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Paying for the pandemic

The Big Picture Place

Paying for the pandemic (see accompanying thread/text/spiel/thinking)

a “covid19” additional band on income tax
7
10%
a “covid19" additional item on council tax
3
4%
increase CGT or IHT
9
13%
a new wealth tax
5
7%
“Growth not taxes”
10
15%
No additional tax at all
13
19%
Something else
20
30%
 
Total votes: 67

NeilW
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Re: Paying for the pandemic

#349734

Postby NeilW » October 22nd, 2020, 8:00 am

Gengulphus wrote:what is actually going on is misrepresentation of facts by governments (of all political stripes) over many years.


The misrepresentation is believing that the government is ever short of money and has no capacity to pay. That is never an issue in the UK and never has been. As we see every time there is a crisis.

The whole of the monetary system is essentially an illusion. Overall nobody can be permitted to save or you end up with other people short of income. Trying to maintain that illusion via offsets and shuffling is what causes all the fun.

In reality you can no more save for a pension than you can put on a jumper in August to save heat for January. It's a classic fallacy of composition.

Pensions are always a current production issue. How much of the bread, etc. that the nation procures is to be reserved for those who are not involved in its procurement? Therefore there is always going to be a mechanism by which those doing the procuring cannot be permitted to purchase all they have procured. The mechanisms we have now are NICs and compulsory pension payments. Both of which are taxes on those at the "bread consumption" level of society. Trying to tax anything else wouldn't release the necessary bread.

All taxes do is stop you buying certain things. The numbers deleted just go in the bin.

What we have seen throughout the Corona pandemic is that we can provision the shops with everything everybody needs with rather a lot of the population stood idle. What that tells us is that a large fraction of the population is engaged in what is essentially pointless activity that does nothing other than move numbers around bank accounts. Little, if any, of it is actually required.

Therefore they could all be retired permanently and things would carry on much as they are now. The political question is whether the remaining people doing the actual necessary work and using up a full week of their time doing so will stand for that.

And that's the pension argument in a nutshell. How much can you ask the younger population to produce that they are denied the ability to consume, so that older people can consume them, without the younger population deciding that is no longer a fair deal.

There's only so far the "look at the capital inheritance we have handed down to you, and don't worry you'll get your pension too in time" argument goes when the young can't buy houses, don't have good jobs to look forward to, the roads are rubbish and the pension age keeps receding into the distance.

dealtn
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Re: Paying for the pandemic

#349745

Postby dealtn » October 22nd, 2020, 8:51 am

NeilW wrote:
Still interesting that you won't answer my points about the policy change. I'll take it from that that you accept that "the market" has no power over interest rates - when up against a government that decides that it doesn't.


Er, what points please?

It seems to me you started saying the Government determines prices and yields of Gilt transactions, and then conceded it hasn't been the case for 25 years (but the government voluntary allows this!).

Then you are claiming the current, 25 year old system isn't working, due to inflation being away from target, and unemployment too high. This is presumably despite the UK consistently running closer to target, and having lower unemployment (particularly youth unemployment) throughout that 25 year time frame, than others in the G7, and beyond. Interestingly the period before the current 25 year regime had higher unemployment, so it seems you would prefer to return to that - am I wrong?

You can have a system where governments decide all prices if you prefer. Abolish the Gilt market. Use the Ways and Means account. Be brave. How has a policy of governments deciding prices worked in the past, or elsewhere? Lets hear the details. I suspect even talk of such an introduction would lead to "interesting" pricing and strain on the currency.

You are so certain of policy change, and the introduction of permanent zero base rates, please put a timeframe on when you see this happening.

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Re: Paying for the pandemic

#349762

Postby Gerry557 » October 22nd, 2020, 9:34 am

Wot no tick box for everyone else should pay except me :D

Depends on what camp you are in. Too high a tax and the actual amount falls as there is no incentive to do more.

Lower tax levels tend to create more growth and hence growing tax take.

In reality, most people are going to have to pay more one way or another and outgoings will have to be reduced. Time scale will be a factor, can you spread the cost over decades and how much is needed now. Keep on kicking that can :o

Less generous increases in pay, tax levels rising slowly or fiscal drag etc.

