Holy shit, I just realized that tax cuts are basically stock buybacks at a national level. It's basically just a fiscal way to self cannibalize an entity to the benefit of those already within it at the expense of it's long term health.
Also, it's nice to know that bad fiscal policy actually has demonstrable repercussions on an international stage, even if currency value is a very neoliberal indicator.
Most non-US countries are very aware of tax cuts because they can see the impact of it immediately in currency drops.
In America, tax cuts lead to inflation but only a year or two late. We are suffering now and blaming everything but the tax cuts and handouts for companies.
Doesn't it make pretty intuitive sense? If the government cuts taxes while keeping spending the same it causes an increase in the overall supply of money. A basic market principle is that increasing supply in the face of stable demand leads to a decrease in price. A decrease in the price of money is inflation.
Nope. Tax cuts as shown throughout history increase growth and inflation tends to be low during high growth since there is an rise in production and productivity.
Tax cuts are an effective way to bolster a weak economy and create jobs—as long as they are targeted at the bottom 90% of income earners. - findings from NBER - https://www.nber.org/papers/w21035
You've got to look at the combination: (1) Cut taxes, (2) Cut spending too? Or not, (3) If not, is the increased deficit financed by selling bonds to the public, or to the central bank?
An increase in the money supply comes about only if (1) taxes are cut, (2) spending isn't cut, (3) the central bank buys the bonds issued as a result, creating the money to do so out of nothing.
A deficit financed by selling bonds to the public might perhaps increase expectations that sometime in the future the central bank will buy bonds using newly created money, but that is likely to have a more muted effect than them actually creating money now.
The central bank buys the bonds off commercial banks so you need the commercial banks to create the deposits that the government can actually spend. If the goverment was sitting on central bank money it would have to issue physical dollar notes to actually spend the money.
I'm not familiar with all the technical details, which in any case differ from country to country. But if you're trying to claim that the central banks of countries with fiat currencies can't create money to finance government deficits, you're just wrong. They very much can, and when they do to excess, the result is hyperinflation, as seen in places like Wiemar Germany and Zimbabwe. In moderation, it is a crucial part of central bank monetary policy, being the main mechanism by which central banks can expand the supply of base money, which is typically desired in a growing economy in order to prevent deflation.
The process is known in economics as "monetizing debt". That this is a thing that central banks can do, and do do, is not in the least bit controversial.
Not really. My intuition would be less tax just means different kinds of things purchased, not really a change in the total amount available in the pool... I'm not well learned about this stuff, but I don't see it being intuitive at all
I.e. tax money I would think eventually circulates back into the same pool, same pool non-gov entities trade in.
My intuition tells me the total pool size available at any given moment shouldn't be drastically different and wouldn't be correlated to tax amounts in an obvious way.
I guess another way of thinking about it is that cutting taxes (in theory) leads to increased consumer spending which equates to a increase in demand. In supply constrained environments like what we see today increases in demand will result in increases in price. Widespread increases in price is inflation. Idk it seems pretty intuitive to me and is a pretty common theory, for instance its mentioned here https://www.forbes.com/sites/howardgleckman/2022/06/02/shoul...
I suppose where my assumption could be wrong is that consumer vs gov spending sort of cancel each other out, i.e. fluxuations in the two are quickly negated because they take place in the same overall "market" and eventually anyway end ups in non-gov hands because there's a lot more of us in the market
During World War II, the Canadian government raised taxes in a bid to reduce demand and curb inflation (along with wage and price controls, mandatory savings, and other measures).
Inversely, reducing taxes holds the potential to leave money in people's pockets, increase demand, and trigger inflation. Whether it does so will depend on a host of other factors, of course.
Tax raises obviously increase the deadweight loss associated with that tax because at some point the cost exceeds the marginal utility of the product and people buy less until things are in balance again. But when there isn't enough product to go buy and the government pays off debt, then the deadweight loss may actually be reduced over the long term.
It may seem intuitive, but it does not match what happens in the #1 economy which issues the reserve currency of the world.
> A decrease in the price of money is inflation.
Federal Reserve sets price of money by manipulating interest rates. Federal Reserve is increasing interest rates and consumer prices and producer prices are increasing. This may contradict your belief about what causes increased prices.
Being the reserve currency, every country wants dollars. Every other country needs dollars to do trade, even among each other.
With a tax cut, US consumers have more money which they spend on imported goods. This supplies dollars to the rest of the world, increasing the value of 196 currencies marginally. You can think of USD being in demand from 8 billion people.
