Thread by @RichardJMurphy

What taxes should we raise now? A video explanation taxresearch.org.uk/Blog/2020/07/2…

I am getting bored of the question ‘What taxes should be raised to pay for coronavirus?’ This thread explains why.

First, the question makes no sense. That’s because coronavirus is already paid for. It’s being paid for by money creation, albeit imperfectly via QE. And it’s being paid for by more people saving more with the government. Because that’s what gov’t borrowing really represents.

In that case what that means is that the ‘How is this going to be paid for?’ debate has to really be about something else altogether. And it is. It’s actually about two other quite different questions.

One of those other questions is ‘How are we going to reverse QE?’ It’s an interesting question, because there are two obvious responses. One is, why would you want to do that? After all, what is wrong with the government creating money? That’s its job, after all

And, most especially what’s wrong with the government creating money when it is apparent that the private sector is not going to do so but for government intervention, meaning we’d have a liquidity crisis without this QE?

If anyone can safely say when there will be no liquidity crisis created by reversing QE then this question as to ‘How are we going to reverse QE?’ can be safely asked. As yet we have never found such occasion to date. And I can’t see it happening in the future right now.

So on to the other question, which is ‘How are we going to force people to save elsewhere?’ This is a bizarre question. Firstly that’s because it is the role of government to provide people with a safe place to save in a crisis. Why try to prevent people having that safety?

Second, despite paying people no net interest they still want to save with the government, so no price now payable seems likely to reduce the demand for government savings products, which is what government bonds are.

Third, forcing people out of bonds does not reduce government exposure to savings risk in many cases: most bank deposits in the UK are government guaranteed anyway, but with much less productive gain to the government than if they’re directly deposited with it for its use.

Fourth, why try and still people saving as they want? The government isn’t crowding out private sector activity by offering bonds. The private sector pays more, after all. People are choosing to trust the government as the place to save despite that. Why not let them do so?

Fifth, why not turn this round and treat it as a course of confidence? That’s what this is. It’s a strength, and not a weakness of government that this is happening, after all.

Sixth then, let’s exploit it. Let’s encourage people to save with the government to pay for the Green New Deal that will transform our economy and pay for the jobs we need without anyone suggesting we’ll have to raise taxes.

In other words, let’s celebrate that people trust the government, and want to work with it to achieve its goals, which is what this record so-called borrowing actually represents.

And let’s note that the answer to the question, ‘Who is going to pay for this?’ has already been answered. The government will. It will create the money required. And it will offer people the chance to save with it.

Both these things are already happening. They work. We should celebrate that. Let’s use both for the public good. And let’s stop threatening to end both and to then impose fiscal punishment on the country when this problem of how to pay for coronavirus is already solved.

The right response to the question ‘What taxes should be raised to pay for coronavirus?’ is ‘None’. And the reason is coronavirus has already been paid for by money creation and savers. Why do we want to pay twice by now raising unnecessary taxes?