Telling the Truth About Debt, Austerity and Taxation

The Joy of Tax: How a Fair Tax System Can Create a Better Society

by Richard Murphy

Corgi Books (2015)

Book Review

Although the topic is economics, I personally guarantee this product to be totally painless. Murphy describes economics in ordinary comprehensible language – unlike mainstream economists who treat economics like a religion that can only be understood by high priests – and who speak and write in obscure language so you can never be sure if they’re telling the truth or not.

In The Joy of Tax, UK Tax Justice Network co-founder Richard Murphy offers a radically pioneering approach to tax and fiscal policy.  Murphy is one of the first economists to link tax policy to the 400- year-old reality that nearly all money is created by private banks out of thin air.

For political reasons, most economists try to conceal that private bank loans, i.e. debt, are the source of nearly all money in circulation. According to Murphy, the recent admission by the Bank of England (Quarterly Bulletin April 2014) about the true source of our money makes it possible to debunk a number of myths perpetuated by mainstream politicians and economists. Some examples: that investment is only possible when there are sufficient savings in the economy, that government debt is bad and that austerity, balanced budgets and government surpluses are good.

A point Murphy emphasizes repeatedly is that government also has the ability to create money out of thin air. Moreover it has regularly exercised that right to stimulate a stagnant economy. In fact, because all money is created as debt, it’s essential for government to “create” money (by spending it into the economy) whenever private banks fail to create sufficient credit. If this didn’t happen, severe economic recession results.

In Murphy’s view, the primary purpose of taxation is to reclaim the money government creates to keep it from over-inflating the economy. He claims the conservative elites who rabbit on about repaying government debt are really making the case that only private banks should have the right to create money. Aside from making them enormously rich, this makes no sense. Private banks are incapable of acting in the public interest – by law they can only act in the interest of their shareholders.

Citing Adam Smith in The Wealth of Nations, Murphy maintains a rational tax system can deliver other important goals, such as reducing inequality, recovering externalized costs (e.g.  pollution, toxic waste) imposed by corporations and promoting economically and ecologically sustainable growth.

For the current tax system to accomplish these goals, it would need to be far less regressive. At present most of the tax burden falls on middle and low income taxpayers. According to Murphy, the global economy will continue to stagnate until the wealthy shoulder their fair share of tax.

To make our current tax system fairer, Murphy proposes to introduce a number of “progressive” taxes, including a financial transaction tax, a wealth tax, a carbon/pollution tax, a land value tax to fund local government and a special tax on corporations that fail to re-invest their profits. He also proposes to do away with the current welfare bureaucracy by introducing an Unconditional Basic Income (UBI).

Although most of these tax reform proposals are specific for the UK, they would clearly produce similar benefits for the US and other post-industrial economies.

Originally published in Dissident Voice