Taxes for poor and rich in short
I want to explain here how higher taxes for the rich and how government deficits complement each other. Tax makes your money worth something. You can't eat your money or build a house with your notes. Society's taxes are a powerful tool for redistributing resources in society and placing resources where it benefits the people. Taxes such as those on tobacco and alcohol can reduce undesirable behaviors. Taxes determine whether people should work or consume more or less. But taxes do not support the people. You can neither eat nor build houses with money. Taxes on poor and middle-income earners disrupt the consumption that drives production. Taxes on the richest are more efficient and more equal. The money is reduced as people pay back bank loans and government taxes. I explain this below. So sometimes the state may need to create new money to keep production going or to invest in important research or to satisfy new needs. Such money creation is called the government running a deficit. Together, taxes and deficits can give us the means to do everything for the people, the world and nature for which we have the resources and manpower.
In-depth for those who want to know more
Defense for tax
The rich need to pay more than the low-paid in taxes, because the workers and those with lower incomes do not get all of what they produced in their work in wages. Part of what the workers and low-wage workers create in value goes to higher wages for those with power in the organization or for the business owners. This that the workers and the low paid do not receive in wages is called surplus value. The sick, retired and unemployed also create benefit by providing work for those who care for them. The money of the unemployed, pensioners or the sick can also keep manufacturing going. Nor do the unemployed, pensioners and the sick receive compensation that corresponds to the values they create for society. Therefore, it is right that the rich pay more in taxes.
To make the distribution of society's wealth more fair, we can use the tax system. We can get rich people to share the extra money they got. For example, managers and business owners receive more in compensation than what they have performed for society. The rich have received much more than others, and taxes help make society more equal.
A smart tax system
In a smart tax system, those with the most in salary, stock dividends, income or those with the most in the bank book, in real estate, gold, art or other valuable things, get to pay more. Rich people who pay too little in taxes can also afford to stop working when they are young. This worsens the social economy and the production of the things and services the people and the country need.
Those with lower and middle incomes should be allowed to pay less in taxes. This is called progressive taxation. Then the less well-off can stimulate the economy by buying goods and services.
There is also VAT, which is a tax on selling goods and services. VAT, especially on what low- and middle-income earners buy, is an obstacle to society's economy. The purpose of VAT can be to get people to buy less of certain things such as alcohol and tobacco.
Deficit
However, tax does not create money, it only redistributes it. The state may sometimes have to make more money if there is too little of it for production and the needs of the people. When the government creates money, it is said to run a deficit.
The state runs a deficit to do new things that we need, such as building schools or taking care of nature. It's to make sure we have everything we need. So the government creates more money when needed to help us all.
Stephanie Kelton tells more about the above in The deficit myth and Mariana Mazzucato i The entrepreneurial state.
The engines of the economy
People with little money are like engines for the economy. They use almost all of their money to buy things and services. When they trade, jobs and more goods and services are created. It helps the whole community.
But if those with little money have to pay a lot of taxes, they don't have much left to buy things. It can make the economy worse and slow everything down. So it's important to let those with little money have enough left over to keep the economy spinning.
Value of money and banks
You know, money is a medium of exchange. The money gets its value from the fact that we have to pay taxes with our country's own money. We also use these to buy goods and services. Government and banks can create these mediums of exchange. The money becomes valuable to the government and the banks when people work and do things. Crowns and dollars have no value in themselves. Banks can create money that the bank calls loans or debt as long as someone promises to pay back later. When people pay back the loan to the bank, the work that gave the loan its value is done. Then that money or that loan ceases to exist. In periods, people have borrowed so much that they cannot borrow more. They may then also pay off their loans. Then the amount of money society reduces. It makes production and consumption more difficult. Then there will be a financial crisis.
Government deficits, inflation and taxes
The nation can create any amount of money. This is called the state running a deficit. If the money becomes more than the needs and resources of the people and nature, inflation can occur. But if the state only makes enough money for what is needed and which corresponds to what the country can produce, then everything is in order.
Sometimes there is inflation. Then things and services become more expensive. It is then usually due to the fact that there has been some obstacle in production such as during covid-19 and the war in Ukraine. Then it doesn't help to reduce the money supply because then it becomes even more difficult to manufacture things. If there have been obstacles in manufacturing, you may have to accept inflation for a while until manufacturing gets started again.