If US dollar wasn't a reserve currency, a tax cut would have increased supply of dollars with consumers but demand would only be from the 330 million people in America. High supply of money, no change in supply of goods would then cause inflation.
> With a tax cut, US consumers have more money which they spend on imported goods.
So the dollars go overseas buying imported goods and then partially those overseas dollars buy USA treasury debt. This puts the price inflation, if any, overseas and then "sterilized" into Treasuries. This is why USA consumer prices and gold didn't go to the moon after 2008 bank bailouts.
Given the demographic challenges of Europe (sub-replacement fertility of the most productive and the vast influx of net-negative aliens), it is wise to crash the system: Abandon welfare, pensions and subsidized healthcare.
With those shackles thrown off, countries have a chance of regrowth. The nation state can maintain national (and border) security, run natural monopolies, regulate pollutants, and that's it. Fund those services with Land Value Taxes.
The alternative is endlessly raising taxes and throwing the country into a deaths-spiral.
the supidiest thing european people (italian here) did was trusting politicans into handling their pension contribution and return it 40 years later with inflation adjusted distibution, its literally a ponzi scheme
> (sub-replacement fertility of the most productive and the vast influx of net-negative aliens)
Is there really anything more to this comment than "white children good; brown children bad"? Every study I've ever seen on the effects of immigration conclude that immigration (at the levels seen in Europe and UK) is extremely healthy and that immigrants are "net-positive" (to use your heavily judgy wording) in almost every sense.
Please don't throw things out that work, only throw the things out that are actually broken. For the vast majority of people in Germany public healthcare works fine and it isn't really subsidized, just mandatory to for employees to pay in. Government managed healthcare only has one goal in Germany, prevent long term diseases and cure diseases rather prolonged treatment of symptoms as the latter is money thrown out the window.
Isn't it the opposite, i.e. share issuance? With lower taxes the government leaves more money in the system (and generally borrows/prints more) which lowers the value of each unit of currency, hence the pound declines.
Typically, they just print more to compensate. In this case, the UK explicitly stated this was a debt funded tax cut, so spending remained constant while revenue declined.
If you could somehow revive Keynes for a day he would have said "raise taxes and pay off government debt to keep inflation in check"
Keynes policy proposals for the government have an obvious flaw, nobody really follows them unless he gives the government permission to spend (which is obviously a valid move in a depression or during COVID). This is why I think Keynes theories have had more success in montary policy than fiscal policy.
Our third PM in 6 years. Yet zero new ideas, zero ability to think beyond the immediate crisis and zero ability to push through any hard choices. Things have to get worse for the UK, so people wake up, so we get a marginally less shit government.
We should, though I don't think Scotland or NI will be allowed to leave this shitty party, "misery loves company" is the UK motto.
Realistically, we have to wait at least another decade for a generation of crazies to die off. Then we can try and be a country again.
Not many people know, but when we first tried to join the EU (then the European Communities), our application was veto'd twice by France. Having been proven right about us, I am not sure they'd let us in again.
I'm not sure the British people would be willing to accept the sorts of concessions EU members are likely to impose on them for re-entry. Given the mess that was Brexit, I could see, at minimum some sort of financial penalty paid directly by the British people (since they would be voting to leave) and a forced adoption of the Euro.
But who knows what the next 20 years holds for the Eurozone.
The British people basically divide into 2 groups: productive younger (<40) workers who are getting fucked in every imaginable way, and older entitled idiots. Sooner or later the older ones will die out, and the idiots will always be there but won't have a majority anymore.
Only the second group give a shit about nationalism and voted for Brexit (and only because they knew THEY would not pay for it). The other half of us not only don't care, but certainly don't see why we should pay for it.
Ireland is the easiest one and one I’m seriously considering. You can move and work visa free as a UK citizen, and after you’ve lived there for 5 years you can claim Irish citizenship. EU passport back and can go wherever you want. I quite like the Irish craic so I might end up making it home for good.
Handy if you’ve got roots in the UK as well because you’re not far away, especially if you live near Dublin which has flights to most major cities in the UK for £20 to £30. Only problem is they’ve got an even worse housing crisis and cost of living crisis than we do. Significantly more expensive than even Scandinavia.
It does strike me as more than a little ironic that you are advocating to moving to a country with famously low historical corporate tax rates[1], and which has a similar tax rate to the UK without the (just removed) 45% tier[2]. on a thread which is about the British government lowering tax rates.
