What's wrong with our discussions about the federal budget in one article, annotated.

 https://www.nytimes.com/2021/03/27/business/biden-taxes-business-rich.html

Sunday March 28, 2021.  I woke to find this article about the Biden tax plan in the New York Times.  As a recent convert and now devotee of Modern Monetary Theory, reading this article made me want to pull my hair out.  The "Deficit Myths", to use Stephanie Kelton's phrase, jump right off the page.  I did write a comment on the NYT on-line forum, but it seemed to limited.  And the fact is that there is so much in this article that is informative, I decided to write a much longer piece going through it line by line and annotating the issues.   

The title: "Under Biden, Democrats are Poised to Raise Taxes on Business and the Rich"

Great!  This is clear.  But the problem comes in the sub-heading;

"The president’s infrastructure proposals are likely to require trillions of dollars in new tax revenue."

Wait what?  Why are we now talking about infrastructure? Why are the two being linked?  This is key.  The above sub-heading implies that tax revenue has to be increased to pay for the infrastructure spending.  This is the TABS model of thinking, that taxes and borrowing come before spending.  What MMT shows us is that STAB is a better, more accurate representation to what actually happens: Spending comes first, and is independent from taxes and borrowing.  So from an MMT perspective, infrastructure spending does NOT REQUIRE any "new revenue."  But the sub heading continues:

"They also give liberals a chance to address what they call the failures of Republican tax cuts."

As a teacher, when I see the word "also" I often write that my student has just changed topic.  This is the case with this sentence.  It is not connected to the main idea of the article, it is tacked on.  This article is a mess already becasue the writers have THREE main ideas.  First, desire to raise taxes.  Second, infrastructure bill.  Third, liberal critique of Trump tax cuts.  In some ways the first and third are related but neither has anything to do with the second topic.  The article ends up being a mess in general due to the lack of a central focus.

Note: it may be good politics to link a tax increase with a popular idea like infrastructure, and as they are both budgetary matters, this may make it easier to pass, and sell to the American people.  Fine.  Doesn't change the idea that this article has several, mostly unrelated topics, and perpetuates the worst kind of deficit mythology.

The first paragraph is solid and an accurate argument for raising taxes:

"Democrats have spent the last several years clamoring to raise taxes on corporations and the rich, seeing that as a necessary antidote to widening economic inequality and a rebuke of President Donald J. Trump’s signature tax cuts."

Sure they get the dig in on Trump, but raising taxes IS about redistribution and lowering the dangerously high level of economic inequality.  Yes!  You can debate this all you want, but essentially this is the right conversation to have around taxation.

Alas, the second paragraph conflates the desire to raise taxes with new spending when it states that a tax increase would "help pay for a host of spending programs."  This is not how it works, and promotes the idea that the US government is akin to a household.

But then we get back to legitimate discussion of taxation: "repair a tax code that Democrats say encourages wealthy people to hoard assets and big companies to ship jobs and book profits overseas." This is again a correct debate to have, ie the incentives that tax policy creates: Are we using tax policy to benefit the wealthy and ship jobs overseas?

The next paragraph, however, goes right back to the deficit myth when it says "who, exactly, should pay the bill."  There is no bill to be paid, yet this makes it sound like the purpose of increasing taxes is pay for the infrastructure bill!  The fed will pay for the bill, as it does for every spending bill.  The legitimate conversation is whether or not this additional spending will cause inflation.  If the additional spending is projected to cause unhealthy inflation, then in order to not cause inflation, some money needs to be sucked out of the economy.  That is the real connection, not the myth that we have to pay for spending as a household does.

The next two paragraphs are dedicated to a legitimate discussion of the actual purpose of the infrastructure bill; to "revitalize" the economy, put people to work, and rebuild the country for the next 50 years.

Sigh: the next paragraph returns to the myth: "Mr. Biden plans to finance that spending" with tax increases and federal borrowing.  This again reinforces the TABS mode of thinking.  Senator Kaine chimes in now by saying that the bill would include "pay-for".  This is another way of reinforcing the myth that spending needs to be "paid for."  

Next, we get more on tax policy in general as Dems and Biden want to increase taxes on the wealthy to "fund spending programs meant to help people who earn their money primarily through wages."  The issue, AGAIN, is not funding the spending, but shifting the tax burden from those without wealth, but who work, to those who don't work, but have wealth.  One is real, one is a myth.

