ESRI says we need more "progressive" taxes lol

KyussB

fliball123 wrote: »

OK then can I ask one simple question if you think this is true. Where does the money we pay in taxes go then?

It's effectively recirculated through the economy - some of it is removed from the economy, and paid into debt servicing, some of which goes to the ECB and is removed from circulation.

fliball123

KyussB wrote: »

It's effectively recirculated through the economy - some of it is removed from the economy, and paid into debt servicing, some of which goes to the ECB and is removed from circulation.

OK so none of the money I pay in tax goes to pay for any government spending then why are we paying tax at all and more importantly why are bodies like the ERSI sating as the OP sets out looking for a more progressive tax system?

KyussB

fliball123 wrote: »

I made no mistake as all debt will be rolled over at some stage in the future and if they are using the system your talking about if interest rates go up by 1% we will be paying 2.4billion on the 240billion of debt at some point in the future.


So if our taxes dont fund government spending as you outline where are the billions of taxes we pay?

You do realize that Ireland has bonds of different maturities, and that for e.g. 100 year bonds (which do exist), that would require a raised interest rate lasting 100 years?

Raised interest rates when at Full Output are credible. Raised interest rates lasting as long as you are talking about, requires them staying raised during economic downturns - which is exactly the opposite of ECB/central-bank policy during downturns, which has driven them into zero/negative territory - and is not credible.

With the ECB's current policies, Government Spending funds Taxes, not the other way around.

KyussB

tjhook wrote: »

Could you please explain this? Are you saying that no matter how large the debt, there's no problem servicing it?

Surely the cost of servicing it is defined by the size of the debt and the interest rate. And since we cannot (as a country) set the interest rate at will, all we can do is control the size of the debt? I.e. not borrow more than is sensible?

As a silly extreme example, surely we would be in trouble if we borrowed a trillion euros for some expensive scheme (e.g. like the USA is spending $1.5 trillion on the F35 fighter programme). Assuming the interest rate will be non-zero at *some* stage, the cost of merely servicing this debt would then use up any income the state has. And with a debt that size, who would lend more to us?

The trillion euros is a silly figure, but surely there's *some* line beyond which we can't increase borrowings. So while we can carry and service a debt forever, there is a limit to increasing it? And once we reach that limit, we must fund all spending ourselves, plus service the existing debt?

No I'm not saying that, because everything I say is constrained by the limit of reaching Full Output.

The limit is reaching Full Output and associated inflation - not an accounting number.

KyussB

fliball123 wrote: »

OK so none of the money I pay in tax goes to pay for any government spending then why are we paying tax at all and more importantly why are bodies like the ERSI sating as the OP sets out looking for a more progressive tax system?

As I said in the post above, with the ECB's current policies it works as if the money you use to pay Taxes is sourced from Government Spending - not the other way around.

That's a very good question, asking essentially: "What is the purpose of taxes if they are not used for funding?"

The answers to that question lead to major and important shifts in how taxes are viewed. There are a few main purposes of tax, with this new point of view:
1: Creating demand for the currency (if everyone is made to pay taxes denominated in Euro's, they have to seek out Euro's to make this payment, which makes that currency the dominant one in an economy).

2: Inflation management. When inflation is excessive, taxes are an alternative to monetary policy, for reducing inflation - and a more accurate one, because overheating sectors of the economy can be targeted without also targeting sectors which are not overheating, as monetary policy does.

3: Taxing bad/undesirable things. Taxing stuff that leads to excessive income/wealth/rent that can harm democracy. Taxing stuff that is harmful to health (drinking/smoking). Taxing pollution and environment harm. etc. etc.

When looked at from this point of view, it leads to a lot of other very interesting lines of thought - such as "what is the purpose of Corporate or Income Taxes?" etc. (e.g. some economists think a property or land tax for securing currency demand, is a good replacement for income tax - and would park Corporate/Income tax at 0%. I'm not endorsing that, just showing how big a perspective change this is).

tjhook

KyussB wrote: »

No I'm not saying that, because everything I say is constrained by the limit of reaching Full Output.

The limit is reaching Full Output and associated inflation - not an accounting number.

Would I be anywhere near accurate to sum up what you're saying as "So long as the economy can grow more, we can borrow more, in the knowledge that the borrowings will grow the economy to the extent that the additional borrowings can be serviced"?