Lot easier said than done. If you‘re self taught and don’t have a degree it’s very, very difficult to get into either. You need to accumulate six years of experience in one of their in demand occupations to even be considered.
You're not wrong, but I would not compare UK and Irish corporation tax rates. In the UK, any company that is publicly traded, multinational or larger than a few million in revenue a year pays a different set of taxes at a much lower rate. What we call "corporation tax" is really more like "small company and self employed people using limited liability" tax. It's only called corporation tax for historic reasons.
Just fyi. Most people don't realise this, including most Brits. It's something if an in joke for accountants and people who own LTDs.
It’s not the taxes I’m looking to escape, it’s the nutcase Tory government, the monarchy and the backwards brexit voters who seem to run the country now.
I won't go into arguing this point (I'm commenting on this thread in general), but I'd like to make one point.
There is a lot of chat about how horrible and stupid and crazy anyone who voted for Brexit was.
For me this has the effect of shutting down any debate whatsoever, and making HN just another group-think forum destroying the main reason why I come here and read.
You may strongly disagree with the ruling party - that's fine, but the politicians advocating their ideas are by not means stupid (Kwarteng has a PhD in economic history from the University of Cambridge, Truss read Philosophy, Politics and Economics at Merton College, Oxford). Rachel Reeves the shadow chancellor for that matter has a MSc in Economics from the London School of Economics.
All of these people know far more about economics than I do and for the most part whether I agree with them or not, I believe that they do have the best interests of Britain at heart; and I would say being "devoid of ideas" might be due to the circumstances in Britain and the world being pretty challenging with there being no easy answers. It doesn't take looking much beyond our borders to see that other countries' leaders are also struggling to deal with difficult circumstances (Olaf Sholz is leading a very divided Germany; Macron is being challenged by both extremes; Italy looks to be electing a pretty far-right leader).
Let's try to keep the name-calling and insulting to a minimum - it really doesn't help anyone, nor is it going to convince anyone of the rightness of your cause.
Careful, I didn't call Kwarteng an idiot. I'm sure the top .1% of the Brexit club are very smart, well educated and highly credentialed. They're also liars and fraudsters.
What I said about the government is that they had no new ideas and no long term thinking. I think that holds true. For all his qualifications, the best the chancellor can manage is minor changes to a few tax rates in the face of an economic emergency. Most of his tax changes just reverse the changes made last year. So his ideas are just back to 2020. Hardly new stuff.
Is any of that an unfair or inaccurate characterisation of the current government or brexiteers?
As for debate with brexiteers, that isn't really possible. You cannot debate someone who won't accept the facts and who lies about (or doesn't know) their reasons for their position. Only 1 brexiteer in the 100s I've met has managed that and he was just a racist (though he was at least honest enough to say so).
At this point "debate" is pointless, the facts are in, one side refuses to accept them and we are where we are. The social and psychological causes might be worth discussing, but you don't need brexiteers for that, anymore than you need to talk to a cancer to understand cancer...
> I'm not sure the British people would be willing to accept the sorts of concessions EU members are likely to impose on them for re-entry
There won't be any concessions. For there won't be any reentry of the UK into Europe. Its impossible after all the vile ire that was directeda gainst Europe and Europeans by the British media, establishment and the very Brexit Britainers.
That vile attitude is recorded on the Internet forever and it will never go away. And a delirium like 'Don't talk about it anymore' like how the Brexit Britainers seem to push inside the UK these days don't fly in Europe. People don't have the memory of a fish and they certainly won't forget how they were treated.
It was in the news yesterday that the amount of people identifying as Catholics has overtaken Protestants for the first time on record in Northern Ireland. I don’t think it will be too long in the overall scheme of things until they rejoin Ireland, especially if Scotland can make a break for it first. If things get worse over the next two years I think Sturgeon’s going to have a really strong mandate for independence, especially if Tories somehow manage to get re-elected. Will be harder for her if Starmer gets in.
I believe you're stuck with your current government for another couple of years. Unless they decide to call early elections, though polling suggests that the current government would lose an election called today.
It would be great if people decided over those next couple of years that they deserved a better government, though I've found that in a crisis people often decide to double down on what they've always believed. If they're not getting what they want, it's because they're not doing the thing hard enough -- usually because their political opponents have done something.
They may well change governments in two years, not so much because people "wake up" but because enough people decide they're fed up and stay home. The others then get their chance, and I hope they spend the next two years preparing a genuine solution. And good luck with that, since the present government has spent a very long time saddling them with an untenable situation.
