Ragging on Ritchie

Simon S Shaw says:
July 23 2021 at 10:27 am
“Tax is the mechanism used to prevent inflation”

Who gets taxed if inflation starts to rise?

And when? Interest rates have been used previously and can be raised every month if necessary. Are you suggesting we should move to a system under which income tax rates could be raised or lowered on a monthly basis? I’d have thought this unwieldy and politically difficult. Do you have an answer to those potential problems?

Reply
Richard Murphy says:
July 23 2021 at 11:06 am
As the IMF now agrees, an interest rate rise will nikt deliver the desired change in the economy: multinational corporations are interest rate and price immune to change. So tax is all we have

VAT can be changed at will

But more importantly, we need a financial transaction tax charged on bank accounts for precisely this reason: that would fairly mute or stimulate the economy as required and could be progressive too

It could also include negative tax rates

Just marvellous.

Certain, some few, corporations are sufficiently well – internally – funded that external interest rates don;t make much difference to their investment decisions. Apparently.

This does fail as a concept because of course a change in interest rates changes the return they can make on their cash piles. If they can earn 30% – just to have a number – on their $300 billion of Scrooge McDuck then why would they build factories to gain a 10% return?

That is, they still face the same incentives and investment hurdles even though they’re not limited by requiring access to outside finance.

But OK, leave that aside.

Inflation isn’t driven by the actions of some few dozen megacorps anyway. They’re such a trivial fraction of the entire economy that they simply could not be the cause. Apple might be – at the wildest estimation – 1% of the US economy or 0.2% of the global (a company share of GDP will be its profits plus wage bill, not turnover). That’s not going to be the root of inflation.

But because of this we must tax each and every movement in and out of an individual’s bank account?

You’re free to say “And don’t talk about inflation. That risk only exists if we overspend – and a pay rise for the NHS isn’t that. That also only happens if we have a non-functioning tax system to claim the spend back – and we have one. So, inflation is not a risk from this.”

Err:

Lesson two is to understand where tax fits into all this, which it does. It is true that making money without limit will result in inflation. Tax is the mechanism used to prevent inflation. It takes the money the government creates back out of the economy.

Odd how a pay rise for the NHS does in fact mean higher taxation, isn’t it? Even when we’re told it doesn’t.

John S Warren says:
July 22 2021 at 7:53 pm
“These entities are not subject to market constraints. They are not even in the market, as such. They do, instead, run their own economies that co-exist with those of countries but are at least in part removed from them.”

I was not sure what conclusions you were drawing from this.

Richard Murphy says:
July 22 2021 at 8:27 pm
That they are macroeconomic agents outside microeconomic influences

Companies get so big that prices, supply and demand, they just don’t affect them.

Economics³ perhaps?

The argument is that, in effect, monetary policy is premised on the idea that all companies are small enough to be subject to market pressures, and that interest rate policies can impose changes on markets that will, because of those market pressures, be transmitted into both corporate and personal behaviour.

However, the assumptions does not hold true, they suggest, when there are companies of exceptional size.

The argument is that some companies are too large to be influenced by monetary policy.

Hmm, well, maybe, but let’s run with it.

So, the man who says that monetary policy is over, that fiscal policy is the only tool we can or should use. Now he says that we’ve got to use fiscal policy to tax companies back to the size where monetary policy works on them. That monetary policy that we shouldn’t and cannot effectively use anyway.

Welcome to Genius³

I know I shouldn’t but I’m going to let the P³ in on a little secret:

Why do we need a balanced budget more than we need education, healthcare, social care, justice services, environmental protection, new social housing, transport infrastructure reform and so much else? I doubt that anyone who proposes a balanced budget can explain that. But because it is assumed that a balanced budget must be the goal all those things that we need – as well as the vital support that so many in the UK are dependent upon to just let them have the most basic of standards of living – are to be denied to us.

The debt paranoia is killing us. There is a whole chapter in my book ‘Money for nothing and my tweets for free’ on this issue. But let me reiterate how absurd this claim is.

The logic of the balanced budget fetishists is that government debt is akin to any other debt, and must be repaid.

No, not really. We have noticed that the national debt has never been repaid, also that it has rarely been diminished by even partial repayment. We’re also away that seigniorage profits have been racking up over the centuries. We have noted these things.

However, we’re also aware of the truth about government. It’s entirely true that there’s a class of things that both must be done and can only be done by government. Say, executing traitors. OK, we’re fine with the idea that something that must be done and can only be done by government is done by government – the only people who can do that necessary thing.

However, we’re also aware that government is always an inefficient method of doing the thing. This must be true otherwise we cannot explain the distressing lack of Remainers occupying gibbets across the country.