Apologies if this is somewhere else over the past 30-something pages and I just didn't get it.

This would assume that (a) the borrowings are used wisely, to grow the economy in a very efficient way, and (b) there are no external shocks - things that shake the world economy and affect Ireland without us having done anything very wrong.

KyussB

It'd be more accurate to say, that it's the ECB's mandate to facilitate whatever level of borrowing is needed to stay at Full Output - that that is their job.

Most of the discussion in this thread, is people sweating over the fine details of how that works, and getting those details wrong - usually because they're not looking at the whole picture of how the ECB and all the rest of this works, through all the stages of the economic cycle (stuff like thinking interest rates will stay permanently high, even though the ECB does the opposite of that in downturns - people would not make that mistake if they looked at how ECB policy changes through the cycle).

The measure of efficiency is not an accounting figure, it is Full Output - anything below Full Output is inherently inefficient.

fliball123

KyussB wrote: »

You do realize that Ireland has bonds of different maturities, and that for e.g. 100 year bonds (which do exist), that would require a raised interest rate lasting 100 years?

Raised interest rates when at Full Output are credible. Raised interest rates lasting as long as you are talking about, requires them staying raised during economic downturns - which is exactly the opposite of ECB/central-bank policy during downturns, which has driven them into zero/negative territory - and is not credible.

With the ECB's current policies, Government Spending funds Taxes, not the other way around.

We have about 140Billion of govenment issue bonds 24.5 billion of short term debt about 42Billion in bi-lateral loans, 18.5Billion owed out for savings and only 4 Billion in medium to long term debt.

So it looks like if interest rates go up we will be paying a lot more on interest as the majority of the debt will be rolled over before 2030

https://www.gov.ie/en/publication/291b8-annual-report-on-public-debt-in-ireland-2020/

go to figure 4a - breakdown of Irish debt

go to figure 5a - maturity of medium to long term debt.

So if we take your view that our taxes dont pay for government spending then this website was a waste of time and money so?

https://whereyourmoneygoes.gov.ie/en/

jimmycrackcorm

fliball123 wrote:

Are you saying that the way through all of this is just keep borrowing and borrowing and borrowing. Has this worked anywhere else globally in history? Just borrow repay the interest and forget about the debt. I would interested if you have anything of note I cant find anything?

Actually this is how the US deficit works. But it's only possible because the US dollar is the de facto world currency reserve.

Richard Hillman

Here is another government funded NGO (Irish Fiscal Advisory Council) telling the government what they want

https://www.google.com/amp/s/www.irishmirror.ie/news/irish-news/politics/adjustments-like-tax-hikes-spending-24191281.amp

KyussB

fliball123 wrote: »

We have about 140Billion of govenment issue bonds 24.5 billion of short term debt about 42Billion in bi-lateral loans, 18.5Billion owed out for savings and only 4 Billion in medium to long term debt.

So it looks like if interest rates go up we will be paying a lot more on interest as the majority of the debt will be rolled over before 2030

https://www.gov.ie/en/publication/291b8-annual-report-on-public-debt-in-ireland-2020/

go to figure 4a - breakdown of Irish debt

go to figure 5a - maturity of medium to long term debt.

So if we take your view that our taxes dont pay for government spending then this website was a waste of time and money so?

https://whereyourmoneygoes.gov.ie/en/

The figures actually show that the debt is more than well spread out enough, to avoid long term high interest. It's easy to have early repayment clauses for the debt as well, so you roll it over as soon as interest rates fall.

Yes, that website is misleading.

KyussB

jimmycrackcorm wrote: »

Actually this is how the US deficit works. But it's only possible because the US dollar is the de facto world currency reserve.

If you look at the stock of debt for nearly any country (not vs GDP), then it's true universally. The dollar being the reserve currency does give the US exceptional leeway in many ways, but this still holds true for nearly all countries.

Pa ElGrande

KyussB wrote: »

Government bonds are not paid for with our labour. Governments roll over their stock of debt forever - and it's very easy to check this, by looking at the long term stock (not vs GDP) of debt for pretty much any country.

If that were true there would be no such thing as sovereign debt default and Argentina would be a modern day paradise. As I pointed out previously default do happen periodically, the last significant wave in Europe was early 1930s when multiple states defaulted.

