Amount of what? QE/T changes the amount of money and government debt in circulation.
- orwin 2y ago
  I don't think you're right here: according to MMT, removing money supply (I.E paying back debt and raising taxes) is deflationary,although raising taxes is preferred. I don't understand why strawmaning their positions is constructive (is it still strawmaning if you're saying the complete opposite). You can't make a good criticism of MMT while lying about their ideas. I personally would prefer if MMT didn't exist. Or rather, I don't know. I had a marxist/neo-marxist critique of MMT, but I'm post-marxist now (for the dumbest Canadian psychoanalyst fans: it isn't the same thing, even though your idol seems to think it is).
  - JumpCrisscross 2y ago
    > don't think you're right here I am, but in a fun way. > removing money supply (I.E paying back debt and raising taxes) is deflationary Government paying debt is inflationary (in its own currency). Lender had a debt and not money. Now they have a money and not debt. More MMT ignores money stocks on the government side; we went from investor had paper asset to investor has money. The system has more money than before. This, by the way, is how monetary policy works. The Fed buys bonds (and sells cash) when it wants to boost liquidity. It sells bonds (and buys cash) when it wants to drain it. The Fed has an infinite pool of notes, the Treasury of debt. MMT conceptually fuses these in an academically interesting and politically useless way.
s1artibartfast 2y ago
That simply isn't true. Government spending far outstrips the deficit. It collects 4 trillion and spends 5.
- ffgjgf1 2y ago
  Why? Isn’t that just where inflation is coming from? Of course it’s toned down by growth in productivity, investment, savings etc.
  - s1artibartfast 2y ago
    yes, that is where some inflation comes from. That doesn't mean the government is entirely self funded and tax revenue is not used for programs.
- aeternum 2y ago
  And thus the inflation. In the 90s the US gov had a surplus. Disappointing to see the GP comment downvoted as it is correct. Spending more than we tax will inflate the USD money supply.
vasco 2y ago
Interesting when textbook reply is downvoted.
- hoppyhoppy2 2y ago
  >Please don't comment about the voting on comments. It never does any good, and it makes boring reading. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- blitzar 2y ago
  In economics many of the textbooks should be downvoted, especially if one takes their statements literally
dogbait 2y ago
The poster is quite correct. Suggest those disagreeing have a read of this eye opening whitepaper by the Bank of England on how money is created: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... The government is entirely capable of funding itself through printing money but as the PDF above describes - this will cause inflation. Taxes exist to reduce circulating currency and prevent run away inflation. This is why the US as the reserve currency can sustain greater debt to finance itself before seeing inflationary pressures and the UK (and other countries) cannot.

JumpCrisscross 2y ago

> reminder that taxes don't fund the government they curb inflation. The government funds itself by printing money and taking out loans Sort of. Modern monetary theory ignores any stocks of money or money-like instruments at the government, focussing instead on flows. Spending and paying debt is inflationary, taxing and issuing debt deflationary. As an economic model it’s nice. As a policy framework in a democracy it’s nonsense. Practically nobody during the inflation scare proposed raising taxes to destroy cash.