I fail to see the issue with these tax cuts. Lower stamp duty, weaker pound meaning increased exports, a lower tax bracket, and a relaxation of ir35 rules.
The optics of it are shockingly bad. Boosting banker bonuses at a time when average people are talking about "heat or eat". Or for that matter the lower taxes you mention - the top bad gets a -5% while the bottom band gets a -1%.
There are definitely some good bits for everyone in there (e.g. energy cap) but its very stacked towards top end.
Let me tell you the problem with capitalism, there is nothing about capitalism that forces people to invest their money, as people get richer they keep a bigger portion of their net worth liquid, 10% is the rule of thumb and the liquid assets are used for speculation rather than long term investment. As interest rates approach zero, the yield curve starts getting compressed, to maintain a healthy yield curve, the yield on extremely short term assets like 1 month treasury bonds and liquid demand deposits in a bank account actually needs to be slightly negative, about -3% so that people have a "profit maximization motive" to buy long term assets at 10 years with 0% or 20 years with 1% instead of speculating with their money.
Tax reform might be great but simplifying tax codes is much better than just lowering them.
49 comments
[ 3.3 ms ] story [ 93.9 ms ] threadAlso, it's nice to know that bad fiscal policy actually has demonstrable repercussions on an international stage, even if currency value is a very neoliberal indicator.
In America, tax cuts lead to inflation but only a year or two late. We are suffering now and blaming everything but the tax cuts and handouts for companies.
I would find this surprising. Do you have charts for this, and which historical timeframes?
An increase in the money supply comes about only if (1) taxes are cut, (2) spending isn't cut, (3) the central bank buys the bonds issued as a result, creating the money to do so out of nothing.
A deficit financed by selling bonds to the public might perhaps increase expectations that sometime in the future the central bank will buy bonds using newly created money, but that is likely to have a more muted effect than them actually creating money now.
The process is known in economics as "monetizing debt". That this is a thing that central banks can do, and do do, is not in the least bit controversial.
I.e. tax money I would think eventually circulates back into the same pool, same pool non-gov entities trade in.
My intuition tells me the total pool size available at any given moment shouldn't be drastically different and wouldn't be correlated to tax amounts in an obvious way.
Not sure if I'm explaining myself well
During World War II, the Canadian government raised taxes in a bid to reduce demand and curb inflation (along with wage and price controls, mandatory savings, and other measures).
Inversely, reducing taxes holds the potential to leave money in people's pockets, increase demand, and trigger inflation. Whether it does so will depend on a host of other factors, of course.
It may seem intuitive, but it does not match what happens in the #1 economy which issues the reserve currency of the world.
> A decrease in the price of money is inflation.
Federal Reserve sets price of money by manipulating interest rates. Federal Reserve is increasing interest rates and consumer prices and producer prices are increasing. This may contradict your belief about what causes increased prices.
With a tax cut, US consumers have more money which they spend on imported goods. This supplies dollars to the rest of the world, increasing the value of 196 currencies marginally. You can think of USD being in demand from 8 billion people.
If US dollar wasn't a reserve currency, a tax cut would have increased supply of dollars with consumers but demand would only be from the 330 million people in America. High supply of money, no change in supply of goods would then cause inflation.
So the dollars go overseas buying imported goods and then partially those overseas dollars buy USA treasury debt. This puts the price inflation, if any, overseas and then "sterilized" into Treasuries. This is why USA consumer prices and gold didn't go to the moon after 2008 bank bailouts.
With those shackles thrown off, countries have a chance of regrowth. The nation state can maintain national (and border) security, run natural monopolies, regulate pollutants, and that's it. Fund those services with Land Value Taxes.
The alternative is endlessly raising taxes and throwing the country into a deaths-spiral.
Is there really anything more to this comment than "white children good; brown children bad"? Every study I've ever seen on the effects of immigration conclude that immigration (at the levels seen in Europe and UK) is extremely healthy and that immigrants are "net-positive" (to use your heavily judgy wording) in almost every sense.
Keynes policy proposals for the government have an obvious flaw, nobody really follows them unless he gives the government permission to spend (which is obviously a valid move in a depression or during COVID). This is why I think Keynes theories have had more success in montary policy than fiscal policy.
Realistically, we have to wait at least another decade for a generation of crazies to die off. Then we can try and be a country again.
