Why is the Left afraid of tax cuts?

The Left is afraid of tax cuts, largely because cutting taxes was historically an aspiration of the Right.

Boiled down to basics this was a reflection of the view that it wasn’t the government’s job to intervene (or interfere) in how we spent ‘our own money’. If we wanted to donate to good causes, such as the alleviation of poverty, well and good. If not, well the money was ours to dispose of as we saw fit.

Needless to say, this was a rationale that appealed particularly to the rich.

The Left, by contrast, was concerned with the rights of workers, or more specifically ‘the working class’ (terms which, through usage, have come to mean rather different things). They tended not to object to the existence of differentials within the working class—indeed, many a battle was fought to maintain them—but disparities of wealth between those who did the work and those who, literally, profited from it were anathema.

But that was then. This is now.

I’d rather like this to be short post, so I don’t want to get into a discussion of weasel words like ‘meritocracy’, ‘equality of opportunity’, and the rest, that serve to present inequality as just and fair, beyond noting that in my opinion that is what they are. Nevertheless we have come a long way, in theory at least. Most people, whether Right or Left, now accept that the State has, and should have, a role in the alleviation (if you’re on the Right) or elimination (if you’re on the Left) of poverty. Also that key services from which everyone benefits but not everyone could afford to pay for—such as education and health—should be provided by the State.

In the United Kingdom none of this is very controversial, though it would probably be seen as communist in much of the US. Even in the UK there remain, of course, pockets of unreconstructed conservatism, where the right to do whatever one wants with one’s money with neither let nor hindrance from the government, still survives. And sadly, but hardly surprisingly since wealth begets power, many of the people with this kind of outlook do wield a disproportionate influence on thought and practice. But on the whole people do accept that the State should seek to promote the public good, and that this necessarily entails spending large quantities of money.

Which brings us to the obvious question of how to pay for it.

Traditionally everyone, whether politically Right, Left or Centre has assumed taxes pay for public expenditure, and that consequently in order to spend more the government would have to tax more, and that this would mean increasing the rate of taxation. This view has the merit of simplicity and comprenhensibility, but it is wrong.

Tax doesn’t pay for government spending

To be absolutely clear and unambiguous, what I am saying is that taxation does not pay for government spending. On the contrary, government spending pays for taxation. It follows that government spending is not limited by tax revenues.

So when the Liberal Democrats offer to add a penny (in the pound) to tax rates in order to improve the NHS it’s pretty much of an irrelevance. What it would most probably do, after a slight inintial surge in tax revenues, is slightly shrink the economy and leave tax revenues unchanged.

But neither the Left, the Right or the Centre has yet taken MMT seriously. Consequently we have to contend with a mindset that says that if we want to improve public services we have to pay more tax. The Right does not want to pay more tax and, as it tends to be less dependent on public services, would much rather pay less. The Left does want to improve public services and believes the only way to do so is by paying more tax, which on the whole it is happy with as long as the rich pay most of it. The Centre is also happy to pay more tax as long as it’s not much more.

But if tax doesn’t pay for government spending—which it doesn’t—the whole debate is beside the point. And this is one of the most important things MMT tells us: If something is worth doing the government can afford to do it.

Left, Right and Centre should all be pleased!