At present we have to work to earn ~€5 billion per annum just to service the interest on that debt and coincidentally the state pulls in ~€5 billion in environmental taxes.

KyussB wrote: »

. ..
As my post above explains, under current ECB policies Taxes do not 'fund' Government Spending - invalidating the parts of your post based on that assumption.

Then eliminate taxation completely there is no need for it.

elperello

Richard Hillman wrote: »

Here is another government funded NGO (Irish Fiscal Advisory Council) telling the government what they want

https://www.google.com/amp/s/www.irishmirror.ie/news/irish-news/politics/adjustments-like-tax-hikes-spending-24191281.amp

That's pretty much it's raison d'etre as a fully state funded statutory body.

KyussB

Pa ElGrande wrote: »

If that were true there would be no such thing as sovereign debt default and Argentina would be a modern day paradise. As I pointed out previously default do happen periodically, the last significant wave in Europe was early 1930s when multiple states defaulted.

At present we have to work to earn ~€5 billion per annum just to service the interest on that debt and coincidentally the state pulls in ~€5 billion in environmental taxes.




Then eliminate taxation completely there is no need for it.

Argentina had debts denominated in dollars i.e. in a foreign currency. That is most certainly a bad idea, and has a high risk of defaults, economic collapse and hyperinflation.

The Euro operated quite like a foreign currency before the ECB took up their current "whatever it takes" policies - and that's why the Eurozone was such a mess, with the risk of an EU breakup and Euro country defaults and exits being very real, hence the massive interest rates.

Now with the ECB's current powers, that threat is gone and is not coming back - the way the ECB adjusts interest rates and policy in response to different parts of the economic cycle, ensure that.

Being below Full Output regularly costs a figure in the tens of billions - way more than any debt servicing cost. Economic growth is compounded over time, too - so any period of time being below Full Output and maximum growth, is a long-term compounded loss to the economy.

Debt servicing costs simply can not compete with the much greater magnitude of costs from being below Full Output long term.

My post here describes alternative reasons for taxation.

Geuze

KyussB wrote: »

As my post above explains, under current ECB policies Taxes do not 'fund' Government Spending - .

This statement is false.

The taxes collected in Ireland are used to finance general Government spending.

Where else do the taxes go?

I pay tax. That tax is used to pay for public services and welfare.

If you like, you can follow a VAT return, as the money makes its way to the Collector-General in Limerick, and onwards to the State's bank accounts, and on again to a nurse payslip.

Why are we even discussing this?

How can any adult say "taxes do not finance public spending"?

It's like saying: "rivers do not flow to the sea", or "clouds are not in the sky, they are on land".

Why are we wasting time on issues like this?

My tax, your tax, all the tax collected in Ireland, are used to finance public spending.

That is a fact. You can deny it, but there it is.

It seems we now live in a "post-facts" world?

Geuze

tjhook wrote: »

Could you please explain this? Are you saying that no matter how large the debt, there's no problem servicing it?

Surely the cost of servicing it is defined by the size of the debt and the interest rate. And since we cannot (as a country) set the interest rate at will, all we can do is control the size of the debt? I.e. not borrow more than is sensible?

As a silly extreme example, surely we would be in trouble if we borrowed a trillion euros for some expensive scheme (e.g. like the USA is spending $1.5 trillion on the F35 fighter programme). Assuming the interest rate will be non-zero at *some* stage, the cost of merely servicing this debt would then use up any income the state has. And with a debt that size, who would lend more to us?

The trillion euros is a silly figure, but surely there's *some* line beyond which we can't increase borrowings. So while we can carry and service a debt forever, there is a limit to increasing it? And once we reach that limit, we must fund all spending ourselves, plus service the existing debt?

You are correct, there is a limit.

The problem often is, you never know what that is until you reach it.

Greece did not expect the debt crisis.

We don't know what the prudent debt limit is.

Have a read here:

https://www.fiscalcouncil.ie/fiscal-assessment-report-may-2021/

KyussB

Geuze wrote: »

This statement is false.

The taxes collected in Ireland are used to finance general Government spending.

Where else do the taxes go?

I pay tax. That tax is used to pay for public services and welfare.

If you like, you can follow a VAT return, as the money makes its way to the Collector-General in Limerick, and onwards to the State's bank accounts, and on again to a nurse payslip.

Why are we even discussing this?