Of course this has been about "Saving the NHS" but I've not seen many calls to tax that yet! 8-)

dspp
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Re: Paying for the pandemic

#349770

Postby dspp » October 22nd, 2020, 10:02 am

Moderator Message:
I have received an email/alert which I have lightly edited and which I think speaks for itself.

"As an elderlyish person (sixty something) the callous remarks of [some posters] I find very upsetting. This is not [an isolated incident]. To imply blame on the elderly for a disaster not by any means of their making and to advocate pitting generation against generation is totally unacceptable."

By all means be rigorous, analytical, and objective in commentary but at the same time could I please ask posters to think about their phrasing and show compassion for fellow humans. If not then as a minimum this thread will get relocated to Polite Debates. I have also dealt with some uncalled for personal attacks by posters on each other following other alerts - please just don't do it and just don't retaliate.

regards, dspp

yorkshirelad1
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Re: Paying for the pandemic

#349781

Postby yorkshirelad1 » October 22nd, 2020, 10:44 am

Gerry557 wrote:Wot no tick box for everyone else should pay except me :D


:-)

This angle would seem to be covered in the FT article in about the fourth paragraph:
"FT wrote:In other words, most supporters, not surprisingly, prefer taxes that will hit people richer than themselves.

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Re: Paying for the pandemic

#349824

Postby anon155742 » October 22nd, 2020, 1:09 pm

Image

I think that the fairest way would be to merge income tax with national insurance and apply it to all, even retirees.

Retirees have done better than those working, especially since 2000, so that would be the fairest way

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Re: Paying for the pandemic

#349830

Postby JohnB » October 22nd, 2020, 1:33 pm

As NI involves paying the state for future benefits, abolishing it is not only politically but practically toxic. Could you really remove accrued benefits, and if NI vanished and income tax rates rose by 10%, what would you offer people instead? If merely a means tested pension as part of the pension credit system, the richer young would be worse off than the old as they'd be losing all their benefits, not 10% of them.

The state always needs to persuade the young to defer spending to when they are old. They do this with pension tax breaks and taking the money as NI and locking it away before its paid as a state pension.

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Re: Paying for the pandemic

#349831

Postby Gengulphus » October 22nd, 2020, 1:36 pm

anon155742 wrote:Image

Could you please tell us what that chart is charting - it's clear that it is the split of something between retired and non-retired households, but I'd prefer not to have to guess just what the something is. And in the process, I'd suggest that you fix your failure to adhere to the site rule that "All embedded images (including data and graphs) in posts must:-
Include an additional link (URL) to a web page where the original may be viewed in context, or (where the image is hosted on either a domain owned or controlled by the poster, or a hosting site account e.g. Imgur, Picasa, Dropbox, OneDrive, Google Drive) be followed by a statement that the poster owns (or is legally permitted to post) the content of the image.
".

Gengulphus

Gerry557
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Re: Paying for the pandemic

#349853

Postby Gerry557 » October 22nd, 2020, 3:18 pm

yorkshirelad1 wrote:
Gerry557 wrote:Wot no tick box for everyone else should pay except me :D


:-)

This angle would seem to be covered in the FT article in about the fourth paragraph:
"FT wrote:In other words, most supporters, not surprisingly, prefer taxes that will hit people richer than themselves.



I click and read the article as it normally behind a paywall. To be fair Im happy for people with less money than me paying more. This fits better with my requested box.

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Re: Paying for the pandemic

#349896

Postby NeilW » October 22nd, 2020, 5:46 pm

dealtn wrote:You can have a system where governments decide all prices if you prefer. .


Which is a strawman, isn't it. Why do that?

You said that the markets will put up interest rates if government continues to spend and we don't "raise taxes". I've showed you that government can set policy to stop "the markets" having any effect on interest payments. In fact we could scrap the primary Gilt market completely, and just use the Ways and Means Account permanently. Which would save the country paying interest payments to wealthy people since there is absolutely no need to do that at all.

There is no need to increase taxes at the current time and it would be counter productive to do so. Similarly there is no need to issue as many Gilts as we are doing. We could just use the Ways and Means Account. Changing that would have no appreciable effect on anything that actually matters to the provisioning of the nation.

As Japan has shown for 30 years, and the complete lack of any change in interest rates in the UK despite there being a Trillion pounds added to the net saving of Sterling.

