What there is is people with financial savings, and a balancing item in the national accounts because of that. That balancing item occurs naturally, costlessly and without concern as a consequence of the way double entry bookkeeping works.
Money is never stuck because it isn't a thing. It's really just an accounting record.
If you have £50 in your wallet or purse you are 'causing' the balancing item to come about because you have spent it yet.
Tax isn't there to raise money. Tax is there to stop the private sector hiring everybody - so there is somebody left for the public sector to hire to do the jobs the government needs doing to fulfil its democratic mandate.
Roads, education, healthcare, much of these things would either be unprofitable or unaffordable if they have to be self-funding. But they bring social value even if they don't make their own shareholders rich.
When you think about taxation, look at the UK's tax code. Arguably one of the longest and most complex in the world.
Walk into a firm of UK accountants and ask to be shown their copy of Tolly's Tax Handbook....
You'll be led to a room with a bookshelf full of books with Orange and Yellow spines.
The "handbook" is 23,000 pages long.
Tax Avoidance is an artform in the UK.
Tax Evasion is illegal, of course, but avoidance tends to be sufficient for the majority - sufficient legal loopholes and grey-areas are provided in the tax code !
But you do not have to subscribe to MMT.
(I see MMT as wishful thinking by social democrats who have already given up their fight)
This is especially true if you follow MMT. Remember, the whole underlying premise of MMT is that the government's ability to pay for goods and services is not in any way limited by a need to collect money first, that they cannot ever be forced to default on debt denominated in their own currency, that the only actual limiting factor is the actual real resources like labour, raw materials, and so on, and that the purpose of taxation is to keep inflation under control by reducing private demand for those things. From that point of view, money sittting in offshore accounts is a red herring because it doesn't represent consumption of real resources, and wages and money being brought into the country to buy things with are exactly what does need to be taxed because they do represent actual demand which will cause consumption of those resources.
One of those relationships is the corruption feedback loop it creates, with offshore money buying political power which is used to aquire more offshore money.
Since 2010, the UK has declared war on work and now everybody is wondering where productivity is. In the meanwhile everybody is busy talking about grand reforms, such as Scottish secession and leaving the EU.
The young professional can upskill, or work harder, to cover increased income taxes. The pensioner is often unable to work; they're less likely to be fit, and their alertness may be fading.
I'm 66, out of employment for 5 years, and I can't imagine enduring a 9-5 shift. I don't always sleep well, I often need a siesta, and I'm certain I'm much less sharp since I quit employment. My work-rate has fallen a lot.
I don't have a pension as such; I live on the rent on my property. I worked for the money to buy that property; it's not inherited wealth that fell into my lap. My finances are planned around the rental income. If you start taxing my property, how am I supposed to pay? My only choice is to sell the property, reducing my rental income to zero, and rendering me a burden on the taxpayer.
The young professional worked hard to acquire his human capital, that is taxed way more than rental income. Also, salaries in the UK have increased much less than rents.
Besides, properties are taxed everywhere in the world, especially if they are rented out, bar the UK.
BTW: the term "human capital" is usually a euphemism for staff, isn't it? I'm not sure what it is that you think is taxed way more than rental income; my rental income is taxed as income, just as if it was salary from employment. So what is this heavily-taxed "human capital"?
Can you get a reverse mortgage to sell back some of your equity to pay your taxes? Maybe this isn't a think in the UK but it very well could be. I mean if I held market equities and no cash and owed taxes, I don't think I'd get much sympathy not selling some to pay the taxes I owe. I'm not sure why real estate should be treated differently.
It's not a "reverse" mortgage; it's just a mortgage that the lender doesn't expect you to pay off (so when you die, they get a stake in the your estate).
I've thought a good bit about equity-release; I might be forced into it, if my health holds out longer than I've planned for. But I was taught never to use capital for current expenditure. I try to stick to that.
Thing is, it seems wrong to tax the property of someone whose only income is rental from that same property. The only way they can pay the tax is to reduce their stake in the property, and so their ability to pay tax. It's a spiral that ends in disappropriation, and dependence on the state.
In the US it's commonly called a reverse mortgage.
> I've thought a good bit about equity-release; I might be forced into it, if my health holds out longer than I've planned for. But I was taught never to use capital for current expenditure. I try to stick to that.
> Thing is, it seems wrong to tax the property of someone whose only income is rental from that same property. The only way they can pay the tax is to reduce their stake in the property, and so their ability to pay tax. It's a spiral that ends in disappropriation, and dependence on the state.
Sure I agree that you ideally don't want to draw down on your capital, but ideally you'd have the cash to pay the taxes. Going back to the case of equities, if your only income was in the form of dividends and you didn't have enough to pay taxes you owe, you'd need to sell stocks which would decrease future cash flow from dividends.
I don't really see this as fundamentally different than other cases where you don't have enough income to grow your wealth after costs. E.g. when you go in to retirement. I mean it's nice if you have enough capital that you can fully live of off cash you derive from it (rentals, dividends, pensions, etc.), but if you can't then you gotta dip into your capital.
The explanation is quite simple. If you subscribe to MMT, the government issues legal tender currency and creates it and today that happens via debt. This means debt just represents untaxed money in the private sector. In other words, the government didn't bother to collect all the money that is in the private sector.
When you understand this, then having a single tax like income tax be the primary source of tax revenue is a bad thing. Let's assume that we have an economy where all income exists in the form of wages and therefore is taxed at the income tax rate of 50% (I can't do this math on the phone, sorry). This means the half the income is taxed once every year. This money has a half life of exactly one year if the government were to use all of it to pay off debt. This means that in this example the government can never really go bankrupt as long as it doesn't do some inherently backwards things that break the economy in the long run.
But what if there are two types of incomes that are taxed at different rates and at different frequency?
What if you have wages and offshore companies where income tax can be delayed indefinitely until you bring the money back home where it is taxed at the usual income tax rate? Then suddenly it is possible for money to be stuck abroad and never taxed for long periods of time. As we know, this is money the government simply didn't bother to collect. It actively lets people keep the money abroad untaxed, so it shouldn't be surprising that the problem cannot be solved by hiking income taxes. The debt has to be extended not because the government is living beyond its means but because it is simply not collecting the money necessary to pay off its debts.
This is supposed to be an illustration, not a perfect description of the real world. I didn't talk about low capital gains taxes. Which also means money could be stuck domestically inside the financial systems.
The lower the tax rate and the lower the frequency of the taxable event, the more time money gets to spend away from the government and the longer the government will spend its time being in debt and I am still assuming that debts are eventually paid off. In principle there is no rule that money can't be stuck in a non productive sector indefinitely which then means the government must constantly intervene by spraying money at the productive sectors so they don't dry out like plants in a desert.