How can any adult say "taxes do not finance public spending"?

It's like saying: "rivers do not flow to the sea", or "clouds are not in the sky, they are on land".

Why are we wasting time on issues like this?

My tax, your tax, all the tax collected in Ireland, are used to finance public spending.

That is a fact. You can deny it, but there it is.

It seems we now live in a "post-facts" world?

You've just got the causality the wrong way around - the money to pay for Taxes comes from Government Spending.

There are nuances to this - before the ECB had its current powers, and there was the Euro crisis and real risk of countries exiting the EU - back then bond markets did have more of an influence, and hiked interest rates due to the real risk of default/exit. Things back then operated a lot more like Government Spending was limited by Taxes, and 'as if' the causality went from Taxes paying for Government Spending (I say 'as if', because that still was only half true, as I explain below).

That's not how things operate now, because of the ECB's changed policies - and the ECB is not going back to that era.

To understand the causality of whether Government Spending pays for Taxes or vice versa - you have to look at where money comes from in the first place. There are only two places it comes from: 1: Private Debt (banks creating money when making loans), and 2: Public Debt (central-banks/ECB indirectly facilitating Government Spending using newly created money - indirectly through bond markets).

The structure of the EU complicates this a bit, especially given trade (if you think of this in terms of the UK it's a lot easier), but that pretty much means all of that money comes from the state via the national central bank (facilitated by the ECB) or the government (facilitated indirectly by the ECB) - or the same origin in other member states (same origin different state - easier to understand if leaving this out and thinking of UK first).

That means the causality runs from:
Government Spending + State facilitated Private Loans > Taxes > Government Spending.

The rest of the tax base is just recirculating money that's already in the economy - whose origin was ultimately the State.

That holds true even in pre-ECB-powers crisis times (it's simply an accounting fact) - but in crisis times when Government Spending is limited to Taxes and bonds are inaccessible - it works a lot 'as if' the causality were the other way around.

So you've got it the wrong way around. The causality I explain is just a simple macroeconomic accounting fact. The structure of the Euro makes it more convoluted and hard to understand (so best to look at the UK first) - but it still holds true.

fliball123

KyussB wrote: »

You've just got the causality the wrong way around - the money to pay for Taxes comes from Government Spending.

There are nuances to this - before the ECB had its current powers, and there was the Euro crisis and real risk of countries exiting the EU - back then bond markets did have more of an influence, and hiked interest rates due to the real risk of default/exit. Things back then operated a lot more like Government Spending was limited by Taxes, and 'as if' the causality went from Taxes paying for Government Spending (I say 'as if', because that still was only half true, as I explain below).

That's not how things operate now, because of the ECB's changed policies - and the ECB is not going back to that era.

To understand the causality of whether Government Spending pays for Taxes or vice versa - you have to look at where money comes from in the first place. There are only two places it comes from: 1: Private Debt (banks creating money when making loans), and 2: Public Debt (central-banks/ECB indirectly facilitating Government Spending using newly created money - indirectly through bond markets).

The structure of the EU complicates this a bit, especially given trade (if you think of this in terms of the UK it's a lot easier), but that pretty much means all of that money comes from the state via the national central bank (facilitated by the ECB) or the government (facilitated indirectly by the ECB) - or the same origin in other member states (same origin different state - easier to understand if leaving this out and thinking of UK first).

That means the causality runs from:
Government Spending + State facilitated Private Loans > Taxes > Government Spending.

The rest of the tax base is just recirculating money that's already in the economy - whose origin was ultimately the State.

That holds true even in pre-ECB-powers crisis times (it's simply an accounting fact) - but in crisis times when Government Spending is limited to Taxes and bonds are inaccessible - it works a lot 'as if' the causality were the other way around.

So you've got it the wrong way around. The causality I explain is just a simple macroeconomic accounting fact. The structure of the Euro makes it more convoluted and hard to understand (so best to look at the UK first) - but it still holds true.

so where have my taxes gone?

fliball123

KyussB wrote: »

The figures actually show that the debt is more than well spread out enough, to avoid long term high interest. It's easy to have early repayment clauses for the debt as well, so you roll it over as soon as interest rates fall.

Yes, that website is misleading.

