Tax Cuts Despite "Crushing National Debt"?

Tax Cuts Despite "Crushing National Debt"?
Posted on December 15, 2019 | Larry Kazdan | Written on December 12, 2019
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Publisher:
National Post

Re:  Liberals move forward on promised income tax cut, with first phase to start in January, Brian Platt, December 9, 2019

 

How is it that despite the supposed crushing nature of growing public debt, the largest in Canadian history, both Liberals and Conservatives can run on platforms that offers tax reductions to millions? It is because the main purpose of federal taxes is to reduce private sector purchasing power and thereby prevent inflation which is not a major issue today. Tax reductions put more money into the economy where it is needed as fiscal stimulus.

Nor are taxes required to fund the federal government. Base money is created when government spends and injects reserves into the commercial banking system, reserves that can be exchanged for government currency.  If you demand your money at a bank, you will be satisfied only with government bills issued by the Bank of Canada.

The federal government must first spend the funds that Canadians later give back as taxes. The federal government is not like a household; it is a monetary sovereign and can spend either too much overheating the economy or too little tolerating mass unemployment (as is the case today), but can never run out of Canadian dollars which are manufactured at will.  

 

Footnotes:

1. Taxes and the Public Purpose

L. Randall Wray is a Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College, NY

http://neweconomicperspectives.org/2014/05/taxes-public-purpose.html

    "....taxes do not “pay for” government spending. Indeed, no taxes can be

    collected until government has spent. Taxes create a demand for the

    government’s spending and logically precede that spending.

    As we’ve argued, it is neither correct nor politically sensible to

    link “give to the poor” policy to “tax the rich” policy. The purpose of

    the tax is to free up resources to pursue the public purpose—including

    anti-poverty programs.

    But our tax system is already doing a HECKUV A JOB creating

    unemployed resources. We can spend on the poor (and on a full range of

    other public policies) and thereby mobilize those unemployed resources....

 

2. A Primer on the Operational Realities of the Monetary System

Scott T. Fullwiler, Wartburg College; Bard College - The Levy Economics Institute

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1723198

    "the very act of paying taxes (when the taxpayer’s bank settles with the Treasury) or purchasing a Treasury security is also the “destruction” of reserve balances, while (6) the act of government spending is the creation of reserve balances."

3. BoC Annual Report 2011

https://www.bankofcanada.ca/wp-content/uploads/2012/04/annualreport2011....  

    Page 31

    Liquidity

    Given the Bank’s ability to create virtually unlimited quantities of

    settlement balances ..... its operations are not constrained by its cash flow

    or by its holdings of liquid assets.....

--

 

__________________________________________

Modern Monetary Theory in Canada

http://mmtincanada.jimdo.com/

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Larry Kazdan has undergraduate degrees in history and sociology, is a retired Chartered Professional Accountant and runs the website
Modern Monetary Theory in Canada.... More