but suppose you “pay for” M4A with a wealth tax, or a marginal tax increase at very high incomes. would that blunt the inflationary effect of M4A? /20
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by the conventional theory, sure. the new taxes cover the new spending, so what’s the problem? /21
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but this is dumb. middle class families would still see the money they used to spend in insurance premia as new money, and spend it, bidding up the price of goods and services. /22
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the money you tax from the wealthy was going to be saved as financial assets anyway. the net effect is a transfer of income from rich to poor, which is inflationary. /23
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you miss the whole story if you just count the dollars. the details actually matter, including (as in this case) the distributional effects. /24
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now, that “financing” M4A from the rich wouldn’t “pay for” it in the sense of sterilizing inflation doesn’t mean that it’s a bad idea! /25
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broadly, civilized people understand that a more equal economy is first-order desirable, and the fact that such an economy would less resistant to inflation is a price easily worth paying. /26
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at the moment, the economy is extraordinarily disinflationary, so we can easily “afford” spending on middle class benefits at cost only of bringing interest rates back up to historically “normal” levels. /27
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but taxes you take from rich people have very different rationales, motivations, and effects than taxes you take from the middle class. /28
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any style of analysis that shows you an income statement matching tax revenue to expenditures without taking these differences into account is quite the opposite of rigorous. /fin
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Thank you for this very comprehensive and understandable answer.
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