How Much Tax Should We Pay

Understanding the Meaning of Taxes and How Much Should We Pay (the case for 0% and 100%) feat. MMT

What are taxes? Why do we pay them? Why do we need them?

Taxes come in many flavours, each one targeting different things, and having different purposes. There are taxes meant to collect from the surplus generated in the economy, such as income, profits, and capital gains. There are taxes meant for social security contributions. There are taxes on property. There are taxes on the consumption of goods and services. In Denmark, for example, the total tax revenue of the government is 47% of GDP compared to 27% in the United States.

Income tax is only a small part of all the taxes collected by the government. Some countries, like the Bahamas have zero percent income tax. Romania has 10 percent. Canada has a top 33 percent, which is applied in brackets, and never on your entire income. If we zoom out and look at all taxes paid by people with a job, they range from 7% total tax paid on the average wage in Chile to 53% total tax on the average wage paid in Belgium.

What are taxes in the first place? The view according to Modern Monetary Theory is that the imposition of a tax that is payable in the national government’s own currency creates the demand for that currency. In other words, for example, the United States government has imposed taxes in order to create demand for the dollar. They said, “You have to pay me taxes in dollars, so then go find those dollars so you can pay me.” The government also created the dollars themselves, which people and companies were supposed to use between them, and pay some of them back to the government. You can think of taxes as a subscription everyone pays to be the citizen of a country, or in the case of companies, a fee required for doing business in that country.

The answer to the question how much tax should we pay is this: Tax rates should be set so that the government's fiscal outcome (whether in deficit, balanced, or in surplus) is consistent with full employment. (Macroeconomics, p 325)

What that means is that if taxes on business are not too high, companies will have enough money to create jobs, because they will have to pay less in tax. But if taxes are too low on corporations, the government will have less control on what happens in the economy, and of course the government will collect less taxes. Fundamentally, what really matters for a government is that the economy is stable, that people have jobs and income to make a living, and the needs of everyone are satisfied. The government collects taxes to keep the economy stable and running at its maximum potential, and not because it needs the money. The government makes its own money.

Full employment means that everyone can have a job if they so wanted, even if that does not match their expectations, more or less. Full employment means people are not laid off because companies are looking to cut costs. Therefore, taxes of all kinds should be set at such a level, that the government’s balance sheet is as much as it needs to be in order to ensure that everyone can get a job, if they so wished.

This brings us to several contradicting interpretations. Most libertarians and conservatives think that taxation is theft. This rests on the assumption that all wealth accumulation is the result of private enterprise and individual effort. Meritocracy and free market is all there is, therefore the owners of assets are entitled to all the results of their work. This view is quite wrong because it forgets that all economic activity of wealth accumulation happens in a social environment, on common roads, on common electrical grids, on common use of land and resources, on the state acting as an entrepreneur itself.

The opposite view is the anarchist position that property itself is theft. You can argue that all property should be taxed because property is a social fabrication, a convention, which means there is no actual entitlement to any property whatsoever. This is a long stretch, of course, however it holds some truth. At its core, all property is defined thorough a set of laws, social contracts, social relations, and the intervention of the state. But property itself is not stealing from the common good, if citizens already participate in using that common good, whether it is roads, bridges, schools, hospitals, forests, land. If the common good is managed by democratic means, by egalitarian principles, with equal participation, then there is no reason to think that one humans steals from the other, when using that property. And this is not talking about Communism, this is just imagining a participatory economy, centred around the preservation of all life, where the satisfaction of needs presupposes social interactions and a social contrat.

Defining property in different ways leads you to different interpretations about what taxing property actually means and what is the purpose of taxes in the first place. Take the Trump tariffs, for example. They are taxes on the import of goods, which are supposed to motivate businesses to manufacture the goods at home instead of buying them from other countries. Jobs will be created as a result, allegedly. This is supposed to be part of some massive economic masterplan that involves keeping the supremacy of the dollar. I doubt there is anything of a brilliant masterplan in the current imbecile US administration.

The Trump tariffs are already failing for several reasons. They have upset the capitalist status quo, which is expressed through the behaviour of stock markets. They have caused massive social push back on the side of consumers. They are putting traditional allies in defensive positions, while they are losing trust in the ability of the US to keep the capitalist order. And finally, the tariffs will fail to boost local jobs, simply because they do not have a policy of full employment attached to them. There is no Job Guarantee plan, to give well paid jobs to anyone who wants one. Quite the opposite. The US government is cutting jobs, not creating jobs.

Let’s say we did not tax wealth but the wealthy somehow invested all their wealth back into the national economy by creating good paying jobs, not just pure financial speculation. In this scenario the condition for full employment might be satisfied, and we won’t even have to to increase taxes. This will also have the effect of reducing economic inequality. This will eliminate the need for tariffs, because the people will be able to produce for themselves, and rely less on imports. Will the super rich do that willingly? I highly doubt it.

This is why taxes should aim both at reducing inequality drastically, achieve full employment, and establish planetary boundaries for economic behaviour. All 3 elements are important in determining the level of the tax, regardless if it is income tax or tax on wealth.

Here are some suggested numbers:

• Three brackets for income tax, from 0% to 100% above a certain limit that is determined by a 1 to 5 maximum income gap—meaning the maximum income is five times the lowest income. In other words, when the income reaches the five times limit, the tax bracket becomes 100% for all income that is beyond that limit.

• Wealth tax in kind on stocks—meaning stocks will not have to be sold in order to pay the tax, but rather a percentage of the stock itself, regardless if it’s listed on the stock market or not, will be transferred into a Public Trust that is owned by all citizens, not the government, under constitutional protection. The Public Trust will then pay a regular citizens dividend to all citizens of the country.

• A wealth tax on liquid assets of 100% at the 5-10 million dollar limit. This will effectively end the rule of the oligarchs forever.

Taxes should be meant to serve the common good, to distribute prosperity fairly, to fix natural and artificial inequalities, and make life better for everyone. We can do taxes properly, in ways that have been done before, in the middle of the last century, and in new innovative ways that might save us from a climate catastrophic or collapse of civilization.

Tax wealth not work. A job guarantee. Minimum guarantee of prosperity. Maximum limit on wealth.

It’s not far fetched. Most importantly, many people are sick of the current system, and want fundamental changes.