What if governments ran with no taxes at all? The central bank prints money and the government issues bonds to be held by the central bank. Modern Monetary theorists do not say explicitly that this will work, but it seems implied.
Politicians are of two viewpoints on government debt. Deficits are bad or deficits are not a problem, even good. Similarly on taxation. Lower taxes are good, or higher taxes are good and do not distort anything. Possibly they distort things if the tax rate is 100%
The contradiction is that the ones who favour higher taxes also favour deficits and the ones who favour lower taxes favour surpluses. Curious.
If the economy would not work if governments printed all the money they need or want, then there must be some level of debt and/or rate of growth of debt that is untenable. As citizens, ultimately responsible for the debt, we should know what those limits may be.
If higher taxes are good or at least acceptable, we should know at what point they become not good. Arthur Laffer has done work on this, yet governments in general seem to be in some sort of logic free zone on the subject.
The end result of high deficits is inflation. Some inflation is good or not? Again, if so how much is good. When does it tip over and become a burden.
In reality, inflation is just another form of taxation. It takes value, if not money, from those who accumulate fixed income investments or cash, and rewards those who owe money and own equities in one form or another. If inflation is a reasonable taxing policy then “print all the money” is a good plan.
If the extremes do not work then there is some point where they tip. Where are those points?
Is it possible to have an economically rational discussion of this topic or is it so ideologically important than there can be no unbiased reasoning? If no understanding, how will the problem resolve?
We want to know the answer to a simple question. What is the most effective structural relationship in the triad of taxation rates and methods, government debt and inflation?
The answer should initially have nothing to do with fair. You can modify it for fair later when you know what the cost of fair will be. Ideology will dominate early, so defining “fair” is an unsolvable preliminary step.
I am no economist and not a politician either, but I think the governments’ defense to doing anything about the triad is their ability to talk about one aspect at a time. To focus on details while ignoring the whole. A collection of details and opinions does not make a strategic plan, regardless of how many details there may be.
The problem is potentially catastrophic. We should expect more from them.
Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.