aldonius 2y ago
Also there is more than one government (and currency). And sometimes people would like to trade goods and services internationally...
AnthonyMouse 2y ago
> Practically nobody during the inflation scare proposed raising taxes to destroy cash. They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action. Capital gains tax includes a tax on inflation. If you own a $100 asset and its real value doesn't change but you have 10% inflation, its nominal value is now $110 and the next time you do a transaction the government will call this a $10 capital gain and collect tax on it, even though the real gain was $0.
- chii 2y ago
  and that's why it's valid to have a capital gains tax discount. It prevents you from making a loss in real terms due to taxes.
  - AnthonyMouse 2y ago
    It doesn't actually do that though. It doesn't in the example above, for example -- the real increase in value is zero so any capital gains tax collected is a loss in real terms. And it would be trivial to fix it; just adjust the tax basis for inflation when calculating the capital gain. But reasonable tax policy is not a thing that we have.
    - chii 2y ago
      > just adjust the tax basis for inflation when calculating the capital gain. which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. Not to mention that it takes a lot more effort to do this. Simply discounting capital gains tax is sufficient as a simplification.
      - AnthonyMouse 2y ago
        > which is fine, except that it's a huge administrative headache, as inflation is not constantly measured, and you will have to estimate it for periods where it's not known. The BLS publishes the inflation numbers monthly. Higher granularity than that is negligible and hardly even measurable; the main issue is when you hold something for many years and the rate of inflation is in the double or triple digits. Also, this stuff is already being done by computers. The computer needs the dates to determine if it's a short-term or long-term capital gain so it can use them to calculate the inflation using the official numbers. > Simply discounting capital gains tax is sufficient as a simplification. The difference is enormous. If you hold something for 18 months and the inflation was 6%, you get the same discount as if you hold it for 50 years and the inflation was 600%.
- JumpCrisscross 2y ago
  > They did though, they just don't call it that because it's implicit in the existing tax system and happens without any legislative action Those gains also fuel wealth effects. Our tax take as a fraction of GDP has been flat since WWII [1]. An MMT anti-inflationary cash-destruction programme would involve hundreds of billions, perhaps trillions, of borrowing or tax increases (with no increase in spending). That didn't happen for obvious reasons. [1] https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S
  - AnthonyMouse 2y ago
    "As a fraction of GDP" is kind of the point. If you have 10% inflation and taxes as a percent of GDP are flat, the inflation has increased nominal tax revenue by 10% and caused 10% more nominal dollars to be removed from the economy. The part that didn't happen is that the government then needs to not spend that extra money, or else it goes back into the economy and continues inflating prices.
    - ffgjgf1 2y ago
      What exactly is the government spending that money on makes bug difference on inflation, though
      - AnthonyMouse 2y ago
        That doesn't matter a lot. They pay it to Lockheed who pays it to employees or subcontractors who buy stuff at Walmart and then prices at Walmart go up by supply and demand. The same thing happens if they pay it to General Electric or Pfizer. To reduce inflation they'd have to throw it in a furnace or otherwise prevent it from going to anyone who would spend it.
        ffgjgf1 2y ago
        > That doesn't matter a lot Depends on what do you mean by “a lot”. I don’t think that many people working at Lockheed spend their entire salary at Walmart every month.
oezi 2y ago
> Spending and paying debt is inflationary, taxing and issuing debt deflationary. Don't these pale in comparison on the flows created by Quantitative Easing?
- yxhuvud 2y ago
  No, not at all as QE didn't change the amount in circulation. From an inflationary standpoint they are mostly a no-op.
  - JumpCrisscross 2y ago
    > QE didn't change the amount in circulation Amount of what? QE/T changes the amount of money and government debt in circulation.
orwin 2y ago
I don't think you're right here: according to MMT, removing money supply (I.E paying back debt and raising taxes) is deflationary,although raising taxes is preferred. I don't understand why strawmaning their positions is constructive (is it still strawmaning if you're saying the complete opposite). You can't make a good criticism of MMT while lying about their ideas. I personally would prefer if MMT didn't exist. Or rather, I don't know. I had a marxist/neo-marxist critique of MMT, but I'm post-marxist now (for the dumbest Canadian psychoanalyst fans: it isn't the same thing, even though your idol seems to think it is).
- JumpCrisscross 2y ago
  > don't think you're right here I am, but in a fun way. > removing money supply (I.E paying back debt and raising taxes) is deflationary Government paying debt is inflationary (in its own currency). Lender had a debt and not money. Now they have a money and not debt. More MMT ignores money stocks on the government side; we went from investor had paper asset to investor has money. The system has more money than before. This, by the way, is how monetary policy works. The Fed buys bonds (and sells cash) when it wants to boost liquidity. It sells bonds (and buys cash) when it wants to drain it. The Fed has an infinite pool of notes, the Treasury of debt. MMT conceptually fuses these in an academically interesting and politically useless way.

s1artibartfast 2y ago

That simply isn't true. Government spending far outstrips the deficit. It collects 4 trillion and spends 5.

ffgjgf1 2y ago
Why? Isn’t that just where inflation is coming from? Of course it’s toned down by growth in productivity, investment, savings etc.
- s1artibartfast 2y ago
  yes, that is where some inflation comes from. That doesn't mean the government is entirely self funded and tax revenue is not used for programs.
aeternum 2y ago
And thus the inflation. In the 90s the US gov had a surplus. Disappointing to see the GP comment downvoted as it is correct. Spending more than we tax will inflate the USD money supply.

vasco 2y ago

Interesting when textbook reply is downvoted.

hoppyhoppy2 2y ago
>Please don't comment about the voting on comments. It never does any good, and it makes boring reading. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
blitzar 2y ago
In economics many of the textbooks should be downvoted, especially if one takes their statements literally

dogbait 2y ago

The poster is quite correct. Suggest those disagreeing have a read of this eye opening whitepaper by the Bank of England on how money is created: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-... The government is entirely capable of funding itself through printing money but as the PDF above describes - this will cause inflation. Taxes exist to reduce circulating currency and prevent run away inflation. This is why the US as the reserve currency can sustain greater debt to finance itself before seeing inflationary pressures and the UK (and other countries) cannot.