The debt still has to be rolled over within the next 10 years. Do we have money to pay off the debts and rollover early? I cant see rates falling much further than they already are. So 2 questions why are they not rolling over all of the debt now on near 0% and where have my taxes gone you still have not explained where they have gone in your theory?

Geuze

KyussB wrote: »

You've just got the causality the wrong way around - the money to pay for Taxes comes from Government Spending.

There are nuances to this - before the ECB had its current powers, and there was the Euro crisis and real risk of countries exiting the EU - back then bond markets did have more of an influence, and hiked interest rates due to the real risk of default/exit. Things back then operated a lot more like Government Spending was limited by Taxes, and 'as if' the causality went from Taxes paying for Government Spending (I say 'as if', because that still was only half true, as I explain below).

That's not how things operate now, because of the ECB's changed policies - and the ECB is not going back to that era.

To understand the causality of whether Government Spending pays for Taxes or vice versa - you have to look at where money comes from in the first place. There are only two places it comes from: 1: Private Debt (banks creating money when making loans), and 2: Public Debt (central-banks/ECB indirectly facilitating Government Spending using newly created money - indirectly through bond markets).

The structure of the EU complicates this a bit, especially given trade (if you think of this in terms of the UK it's a lot easier), but that pretty much means all of that money comes from the state via the national central bank (facilitated by the ECB) or the government (facilitated indirectly by the ECB) - or the same origin in other member states (same origin different state - easier to understand if leaving this out and thinking of UK first).

That means the causality runs from:
Government Spending + State facilitated Private Loans > Taxes > Government Spending.

The rest of the tax base is just recirculating money that's already in the economy - whose origin was ultimately the State.

That holds true even in pre-ECB-powers crisis times (it's simply an accounting fact) - but in crisis times when Government Spending is limited to Taxes and bonds are inaccessible - it works a lot 'as if' the causality were the other way around.

So you've got it the wrong way around. The causality I explain is just a simple macroeconomic accounting fact. The structure of the Euro makes it more convoluted and hard to understand (so best to look at the UK first) - but it still holds true.

One of the problems with this seems to be that it conflates money and income.

Money is a stock.

Income is a flow.

I pay my taxes out of my income.

Taxes are a flow.

Income is generated by households by selling factors of production.


Go back to 1st year Economics

• Households own the four factors of production, and they sell them.
• Firms hire/buy them
• Firms produce and sell output
• Income is generated
• This is represented by a Circular Flow diagram
• The State also gets involved
• The State charges taxes on income and expenditure
• The State purchases goods and services

**Note that there is no mention of the money stock so far, as there doesn't have to be**

Y = C + I + G + X - M


Note that the nominal amount of money in the economy does not affect or determine the volume of real output.

So, taxes are paid out of the income generated by households.

KyussB

If you were thinking in terms of stocks and flows, I'd have expected you to see that the only possible direction of the flow, has to start from money creation flowing into investment - because that's where all money comes from.

Investment in the economy from Private Debt is a flow - which (think of this in terms of the UK, to avoid lengthy detours about EU/Euro complexity) comes from the central bank i.e. from the State. That is a flow of money from the State and into the Private Sector.

Government Spending in the economy from Public Debt is a flow - which (indirectly through bond markets, and again use the UK to simplify) comes from the central bank i.e. from the State. That is a flow of money from the State and into the Private Sector.

These flows of money that originate from the State, fund Taxes which then flow from the Private Sector to the Public Sector, and are largely recirculated - flowing from the Public Sector to the Private Sector again (with a small amount used for debt servicing, which goes to the central bank and is removed from circulation).

First year Economics teaches simplified/wrong models of the economy. Most economics textbooks still teach the wrong model of bank lending. To get the direction of flow right, you have to look at the macroeconomy - right up to central banks and macroeconomic accounting - you can not get the direction of flow right, without looking at money creation.

KyussB

fliball123 wrote: »

so where have my taxes gone?

They are recirculated - a small amount goes into debt servicing, with a portion removed from circulation when paid to the central bank.

fliball123 wrote: »

The debt still has to be rolled over within the next 10 years. Do we have money to pay off the debts and rollover early? I cant see rates falling much further than they already are. So 2 questions why are they not rolling over all of the debt now on near 0% and where have my taxes gone you still have not explained where they have gone in your theory?

