Due to the COVID-19 pandemic, the 2008 financial crash, and past foreign wars, the US national debt is an astonishing $27 trillion and, with a deficit of almost $1 trillion, soon to rise higher. This debt is very concerning to both political parties and to most Americans. Coupled with our national tendency to avoid paying taxes, there is no apparent relief. Margaret McDowell’s Arbor Outlook column “The Golden State is killing the golden goose” (See Aug. 13 Times) illustrates the taxation problem as rich people tend to flee states and even the country to avoid taxes.
Another perspective removes the anxiety of these economic problems. Modern Monetary Theory (MMT) offers a fresh look at money, debt, and taxes. I am not an economist; philosophy and religion have been my focus. But, economics began in the philosophical world and I have pondered economics for many years. I like the approach of MMT, although I am no expert.
I can say that MMT observes that as a sovereign nation, the United States can never go “broke,” that is, it can always issue money to pay any debt obligation. The only restraint to that power is inflation, discussed below.
MMT sees that when Congress authorizes spending, it essentially creates money. The other side of that created money is debt. Likewise, banks and credit card companies create money when they issue loans. Again, the other side of that money is debt. The privately-created money is “destroyed” when the debt is paid off, but government money is a bit trickier. Government money is canceled by taxes. In other words, the government puts out cash which then circulates, performing work, then claims it back by taxation, mostly income tax.
If private loans were never paid, the financial system would be chaos and no new loans could be issued. Likewise, if government-issued money were never reclaimed by taxes, no new spending could occur. MMT (and Classical Economics) sees the economy as a flow of energy with money created and then destroyed in a constantly recurring cycle. Any hoarding interrupts the flow.
So, taxes are necessary. Politicians can use taxes to influence the economy, e.g. if we want more solar panels, we give a tax break; if we want more weapons, we give a tax break; and so on. In other words, taxation is a planning tool for our politicians, which is probably why some rich people avoid taxes as they do not agree with the plan. During the Vietnam War, many people refused to pay all or a portion of their taxes as protest (the government took the money anyway).
Finally, MMT sees inflation as the delicate condition when production falls below the needs of the economy. Maintaining balance between the economy producing at its maximum capacity and not spending beyond that level is the work of the government leaders. If they are very bold, the economy booms (and could bust), if they are timid, people are poor.
This article originally appeared on The Apalachicola Times: Letters: Some avoid taxes out of political disagreement