Taxes don't increase federal fiscal capacity

Taxes don't increase federal fiscal capacity
Posted on March 12, 2016 | Larry Kazdan | Written on March 11, 2016
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Toronto Star

Author's Note:

Author's Note:

Re: Taxes: the third rail of Canadian politics: Goar, March 4, 2016 

While Increased taxes on the rich is indeed important for eliminating inequality, the government of Canada owns a central bank and can strengthen the nation’s frayed social safety net regardless of any tax receipts.

Consider that during the recent financial crisis, the federal government made $200 billion available immediately to support private sector lenders under the Extraordinary Financing Framework. As economist Jim Stanford has written in his book Economics for Everyone, "If money can be created out of thin air by the government's own bank, to buy financial securities, why can't it be created out of thin air to do other things - like putting people back to work in real jobs? The answer is, 'It can be.'"

Canada has a floating, non-convertible fiat currency. Consequently, achieving a just society is never a problem of fiscal capacity but always a problem of political will. That will is constrained by lack of public understanding for which the media must take some responsibility. Pundits and commentators seldom question bailing out bankers, yet the idea of using new money to support jobs and social services is a topic of taboo.

Footnotes:

1. Economics for Everyone, Second Edition, A Short Guide to the Economics of Capitalism, p. 352 https://www.policyalternatives.ca/economics-for-everyone#sthash.i7fjJwWl...

"If money can be created out of thin air by the government's own bank, to buy financial securities, why can't it be created out of thin air to do other things - like putting people back to work in real jobs? The answer is, 'It can be.'"

2. Our Sovereign Fiat Currency System and Our Inability to Involuntarily Run out of Money http://www.correntewire.com/myths_scares_lies_and_deadly_innocent_frauds...

"In 1971 the Nixon administration abandoned the gold standard and adopted a fiat monetary system, substantially altering what looked like the same currency. Under a fiat monetary system, money is an accepted medium of exchange only because the government requires it for tax payments. Government fiat money necessarily means that federal spending need not be based on revenue. The federal government has no more money at its disposal when the federal budget is in surplus, than when the budget is in deficit. Total federal expense is whatever the federal government chooses it to be. There is no inherent financial limit. The amount of federal spending, taxing and borrowing influence inflation, interest rates, capital formation, and other real economic phenomena, but the amount of money available to the federal government is independent of tax revenues and independent of federal debt."

3. Improving Access to Financing and Strengthening Canada's ... www.fin.gc.ca/pub/report-rapport/2011-7/ceap-paec-2f-eng.asp

To soften the impact of the crisis, the first phase of Canada’s Economic Action Plan included measures to provide up to $200 billion to support lending to Canadian households and businesses through the Extraordinary Financing Framework.

Larry Kazdan CPA, CGA
Modern Monetary Theory in Canada http://mmtincanada.jimdo.com/

About The Author

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