MMT and the need for tax reforms

24 Sep, 2020 at 17:20 | Posted in Economics | 3 Comments

The analytical steps taken in this contribution point to a potential tax reform agenda, which would achieve useful macroeconomic and social policy objectives. The thumbnail sketch we have provided is intended to provoke others to further consider how tax reforms can serve a dual macroeconomic and social policy purpose. For example, taxing capital gains at the same rates as in the 1980s and similar moves to restore corporation tax to pre- 2010 levels would discourage the diversion of income into company structures, which undermines both income tax, and potentially the cancellation or withdrawal function of the tax system as a whole. Generous capital gains tax allowances on buy-to-let properties, that potentially fuel asset inflation and reduce access to affordable homes, could be substantially reduced. The proceeds from reduced allowances could then be invested in social housing. The fact that national insurance charges in the UK apply only to income from work, but not investment income, also make it a potential target for reform based on the application of similar MMT logics. At present, those who work for a living pay considerably more tax on identical levels of income than those who receive income as a return on investments of a variety of forms. When the saving process is not required to drive investment, the socially regressive nature of such policies becomes much clearer.

Andrew Baker & Richard Murphy