The reality of what is happening no longer fits the predictions from the old theory. Therefore it is wrong and can be discarded.

am I wrong?


What was the unemployment rate in the 1960s? When we did things like this https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1964/the-treasury-bill.pdf

dealtn
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Re: Paying for the pandemic

#349901

Postby dealtn » October 22nd, 2020, 5:58 pm

NeilW wrote:
dealtn wrote:You can have a system where governments decide all prices if you prefer. .


Which is a strawman, isn't it. Why do that?

You said that the markets will put up interest rates if government continues to spend and we don't "raise taxes". I've showed you that government can set policy to stop "the markets" having any effect on interest payments. In fact we could scrap the primary Gilt market completely, and just use the Ways and Means Account permanently. Which would save the country paying interest payments to wealthy people since there is absolutely no need to do that at all.

There is no need to increase taxes at the current time and it would be counter productive to do so. Similarly there is no need to issue as many Gilts as we are doing. We could just use the Ways and Means Account. Changing that would have no appreciable effect on anything that actually matters to the provisioning of the nation.

As Japan has shown for 30 years, and the complete lack of any change in interest rates in the UK despite there being a Trillion pounds added to the net saving of Sterling.

The reality of what is happening no longer fits the predictions from the old theory. Therefore it is wrong and can be discarded.

am I wrong?


What was the unemployment rate in the 1960s, when we did this? https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/1967/the-london-discount-market-some-historical-notes.pdf


Where did I say "the markets will put up interest rates if government continues to spend and we don't "raise taxes"."?

I said the markets set prices, not the Government. I made no claims about spending, or taxes. The closest I came was in saying prices would be "interesting" if the Government decided to either try and set Gilt prices, or abandon the Gilt market altogether and rely on the Ways and Means account.

Yet again you have failed to say when this "change" will be coming. I look forward to it to see if my prediction of things becoming "interesting" is true, or not.

As I said lets run that experiment and use the Ways and Means account to finance going forward, you can even use it to redeem all outstanding Gilts too if you want to "leverage" the experiment. I suspect in even announcing it the impact will be enough to abandon the experiment. Japan never tried it so we can't look to see what has happened there over the 30 years, where the market has continued to set primary and secondary trading prices of JGBs.

NeilW
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Re: Paying for the pandemic

#349924

Postby NeilW » October 22nd, 2020, 6:38 pm

dealtn wrote:Where did I say "the markets will put up interest rates if government continues to spend and we don't "raise taxes"."?


Are you saying then that you are posting on this thread, which is about raising taxes because of government spending, completely off topic?

I said the markets set prices, not the Government.


And I've shown you they don't. They just think they do - including a useful 1964 document that explains precisely what the feed back loop is that shows they why they don't. ("The banks cannot prevent the system working in this way, except by holding on to the surplus cash; this would be unlikely, however, because it would deprive them of earnings."). And which explains quite clearly why interest rates have not gone up despite a trillion in extra "borrowing".

It is the money market that needs fixed income, not the government that needs reserves. Because government always has the option of just using the Ways and Means Account and waiting, whereas pensions, etc. need paying.

Supply and Demand.

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Re: Paying for the pandemic

#349928

Postby anon155742 » October 22nd, 2020, 6:48 pm

anon155742 wrote:Image

I think that the fairest way would be to merge income tax with national insurance and apply it to all, even retirees.

Retirees have done better than those working, especially since 2000, so that would be the fairest way


The above chart is "Median real equivalised household disposable income of individuals by household type , UK, 1977 to FYE 2020, 1977 = 100"

https://www.ons.gov.uk/peoplepopulation ... rovisional

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Re: Paying for the pandemic

#349934

Postby dealtn » October 22nd, 2020, 7:04 pm

NeilW wrote:
dealtn wrote:Where did I say "the markets will put up interest rates if government continues to spend and we don't "raise taxes"."?


Are you saying then that you are posting on this thread, which is about raising taxes because of government spending, completely off topic?

I said the markets set prices, not the Government.


And I've shown you they don't. They just think they do - including a useful 1964 document that explains precisely what the feed back loop is that shows they why they don't. ("The banks cannot prevent the system working in this way, except by holding on to the surplus cash; this would be unlikely, however, because it would deprive them of earnings."). And which explains quite clearly why interest rates have not gone up despite a trillion in extra "borrowing".