The article now refocuses on tax policy in general, and the political difficulty in raising taxes.  This is a legitimate topic as well, but in the same paragraph there is mention of the last tax increase, under president Clinton, whose goal was to "reduce the federal deficit".  Another myth that MMT addresses is that the deficit is neither inherently good nor evil, and should not be the goal of any policy.  The real goal is balancing the economy, not balancing the budget. (Good thing to note here is that the end of president Clinton's term in office saw budget surpluses, much lauded, that actually caused a recession in 2001, and helped facilitate the credit bubble and burst in 2007-8.  Oops)

The next paragraph focuses on inflation, the right topic, but also reinforces the myth : "financed entirely by federal borrowing, forecasters now expect the economy to grow this year at its fastest annual clip since the 1980s. Republicans and some economists have begun to warn of overheating growth spurring runaway inflation, which could reduce the salience of warnings that tax increases would cause growth to stall."  Can you spot it?  Yup, it's the first clause.  I don't have the space in this already long article to get into the mechanics and reasoning why we sell bonds when we deficit spend, but suffice it to say that we do so voluntarily, and primarily to control interest rates, NOT to finance anything.

The next paragraph cites public opinion in favor of raising taxes on the wealthy, and corporations, AND that crucial votes needed to pass the legislation favor infrastructure spending.  But there is a catch! "so long as there is a plan to pay for it."  Double sigh. "Where do they think (the money to pay for the infrastructure bill) is going to come from?" Senator Manchin is quoted as saying.  Again reinforcing the idea that spending needs to be paid for.  As MMT shows us, we make the money so nothing needs to be paid for technically.

The article now covers the debates on what taxes, and at what level, should be raised, and what the effects might be.  This is a the right discussion to have.  Again, tax policy is about creating incentives, as well as controlling inflation.  

Continuing, we get the view from the opposition.  Predictably they oppose any tax increases, claiming that all tax increases will hurt economic growth. And that "sound tax policy is made based on economics" according to Senator Kennedy (R) from Louisiana.  Well, let's start with understanding the economics - that the US government is a currency ISSUER, not a currency USER.  Still, this is legitimate discussion - will the policy create economic growth or slow growth?  However, the real issue may very well be deeper than this, ie what real world effect might this have on the lives of the vast majority of Americans?  It is clear that despite all the economic growth, as measured by GDP, that most Americans did not benefit over the last 40 years, with now some 44% earning poverty wages.  See, thats a real thing to discuss, not some myth about balancing the federal budget.

"Republicans who favor some form of an infrastructure bill have struggled to offer alternative ways to fund" it.  

"Many liberal economists say there are good reasons to raise taxes, starting with using those funds..." But in the same breathe we get the REAL reason to change tax policy: "Spending on physical infrastructure, like roads and water pipes, or on programs like education and child care that are meant to help people earn more money could help curb persistent inequalities in income and wealth. The economists also say that tax increases that are properly set up would provide incentives for multinational companies to keep jobs in the United States and not shift profits to lower-tax foreign countries." Despite starting with the myth, this gets to the real reasons to invest in infrastructure, and the real reason to shift the tax burden.  Yes, let's keep the debate here!  not with the silly notion of funding.

“The purpose of the tax system is to both raise enough revenue for what the government wants to do, and to make sure that as we’re doing that we are encouraging activities that are in the national interest and discouraging ones that are not,” said Heather Boushey, a member of the White House’s Council of Economic Advisers. Yikes, she is a member?! At least she gets it half right that tax system whould encourage (read incentivize) activities that are in the "national interest", but tax policy DOES NOT raise revenue.

At least the remainder of the article focuses on tax policy and what behavior is incentivized by different tax policy.

Major takeaways are that this article has serious flaws, and does some things well.  But the problem is that the "deficit myth" is repeated a dozen or so times; specifically the idea that taxes fund spending.  Therefore the serious discussion of tax policy and it's effects gets lost in the mix of these issues that, politically, may be combined, but economically are not.  As a teacher, I would grade this with a C- as it has more than one main idea, changes topics frequently and without notice, contains inaccurate information, and actually serves to confuse the issue.

In the end, I think I would like to rewrite this article as an exercise.  That will be my next piece.  Here is the new title: Democrats want to change tax policy to shift the burden from those who work to those with wealth.