It is gradually rolled over, through a long enough period of time that interest rates will go both up and down with the economic cycle - with plenty of ability for structuring the bonds and their terms, so that the interest is low/manageable medium/long-term.

The cost of being below Full Output (quickly in the tens of billions) is nearly always higher than the cost of debt servicing - and it definitely was, during the worst years after the GFC - so that alone leaves no excuse for not maximizing Output.

fliball123

KyussB wrote: »

They are recirculated - a small amount goes into debt servicing, with a portion removed from circulation when paid to the central bank.


It is gradually rolled over, through a long enough period of time that interest rates will go both up and down with the economic cycle - with plenty of ability for structuring the bonds and their terms, so that the interest is low/manageable medium/long-term.

The cost of being below Full Output (quickly in the tens of billions) is nearly always higher than the cost of debt servicing - and it definitely was, during the worst years after the GFC - so that alone leaves no excuse for not maximizing Output.

recirculated into (still trying to get where our taxes go in your theory) ??? So take 2020 interest on the debt was about 4 billion as a country our outgoing spend was just under 90Billion. Were did the other 86 billion get circulated to?

Yet still the majority of the debt has to be rolled over in the next10 years if interest rates are higher for this period we will pay more to service the debt.

Stovepipe

Greece did not expect the debt crisis.

I doubt very much if the staff of the Greek revenue service did not "expect the debt crisis". It was not a question of if, but when. When the entire population regards paying taxes as a mug's game and then actively avoid it as a norm, from the poorest paid to the highest paid, then there's only one conclusion.

Wanderer78

Stovepipe wrote: »

Greece did not expect the debt crisis.

I doubt very much if the staff of the Greek revenue service did not "expect the debt crisis". It was not a question of if, but when. When the entire population regards paying taxes as a mug's game and then actively avoid it as a norm, from the poorest paid to the highest paid, then there's only one conclusion.

the greek story, or 'the canary in the coal mine'! greece was effectively used to prevent other eu nations from standing up and saying no to ridiculous and dangerous measures such as austerity, it was the ultimate scapegoat. the euro has a fundamental flaw, this was noted before its introduction, the fact, the euro zone does not have an effective surplus recycling mechanism in place, similar to other economic regions such as the US or Australia, means it can never truly work in its current format. yes the greek state made a mess of things, but the main issue is this fundamental design flaw, so watch this space!

salonfire

Wanderer78 wrote: »

the greek story, or 'the canary in the coal mine'! greece was effectively used to prevent other eu nations from standing up and saying no to ridiculous and dangerous measures such as austerity, it was the ultimate scapegoat. the euro has a fundamental flaw, this was noted before its introduction, the fact, the euro zone does not have an effective surplus recycling mechanism in place, similar to other economic regions such as the US or Australia, means it can never truly work in its current format. yes the greek state made a mess of things, but the main issue is this fundamental design flaw, so watch this space!

Proper order too someone came along and put manners on them. Despite all the bluff from your kind they rolled over to have their tummies tickled.

As it turns out, they're all the better for it.

Wanderer78

salonfire wrote: »

Proper order too someone came along and put manners on them. Despite all the bluff from your kind they rolled over to have their tummies tickled.

As it turns out, they're all the better for it.

showed what manners! we clearly have radically different views on what better means, with declining gdp, rising unemployment amongst the youth, many simply just left the country, i.e. they created a basket case. the measures introduced, in particular austerity, have ultimately failed. yes syriza completely rolled over, and screwed their base in the process, as the political left normally does

fliball123

Wanderer78 wrote: »

showed what manners! we clearly have radically different views on what better means, with declining gdp, rising unemployment amongst the youth, many simply just left the country, i.e. they created a basket case. the measures introduced, in particular austerity, have ultimately failed. yes syriza completely rolled over, and screwed their base in the process, as the political left normally does

Syriza had no other choice they either played ball or were not getting the loans to pay the bills. How would that of worked no money for public sector workers or welfare. I am sure they wouldn't of minded that because they didn't want to screw their voters over.

Wanderer78

fliball123 wrote: »

Syriza had no other choice they either played ball or were not getting the loans to pay the bills.

...by 'fiscal waterboarding', there was nothing easy about that one, when your banks are shutdown, what else can yea do, noting, the loans were used to bailout mainly french and german bond holders, and the creditors didnt actually want their money back, it was just to shutdown other potential protests, and it worked