Not many people know, but when we first tried to join the EU (then the European Communities), our application was veto'd twice by France. Having been proven right about us, I am not sure they'd let us in again.
https://en.wikipedia.org/wiki/United_Kingdom_membership_of_t....
But who knows what the next 20 years holds for the Eurozone.
Only the second group give a shit about nationalism and voted for Brexit (and only because they knew THEY would not pay for it). The other half of us not only don't care, but certainly don't see why we should pay for it.
God I wish I was young enough to emigrate easily.
Handy if you’ve got roots in the UK as well because you’re not far away, especially if you live near Dublin which has flights to most major cities in the UK for £20 to £30. Only problem is they’ve got an even worse housing crisis and cost of living crisis than we do. Significantly more expensive than even Scandinavia.
[1] https://www.theguardian.com/world/2021/oct/07/ireland-poised... [2] https://www.revenue.ie/en/personal-tax-credits-reliefs-and-e...
Just fyi. Most people don't realise this, including most Brits. It's something if an in joke for accountants and people who own LTDs.
There is a lot of chat about how horrible and stupid and crazy anyone who voted for Brexit was.
For me this has the effect of shutting down any debate whatsoever, and making HN just another group-think forum destroying the main reason why I come here and read.
You may strongly disagree with the ruling party - that's fine, but the politicians advocating their ideas are by not means stupid (Kwarteng has a PhD in economic history from the University of Cambridge, Truss read Philosophy, Politics and Economics at Merton College, Oxford). Rachel Reeves the shadow chancellor for that matter has a MSc in Economics from the London School of Economics.
All of these people know far more about economics than I do and for the most part whether I agree with them or not, I believe that they do have the best interests of Britain at heart; and I would say being "devoid of ideas" might be due to the circumstances in Britain and the world being pretty challenging with there being no easy answers. It doesn't take looking much beyond our borders to see that other countries' leaders are also struggling to deal with difficult circumstances (Olaf Sholz is leading a very divided Germany; Macron is being challenged by both extremes; Italy looks to be electing a pretty far-right leader).
Let's try to keep the name-calling and insulting to a minimum - it really doesn't help anyone, nor is it going to convince anyone of the rightness of your cause.
What I said about the government is that they had no new ideas and no long term thinking. I think that holds true. For all his qualifications, the best the chancellor can manage is minor changes to a few tax rates in the face of an economic emergency. Most of his tax changes just reverse the changes made last year. So his ideas are just back to 2020. Hardly new stuff.
Is any of that an unfair or inaccurate characterisation of the current government or brexiteers?
As for debate with brexiteers, that isn't really possible. You cannot debate someone who won't accept the facts and who lies about (or doesn't know) their reasons for their position. Only 1 brexiteer in the 100s I've met has managed that and he was just a racist (though he was at least honest enough to say so).
At this point "debate" is pointless, the facts are in, one side refuses to accept them and we are where we are. The social and psychological causes might be worth discussing, but you don't need brexiteers for that, anymore than you need to talk to a cancer to understand cancer...
There won't be any concessions. For there won't be any reentry of the UK into Europe. Its impossible after all the vile ire that was directeda gainst Europe and Europeans by the British media, establishment and the very Brexit Britainers.
That vile attitude is recorded on the Internet forever and it will never go away. And a delirium like 'Don't talk about it anymore' like how the Brexit Britainers seem to push inside the UK these days don't fly in Europe. People don't have the memory of a fish and they certainly won't forget how they were treated.
https://english.elpais.com/elpais/2016/10/24/inenglish/14773...
It would be great if people decided over those next couple of years that they deserved a better government, though I've found that in a crisis people often decide to double down on what they've always believed. If they're not getting what they want, it's because they're not doing the thing hard enough -- usually because their political opponents have done something.
They may well change governments in two years, not so much because people "wake up" but because enough people decide they're fed up and stay home. The others then get their chance, and I hope they spend the next two years preparing a genuine solution. And good luck with that, since the present government has spent a very long time saddling them with an untenable situation.
There are definitely some good bits for everyone in there (e.g. energy cap) but its very stacked towards top end.
The US created enormous private fortunes in the late 19th century, and saw massive wage growth for unskilled labor during the same period.
China created more billionaires than any country in history over the last 30 years and concurrently saw enormous wage growth:
https://www.statista.com/statistics/743509/china-average-yea...
From what I can tell the mood is more "eat the rich".
Tax reform might be great but simplifying tax codes is much better than just lowering them.