Money, Taxes, Public Spending, and the State Within a Circuitist Perspective

Bougrine, Hassan; Seccareccia, Mario
September 2002
International Journal of Political Economy;Fall2002, Vol. 32 Issue 3, p58
Academic Journal
The article discusses money, taxes, public spending, and the states within a circuitist perspective. Economic theory is plagued with a serious misunderstanding of the role, nature, and meaning of money, taxes, and debt. The belief that taxes are a source of government revenue and that they can finance social programs is a fallacy that has dominated economic reasoning in academic and policy circles for a long time. As a consequence, it is widely accepted that, as a rule, government spending must be constrained by the limited financial resources it is able to raise from taxation. The analysis has shown that, contrary to common belief, taxes are part of a reflux phase in the monetary circuit and that, as such, and they are destroying money, not creating it. It follows that, logically, taxes cannot pay for public sector spending. Understanding the role of taxes within this circuitist framework is essential because it effectively liberates the government from being subject to an artificial, self-imposed budget constraint and, therefore, allows it actively to intervene and fill the gap of underutilized capacity of society as a whole, that is, strive to achieve full employment. Therefore, objections to tax cuts can only be justified if the government is at the same time pursuing a balanced budget policy, that is, reducing its spending in order to balance the books, and if these cuts are not part of a progressive tax structure.


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