Taxes redistribute money to where the needs are. Taxes to the state are like a kind of report. The tax is like a report that shows that we worked and bought things and services to give value to the state's money. It is not the report that is valuable to the state, but that we made and bought things and services. Therefore, the state destroys the tax when it is received. Next year's money is created by the state through deficits.
Risks of financialization
Financialization is when the rich save too much. If the rich pay too little in taxes and save too much, it can lead to more saving in society than goods and services to buy. It's like we have too much money in the piggy bank and don't use it. The can be bad for society.
Inflation regulation and redistribution
Progressive taxes mean that the richer someone is, the more they pay in taxes. When high earners pay more taxes, it helps to even out the money so that everyone gets a share. It's like dividing a pie fairly, so everyone gets a piece.
Support for municipalities, county councils and authorities
Local authorities cannot, like the state, create money. Therefore, the state needs to create enough money to support the municipalities, county councils, various authorities and their operations. Otherwise, local authorities have to rely on constant tax increases or cuts.
The entrepreneurial state
In order to come up with new inventions and produce things and services, the state needs to be strong and have a lot of money. The state needs to create this money to a large extent. Great inventions and great production require a lot of money. The state can use the money to give to people, companies and other organizations to think up new things and manufacture them. Like building things and helping companies make new things.
But if the government doesn't invest enough in invention and manufacturing, there could be problems. Then the state still needs a lot of money, therefore taking care of and governing the people costs a lot. But the state then lacks things and services with which it can pay for the needs of the people and nature. So it is important that the government creates enough money and uses the money in the right way and invests in inventing new things and that it creates enough of what the people and nature need.
Businesses have an important role in being the ones who create what the state wants to invest in. But companies cannot create their own money. Then the assets of even very rich people's companies are not enough to create such great inventions that the country becomes rich. Only the state that can create money is rich enough to afford to make all the mistakes required by history before coming up with new great inventions that solve the problems of the people and the country. This is what economist Mariana Mazzucato says.
The goal of tax and deficit
Summary
The taxes help the government redistribute society's resources to build things, care for the environment and support innovation and ideas. Taxes can also strike a balance between the needs of the rich and society and help us be fair to each other.
The state sometimes needs to run a deficit, that is, create more money, to invest in new things that we need, such as new machines, new medicines, roads or schools. It's like a manager telling an employee to do something.
Society does it to help the people. In this way, the state can do more and better things for us. It is to ensure that we have everything we need to live and work well. So, deficits are an important part of how the government takes care of us.
More to read
- No government deficits – society's unnecessary straitjacket
- Resistance to deficits and investments leads to recession in Sweden
- The right tries to blame post-Covid inflation on welfare and deficit policies
- He who is in debt is not free - the untrue myth about Göran Persson and his heroic glory
- It was not the welfare that gave the race of the 90s.
- The Deficit Myth by Stephanie Kelton
- The Entrepreneurial State by Mariana Mazzucato
Tax is good, but there should also be better control over what it is used for.
As it is right now, the profits for the large capital companies are increasing & the employees are getting less and less and that the profits are not going back into the business.
Less money for police & military but more money for care, school, care and building new housing & money to equip the million program with would be a much better idea!
As a long-term unemployed person, I don't like paying as much tax on my allowance as most unemployed people do now.
After all, money is a kind of ration card as not all goods are enough for everyone.
Hell, my livelihood support comes from tax money, but that doesn't mean you should accept it.
You wanted to know what I think about this. It's ok. The only reason for collecting taxes at all is to govern society. You can collect more tax from some people than from others, and you can take more tax for some businesses than for others, in order to hold them back. Or on the contrary, benefit something else.
As far as I understand, taxes are not there because the state needs money, it can produce as much money as it wants. But of course there should not be so much money in circulation that there is nothing to buy with it, then there will be inflation. Which can become problematic if it gets too big – e.g. as in the inflation in house prices we have had for twenty years or so. Therefore, the state also sometimes needs to withdraw purchasing power from the economy. In one way or another.
Agree, but now the state has reduced the incomes of low and middle income earners too much via reduced social security, too few resources for government and too little cheap housing. Etc. All of this is called the policy of austerity and has meant that for many poor consumers, but especially those who voluntarily or involuntarily want to buy their own accommodation, have to take on huge debts with banks. This has given us more and more financial crises since the 80s when many people are in debt for life while losing their property, gang crime has increased, the consumption of the rich has increased and led to more environmental problems and more mental illness etc. I can continue in the same way with more and more examples. The people must be given enough to satisfy their need for a decent life from the cradle to the grave.