It is the money market that needs fixed income, not the government that needs reserves. Because government always has the option of just using the Ways and Means Account and waiting, whereas pensions, etc. need paying.

Supply and Demand.


I am as much on topic as you are. From recall your very first word was "sigh"!

You are now claiming the markets don't set prices, yet not many posts ago you said the government didn't and hasn't for 25 years.

Yet again you keep saying the Government doesn't need the market, and can just use the Ways and Means account. Go ahead I say, why don't they? You keep telling us it will happen but yet again have no detail on when this prediction of yours will happen.

It is up to others to decide, but I think these contribution of ours are pointless.

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Re: Paying for the pandemic

#349944

Postby NeilW » October 22nd, 2020, 7:24 pm

dealtn wrote:You are now claiming the markets don't set prices, yet not many posts ago you said the government didn't and hasn't for 25 years.


The market thinks it sets prices, but the pressure flow of the money flows forces those prices to where they are. It's supply and demand in a closed system. Bond sales are just a reserve drain.

Hence why "interest rates will rise if the debt gets any bigger" is a laughable belief. If that was the case it would have happened already and it hasn't. Not anywhere that has the same monetary setup as the UK.

We are after all, in aggregate, just moving numbers between reserve accounts at the Bank of England of those entities allowed to hold them and the DMA at the Bank of England. It doesn't go anywhere else, and it can't come from anywhere else. If the banks leave the reserves in their reserve accounts, then the Exchequer pyramid just goes overdrawn as a balancing item (via the Ways and Means account) and the financial system get 0.1% interest rather than whatever was on offer at the repo desk.

Those who panic about that will just have their pockets emptied by cleverer people who understand how monetary operations work.

The theory was that the indirect system has some economic magic in it that the direct system does not. Turns out that isn't the case.

We shall have to disagree.

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Re: Paying for the pandemic

#349951

Postby dealtn » October 22nd, 2020, 7:33 pm

NeilW wrote:
dealtn wrote:You are now claiming the markets don't set prices, yet not many posts ago you said the government didn't and hasn't for 25 years.


The market thinks it sets prices, but the pressure flow of the money flows forces those prices to where they are. It's supply and demand in a closed system. Bond sales are just a reserve drain.

Hence why "interest rates will rise if the debt gets any bigger" is a laughable belief. If that was the case it would have happened already and it hasn't. Not anywhere that has the same monetary setup as the UK.

We are after all, in aggregate, just moving numbers between reserve accounts at the Bank of England of those entities allowed to hold them and the DMA at the Bank of England. It doesn't go anywhere else, and it can't come from anywhere else. If the banks leave the reserves in their reserve accounts, then the Exchequer pyramid just goes overdrawn as a balancing item (via the Ways and Means account) and the financial system get 0.1% interest rather than whatever was on offer at the repo desk.

Those who panic about that will just have their pockets emptied by cleverer people who understand how monetary operations work.

The theory was that the indirect system has some economic magic in it that the direct system does not. Turns out that isn't the case.

We shall have to disagree.


The market "thinks" it sets prices. If not then why are prices different over time and over different maturities. The market sets prices.

Again you are making a claim that I have suggested interest rates will rise as the debt gets bigger. It may do, but that's not what I have said. What I have said, and what I have claimed is that it will get "interesting" if the Government decides to use the Ways and Means account to replace the entirety of the term structure.

The "premium" to compensate investors, particularly overseas ones, reflected in the market pricing of Gilts, and indeed the currency, will go higher, potentially by a large amount.

Yet again there is no time line on when your alternative "will" happen.

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Re: Paying for the pandemic

#349954

Postby scotview » October 22nd, 2020, 7:44 pm

Hi NeilW,

The chancellor will issue around £300 billion additional expenditure in 2020.

As I understand it, you argue that this expenditure will have no affect on inflation and indeed may be helpful to the economy, GDP etc.

That being the case, do you have any safe limit on how much extra the chancellor could spend by end of 2021, without detriment to inflation, taxes and the economy in general.

