This is a crazy sounding observation, but the Democrats may do best on the economy because of their preference for a high tax regime. I am not a proponent of the modern monetary theory or high taxes. I am not a proponent of taxes at all, but there is something to the MMT argument that taxation creates a demand for currency or coined money.
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Taxation, according to the theory, also creates unemployment. People enter the workforce looking for work. This initial influx to the labor market creates a higher number of unemployed people looking for work.
This theory should have an effect on business formation. Rather than go out there on his own to find the work necessary to pay taxes, a taxpayer may associate with other individuals to form a business. This business association may go to a bank to borrow the capital that seeds their new venture. Not only would the new venture earn income from its endeavor, but the business association also indirectly adds to the tax base when it hires new employees and passes a payroll tax through to the government.
The downside to the “taxation creates unemployment” maxim is, why bother look for work or work a certain number of hours if my wages will be reduced the more income I make? Or, if I am a property owner, do I have a choice but to work so that I am able to pay the county my property taxes?
So much talk around the MMT has distracted us from looking at taxation as a multi-layer scheme. It’s not just about income tax on the federal level, but also state level income tax, property tax, and sales tax.
MMT proponents, it appears, see government as an infinite currency printing press that allows government to further kick the can down the road when faced with a recessionary economic environment. The concept may provide a starting point for analyzing the demand for money but fails on the issue of mitigating higher consumer prices.
From a trader standpoint, should a trader look for signals that taxes may increase and seek out trades where the long side of a bet (contract) may prove more lucrative than the sell side?
Alton Drew
5 September 2024
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