Therefore we wish to restrict government to only those things which both must be done and which can only be done by government. Things that do not need to be done – The Arts Council, diversity training – should not be done at all, not unless they gain voluntary funding from consenting adults. Those things which do not need to be done by government – health care provision rather than financing say – should not be done by government.

At which point one of the reasons why we say government doesn’t have an inexhaustible chequebook is simply because we don’t want government to think that it has an inexhaustible chequebook. On the grounds that the more money they think they’ve got the more they’ll try to do and therefore the more they’ll thereby turn to shit.

That is, the reason for constraints upon government spending is because governments are shit at spending money.

It’s true that we have a social care crisis in the UK. Just as we need more healthcare, education, police, justice services, environmental protection and much more, so do we also need more social care.

Ultimately, the government has to at some time decide that what the people of this country needs is not more takeaways, nor more mobile phones, or gambling, alcohol or television channels, but is instead fundamental public services.

You will do as the P³ insist you do, not as you wish to. For he knows what you need and desire, you don’t.

Then national insurance is charged at 12% on the employee and 13.8% on the employer (which is a cost that economists agree effectively comes out of wages, so it’s really paid by the employee). That’s a combined tax of near enough 25.8%, higher than basic rate income tax.

Add on to that the fact that national insurance largely stops, by falling to 2%, when wages reach £50,268 a year (current rates), and the tax suddenly looks very far from progressive.

Agreed that both NIs are coming out of the wages.

But does the man not know that there’s no upper limit on employers’ NI?

Is this ignorance or lying?

Of all the options available to pay for social care national insurance is easily the worst
Posted on July 20 2021

I have posted this threat to Twitter this morning:

“All the members of human society stand in need of each others assistance and are likewise exposed to mutual injuries. The wise and virtuous man is at all times willing that his own private interest should be sacrificed to the public interest.” Adam Smith, 1759.

— Richard Murphy (@RichardJMurphy) July 19, 2021

Blimey. The first sentence is from IIii3. The second from VIii3. In the 6th version (1790) of Moral Sentiments there’re 136 pages between the two sentences. Don’t you think that cramming the two together, without even a hint at the ellipsis, might be, maybe, a tad misleading?

— Tim Worstall (@worstall) July 19, 2021

Richard Murphy has spent some years telling us that the correct measure of the tax rate faced by a company is cash tax paid in that year. All insistences that this might not be quite true have been angrily shouted down:

The Tesco plc case shows that. In 2021 its income statement suggests that it has a current tax liability for that year of £178 million. Adjustments elsewhere in the accounts changed that into a refund of £10 million. Which figure is right in that case? And what is the appropriate tax rate to suggest that the company was paying in proportion to profit? Was it the 21.6% that the income statement suggested, or was it the negative 1.2% that the overall refund suggested? Just to confuse matters, the company paid £255 million in the year: that provides no reliable alternative in that case.

From Richard Murphy’s latest “research”.

Oh.

That identity requires that the opening corporation tax liability, plus the corporation tax liability for the year (wherever it is scattered in the accounts, which is an issue I will come to), less the corporation tax paid, must equal the closing corporation tax liability. This is a simple statement of fact that must be true.

That opening liability is an estimate of the future liability, no?

The closing one also.

And if the estimates – say tax law has changed, or a court case elsewhere has crystallised a surmise about what tax is payable etc – have changed then this statement of fact about the identity is not true.

I don’t have the technical knowledge to know whether this is true or not. So, some of you do. So, is it true?

As an example. Take a not Cadbury, not Vodafone, before the ruling on CFC on EU subsidiaries. The company lists in its estimates of tax to be paid – subject to that confirmation of the law – that tax is payable on the profits in that CFC controlled EU subsidiary.

Through comes the news that Cadbury wins, that Vodafone is free and clear. The closing tax estimate is now clear of that potential taxation of the CFC controlled EU subsidiary while the opening one included it.

Have we, or have we not, just shown that the identity doesn’t hold?

And if tax laws change every year, as they do, and court cases are won and lost with HMRC every year, then estimates of future tax payments will change in this manner every year?

Interesting, isn’t it, how so much of British culture (with a small c) derives from the products of empire. Oranges and sugar to make marmalade;

Marmalade has very little to do with empire.

Take what comfort you can. The worst is yet to come.

Sorry, but it’s true. The country chose Johnson. The harm will last a very long time.

Bill Kruse says:
July 16 2021 at 2:01 pm
On the subject of money printing, indeed; mention it and everyone shouts Weimar and no-one riposts with Rentenmark. Can it be coincidence we are so poorly educated?

