The debates for the Democratic Party's 2020 presidential primary begin tonight. And there's at least one question every candidate is sure to be asked: How are you going to pay for that?
The contenders have gotten remarkably ambitious this cycle, proposing everything from Green New Deals to Medicare-for-All to massive increases in anti-poverty programs. In response, mainstream journalists from the likes of CNN and The New York Times are eager to demonstrate their seriousness by demanding the candidates' plans for raising taxes. And the candidates themselves are eager to prove their own seriousness in turn, with proposals for tax hikes on Wall Street, the wealthy, on inheritances and corporate profits.
I'm sure all this seriousness is very satisfying for everyone involved. But it comes with significant potential problems: It gets the economics wrong, for one thing. It also means goals like Medicare-for-All and a Green New Deal will basically be held hostage to Democrats' ability — and willingness — to wage economic war on the most powerful Americans.
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If you're familiar with the debates over Modern Monetary Theory (MMT), then you know there's a growing chorus of economists and others who insist this "serious" position isn't serious at all. They point out that the U.S. federal government has an utterly unique role as the issuer of the U.S. dollar — it creates the currency and injects it into the economy. This means the federal government doesn't need to "get the money" to pay for its spending. What the federal government does need to do is manage the macroeconomy: Keep jobs and wage growth as plentiful as possible, while keeping inflation as low and stable as possible. Spending money into the economy increases aggregate demand, increasing pressure on both growth and inflation. Taxing money out of the economy removes demand and lowers both.
This all means that whenever the economy is below full capacity — which it's basically always been over the last few decades — new spending does not actually need to be fully offset with taxes. Furthermore, spending on the poor adds a lot more demand to the economy than taxing the rich removes. Ironically, that means candidates like Senators Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass.) might well overheat the economy even if they fully "pay for" all their new spending with new taxes, because their spending is broadly generous while their taxes all focus on the rich.
Modern Monetary Theory is first and foremost an attempt to describe how the economy and public policy works. But its adherents obviously also have ideas about politics. And some of MMT's most prominent voices — such as Stony Brook University economist Stephanie Kelton — argue that the Democrats' focus on taxing the wealthy isn't just confused on the economics; it's also bad political strategy. Because Democrats' assume they must raise dollar-for-dollar tax revenue to finance their agenda, and because they understandably want to focus those taxes on the wealthy, their whole agenda hinges on an all-or-nothing political fight with the richest Americans. If that fight fails — if Democrats can't pass the tax hikes on the wealthy — then by Democrats' own logic Medicare-for-All and a Green New Deal and everything else is dead on arrival.
Not everyone in left-wing and progresive circles appreciates this message. On the one hand, MMT can seem like a new grant of freedom to the political ambitions of the left. On the other hand, it can also seem like a political gift to the wealthy themselves: You actually don’t have to tax them to pay for your agenda, so leave them (and, by extension, inequality and U.S. oligarchy) alone! Heather Boushey, the executive director and chief economist at the Washington Center for Equitable Growth, recently argued against MMT, not so much on the economic merits, but because she feared it might downgrade the fight to tax the rich. Essentially, Boushey straightforwardly argued that progressives' fiscal goals should live or die by their tax-the-wealthy goals, otherwise America might not do everything it can to fight inequality.
Boushey's concern with inequality is absolutely right, and higher taxes on the rich may be extremely popular with the broad mass of non-rich voters. But the MMTers have a point that, as a form of class warfare, tax hikes on the wealthy are like a direct frontal assault on the enemy's most heavily armed and fortified position. By all accounts, wealthy Americans absolutely hate tax increases on themselves. And by virtue of being wealthy, they wield massively disproportionate political influence with which to crush those proposed tax increases. Not exactly the sort of fight you want to risk unless it's absolutely necessary.
It's also worth noting that ambitious progressive programs like Medicare-for-All, a Green New Deal, a job guarantee, or universal child care will all reduce inequality by their inherent nature — not just through the taxes raised to "pay" for them. They'll provide the poor and the working class with more resources, giving those Americans more freedom to choose their own economic paths. These programs will add demand to the economy and tighten labor markets, increasing wages and benefits, and cutting into corporate profits and payouts to shareholders. By empowering less privileged Americans, these programs can also open up more room for those voters to organize, to get involved in politics, and to rebuild unions and other political movements. All of which will help create the kind of broad coalition and political movement that could force wealthy Americans to eat massive tax hikes, no matter how much lobbying power they throw at the fight.
Democrats (and journalists) generally assume the process of action must begin with hiking taxes on the wealthy, and then move on to spending on big programs, and thus finally to lifting up everyday Americans. But it could just easily begin with the spending, which lifts people up, which then finally creates the bottom-up power necessary to pass the tax hikes and squash inequality.
When Kelton and others suggest Democrats not make taxing the wealthy the end-all-be-all of their agenda, that should be taken as advice about prudent strategy: Let's not make our task any harder than it absolutely has to be.
If any moderators at tonight or tomorrow’s debate asks how the progressive agenda will be paid for, one of the candidates should point out what “paying for it” could cost.