Would you limit the extra expenditure, by end 2021, to £600bn, £1 trillion, £2 trillion, £3 trillion....more ?

Serious question, do you have any limit in mind for extra government spending?

Many thanks.
Last edited by scotview on October 22nd, 2020, 7:58 pm, edited 1 time in total.

NeilW
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Re: Paying for the pandemic

#349955

Postby NeilW » October 22nd, 2020, 7:47 pm

dealtn wrote:The market "thinks" it sets prices. If not then why are prices different over time and over different maturities. The market sets prices.


The market is guided to the prices it is allowed to have. As the events of April the 9th demonstrate clearly, and the QE process. All of it is managing the yield curve for monetary policy purposes.

If things get out of kilter, there is an intervention to bring it back to where the policy makers want it to be.

The "premium" to compensate investors, particularly overseas ones, reflected in the market pricing of Gilts, and indeed the currency, will go higher, potentially by a large amount.


Nope. Because what else are they going to do with their Sterling? Spend it. If they spend it, then it is taxed in flow which eliminates the need for the Gilt in the first place.

Once again the alternative is holding Sterling, and that means somebody has to hold it in a settlement account at the Bank of England. You can't get rid of it in anyway other than by buying government paper. The bank can then buy or bid for the same paper with the same money, without affecting the end deposit. Two bids for the price of one. More demand than supply. Which means prices go down - at least in this universe.

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Re: Paying for the pandemic

#349956

Postby NeilW » October 22nd, 2020, 8:08 pm

scotview wrote:That being the case, do you have any safe limit on how much extra the chancellor could spend by end of 2021, without detriment to inflation, taxes and the economy in general.

Would you limit the extra expenditure to £600bn, £1 trillion, £2 trillion, £3 trillion....more ?

Serious question, do you have any limit in mind for extra government spending?

Many thanks.


You let the amount float and target the real economy instead.

The functional limit of government spending is when you run out of things to buy at a price worth paying. Primarily that means the unemployed - which is essentially the only thing government can buy in an "inflation safe" manner. The correct response would be to let the amount float and just purchase all available labour at £10 per hour for a maximum of, say, 35 hours per week. That's about £1.6bn per week if we estimate about 4.5 million without work that want it.

(This wage then becomes the numeraire for the currency, the price set by the monopolist that defines the value of the currency while allowing other prices to express relative value as further influenced by the institutional structure.)

Spending then becomes an automatic stabiliser. When the private sector recovers in London, the amount spent there goes down, but it stays up in, say, Liverpool, Lockerbie and Larne. Money goes where it is required in the country, and it can be left in place as lockdowns come and go. Businesses can right-size as they see fit knowing that their ex-employees won't be destitute, and without having to pay a 'furlough tax' contribution as they do now - meaning more will survive.

The labour purchased should be added to the famous "volunteer list" and can then be handed to local authorities, local social enterprises or just told to self isolate for the time being.

We should drop the full matching mechanism at the DMO and issue no more Gilts than planned. There is no need for it now we have interest on reserves. Interest on Gilts is just "basic income for people with money", and there's more than enough of it out there already. Let's get the income to those that need it, as they will spend all of it and that will help keep businesses in business.

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Re: Paying for the pandemic

#349962

Postby AsleepInYorkshire » October 22nd, 2020, 8:49 pm

I wonder if I've understood this correctly?

Bonds/Gilts are government debt. The capital is repaid at the end of the term the bond was issued for or another bond is issued to continue the level of debt. During the period an amount of interest is paid to the bond holder.

Regardless of the size of the UK governments debt it paid £48bn in interest in 2016 for that debt. Of this £9bn was effectively paid back to itself through the BoE holding some of the bonds/guilts.

That net amount of £39bn was more than the NHS wage bill, more than we spent on defence and more than we spent on our schools budget.

But I just wonder why we would want to continue to pay annual interest for anything other than a national emergency (covid 19/war). I know it's a very simple view but if in 2016 we didn't have to spend £39bn on servicing our debt we could have pumped just short of £200bn into the NHS by 2020. We would have then been far more able to deal with C19 and all the other backlogs we have seen on the NHS for the last 5 years?

Debt is debt. Give or take the odd £100bn the UK government has a debt of £2TN. That's roughly £65K for every member of the working population.

AiY


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