Thread by @rohangrey

Sound finance socialists dont like it, but it seems obvious to me that in this era, at least, at any given time/for any given center/left coalition, there is more support for progressive spending than can be 1:1 offset by the progressives taxes supported by the same coalition.

https://twitter.com/JStein_WaPo/status/1397256316574445574

The reason why we dont always see this manifest in the kind of progressive deficit politics it implies would be optimal is, of course, that some of that same coalition prioritizes concerns about limiting deficits & reducing the national debt over progressive spending commitments.

For people wanting to improve political prospects for more progressive spending, that leaves two options: 1) build consensus support for higher taxes, or 2) weaken opposition to deficits/national debt.

Obviously, support for higher taxes & rejection of deficit/debt phobia is

not mutually inconsistent, and can even be mutually reinforcing in terms of building political power and a coherent equitable policy programme.

But that complementarity of tactics obscures the fundamental incompatability between the two ways of responding to the initial problem.

In effect, there is a trilemma implied by the broad center/left coalition's current political commitments.

Ie

1. Sound Finance Beliefs
2. A Certain Rate of Taxes
3. More Spending Than That Certain Rate of Taxes Can Offset on a 1:1 Basis.

Assuming for a second that everyone agrees that we want 3, the question then becomes, do we achieve that by fighting 1, 2, or both? And if both, in what combination?

One way to do this is to accept the sound finance framework, and argue that 3 requires changing 2, ie more taxes.

In the long run, however, this means that your ability to change 3 will always be limited by the politics of 2. You may achieve some success, but not necessarily enough.

Another way is to exclusively challenge the sound finance framework (ie 1), while conceding 1 as a fixed

constraint. This, too, in the long run, means your ability to change 3 will always be limited by the politics of 1.

The obvious approach is to challenge both 1 and 2, ie try to get highest taxes you can, while arguing for deficits being okay for the remainder.

But this approach

doesn't simply lie at the middle ground of the other two approaches. Achieving complementarity between making the case for higher taxes and less deficit/debt phobia requires making the case for both only in ways that support the other, and not in ways that undermine it.

In other words, a politician that believes the best way to increase space for public spending is to increase taxes should avoid any narratives or strategies that reinforce the idea that debt/deficits are bad or that spending must be paid for 1:1 to be justified.

Conversely, a

politician that believes the best way to increase space for public spending is to reject deficit/debt-hostile approaches should not adopt any strategies that reinforce the idea higher taxes are bad or that we should oppose increasing taxes that lead to more needed public spending

The interesting question, then, becomes whether even the act of pointing out that taxes don't fund spending, or that large budget deficits/high debt can be sustainable is inherently undermining the case for higher taxes. In other words, is the MMT-specific strategy for fighting 1

inherently at odds with the interests of those that want to prioritize fighting 2?

I think not, & I think the reason for that lies in the politics of the Laffer Curve.

Nowadays, the Laffer Curve is treated as a theoretical joke, an example of unserious, populist econopolitics

But anyone who hasn't been asleep for the past 40yrs has to appreciate just politically successful the idea has been. "Why can't we just tax billionaires at 100% of their wealth?" "Well then there wouldn't be any billionaires, which means a billionaire tax wouldn't raise revenue"

So rhetorically, if not theoretically, the idea that there is a "sweet spot" in setting taxes has become conventional wisdom, the kind of common sense thing a politician from both sides will regularly say when explaining their views on optimal tax rates.

The problem, of course, is that this becomes not only a policy constraint, but a political constraint on the organizing efforts around higher taxes. Instead of articulating a demand for 100% tax on billionaires, and waiting to negotiate that down when compromising, the demand

itself becomes for a much milder tax rate, because the goal is to advocate for not just high taxes, but high taxes that will bring in the most revenue (thus making the most space for more spending under a deficit-constrained politics).

This was very visible in the 2020 primary

with Senator Warren's proposed wealth tax of, as she loved to say, "just two cents" on every dollar above $50million. Just two cents! With that kind of "pain," who needs pleasure...

Now contrast this with the progressive MMT-informed strategy, which says that you don't need

higher taxes to 'fund' spending, but that it is still desirable to have higher progressive taxes for all sorts of equitable/distributionary and demand-related reasons.

Under this strategy - and this is the crucial point - it is *entirely consistent and coherent to advocate for

100% taxes on the rich, and for very high tax levels regardless of their revenue-maximizing impact*, and leave any negotiating downwards to the political compromise process.

In other words, the MMT approach to arguing for higher taxes provides *more* of a justification/defense

for higher taxes (strategy 2), even when doing so appears to be inconsistent with goal 3 (more spending under deficit-constraints), than a strategy of pushing for higher taxes exclusively oriented towards achieving goal 3.

I'll say that again to be clear: when you are trying to maximize progressive spending by maximizing progressive tax revenue, thereby reducing the need to be covered by deficit-spending, & you do so by arguing for progressive taxes as revenue-raisers, you end up making a *weaker*

argument for higher taxes than if you had framed your argument for higher taxes in non-revenue-raising language in the first place.

Why does this matter? It matters because even if you're a "James Medlock Democrat", ie You've Learned To Stop Worrying and Love Taxation, there's

still a really big difference in the strategy and tactics of trying to achieve that goal through leaning into sound finance logic, or in rejecting it.

The MMT approach, in my opinion, is the far stronger one, even if your goal is narrowly just to maximize overall tax rates.

We can self-negotiate and play silly napkin games debating the optimal tax rate to maximize revenue, and end up stuck forever in the world of "2 cents on every dollar above $50 million", or "should the corporate tax rate be 22 or 25%", and in doing so consign the entire macro

progressive paradigm to the constraints of Laffer Curve politics, or we can ignore those games, push for three good things simultaneously (more spending, more taxes, and less deficit/debt hysteria), and make the best case for each one on their own merits.

/fin

conceding 2*