The point of the Rentenmark being to put a hard – and believable – limit on money issuance. Which isn’t quite the MMT point you want to make now, is it?

To explain the spleen:

“Would funders be better advised to redirect resources to the investigation of domestic
tax gaps, their causes, implications and the means to both assess them and tackle their
consequences?”

Grift that is, mere grift.

Why the Tax Justice Network is getting things wrong:

Pilgrim Slight Return says:
July 14 2021 at 8:54 pm
Bill Kruse is right and if you have read ‘The Road to Mont Pelerin’ you’ll know that that’s how the Neo-libs work – they infiltrate and influence and depending on whether they are in Government or civil society either promote neo-lib ideas or strangle anything that threatens to expose its hollow cod-intellectualism.

Either I, or Eamonn Butler, has infiltrated them…..

The P³ is now pissed at the TJN. Well, fair enough. It’s just that near all of his criticisms first appeared here as failures in the P³’s own workings.

Hey, maybe he does read here after all?

Steve says:
July 12 2021 at 12:56 pm
@Jonathan

The point is that QE money injected by banks can easily be unwound as and when the time is right.

Reply
Richard Murphy says:
July 12 2021 at 2:28 pm
If it’s so easy tell me why it has never happened?

And tell me what would be the consequence of it?

How would you make it work?

OK. So, we created more money and injected it into the economy through QE. Now, the crisis being over, we’ve got inflation as a result of injecting more money into the economy via QE. In order to get rid of the inflation caused by the rise in the money supply we can – should, could – reverse the rise in the money supply.

The way to do this is to sell the gilts owned by the Bank of England back into the markets. Collect the cash and feed it back into the computers in the basement where it was originally created.

A slightly lighter version would be as the bonds mature, instead of buying more of them simply don’t. Collect the maturing amount and feed into the computers. If government still needs to roll over the borrowing then they must issue new bonds to the market.

This has been done, the Federal Reserve did it for a bit. This is also why QE was designed the way it was, so that this could be done.

But then, you know, that requires some knowledge of monetary economics.

Richard Murphy says:
July 12 2021 at 3:55 pm
I did not ask how it might be do9ne

Why should it be done?

What would be the consequence be?

Could the economy survive it?

What would the interest rate consequence be?

Come on – show you know what you are talking about

Well, the effect upon the money supply would be just the same as the P3’s preferred solution. Less money in the economy because some has been withdrawn and cancelled and so less inflation. The macroeconomic effect is the same whether it’s tax which does this or reversing QE.

Except, of course reversing QE is finer, more granular, better controlled and so on.

I think I have a duty to say that this is complete and utter nonsense. As a co-founder of the TJN, as one of the two people who led it for a decade, who co-created with John Christensen all the policies it still pursues, and who has negotiated on its behalf many times in international arenas, I am deeply embarrassed to see its current chief executive issuing a comment that is so utterly ill informed, reveals so little understanding of political economy, and is simply wrong.

There might even be a lesson here:

My simple suggestion is that if Alex Cobham stopped the abuse of the OECD and others, which has become his stock in trade, and instead invested time and effort in talking to the OECD, negotiating formally and informally, learning the constraints, understanding the mechanisms and working out the arguments that might win rather than delivering the tantrums that can never work, then he might have influenced this process rather than watched it from the sidelines.

Who runs an organisation matters. Which is why CEOs do get well paid. Why people spend rather a long time doing that succession planning. Rather than just grabbing the nearest available unemployed NGO researcher.

TJN has undertaken no innovation since then. I should, however, note that this is unsurprising. Neither Cobham, or anyone else in the tight team he keeps around him, has any actual knowledge of tax, in which none of them have ever worked. Nor do they know anything about political economy. Or tax havens as far as I can tell. Or anything else that is much relevant to tax justice come to that. Their skills are only in NGO management

Well, you know, perhaps you shouldn’t have hired him then?

That paper about copper, Glencore and Zambia being perhaps a clue that he wasn’t very good?

The unfortunate fact is that TJN, and regrettably too many others in tax justice, simply does not understand tax.

That’s rich of course…..

if the increase in capital value was considered to be income (as it is)

Why are we even distinguishing between income and capital value if they’re both the same thing?

As it us, almost every firm of income from wealth is taxed less and enjoys more reliefs and allowances than income from work does. That is, straightforwardly, wrong.

An actual economist would go read about tax theory. Even, possibly, be aware of the bloke who gained his Nobel for explaining why we want to tax capital – and the income from capital – less than labour incomes.

But then that would mean knowing something about economics of course…..