Elizabeth Warrens - Tax and Spend Plan for Medicare for all

[Loren Pechtel]

This past weekend, Warren has revealed that she won't push for Medicare for All as a policy priority until her third year in office, after the midterms. Before then, it will just be a 'public option' a la ACA, which is of course doomed to fail and is a giant handout to insurance companies because it lets them offload all of their riskier clients (who are disproportionately poor and will thus go to the public option).

Warren has basically no interest in health care and is just trying to get people off her back until she wins the election, at which point she'll throw her hands up, say she tried the best possible plan and it failed, and the fight for single-payer will be lost for another generation.

And how are they supposed to push them onto the public option??

The public option will be less expensive than health care insurance from private insurers. The private insurers know this, which is why they went along with the ACA as long as the public option was excluded (and they got 32 billion dollars of government subsidies.)

That doesn't selectively push the unhealthy onto the public option.

 

[Loren Pechtel]

So if there is nothing left to cut then the future generations will be asked to pay for it more directly with higher taxes ... or higher inflation, which is really just a regressive, stealth, wealth tax. Someone ALWAYS has to pay for a tax cut... just not the people who die before the repercussions kick in.

Tax cuts without spending cuts are not cuts at all, just the issuance of IOUs.

Yes, exactly, and these IOUs are in the form of Treasury bills. This is why tax cuts for the rich don't produce growth in the economy, that is, increased economic activity. The tax cuts create money but the money goes to the rich who by and large don't spend it, they save the money.

Saved money earns no interest but is eaten away by inflation. They invest it. While some of it simply sits in the stock market this reduces the dividend percentage and makes stock less attractive, some of it goes towards buying means of production. This sink is factored into our economy, remove it and you would see insane inflation and a major lack of corporate innovation.

Only the money circulating in the economy produces increased economic activity. Money that is saved is money that is removed from the economy. The rich save their money by putting it into the stock market which produces inflation in the stock market, of course, but paradoxically this inflation is considered to be a "good" for the economy when it isn't. Or the rich buy real estate producing inflation in the real estate market which is also considered to be another paradoxical "good" that isn't because the inflation in the real estate market increases housing costs that have to be covered by wages, reducing the demand for goods and services in the economy.

It's stupid to count it as "good", it's simply a driving force for the real benefit--investing in new stuff.

But most likely they will buy the very same Treasury bill that is being issued to finance their tax cut! The rich then are richer but there is zero impact on the economy.

Disagree--they only buy treasuries if they can't find anything better to do with the money.

 

[SimpleDon]

So if there is nothing left to cut then the future generations will be asked to pay for it more directly with higher taxes ... or higher inflation, which is really just a regressive, stealth, wealth tax. Someone ALWAYS has to pay for a tax cut... just not the people who die before the repercussions kick in.

This has never been true. In fact, if we tried to pay off the national debt it would produce a recession, as it has every time that it has been tried. The debt could only be paid off by reducing the amount of savings in the economy, the amount of money circulating in the economy.

The federal government budget deficit creates money and puts it into the economy. Running a surplus to pay off the national debt takes money out of the economy. Too large of a budget deficit produces inflation. Too small of a budget deficit or a budget surplus produces the opposite of inflation, deflation. Deflation has to be avoided at all costs in the real economy.

This fact is just one of the many facts that are ignored in Econ 101, neoliberal and neoclassical economics that produced the so-called "Washington Consensus," on the debt and the economy in general. It is the difference between seeing how the economy really is and the fantasy of how many wish that it would operate, the Austrian/Libertarian free-market economy that doesn't need a government to regulate it.

All true, with the addition that this is the case when there is a foreign sector deficit. When trade is in surplus, govt expenditure can be balanced, or in surplus. Because in the case of a trade surplus, the private sector surplus, or savings, is coming from overseas.

So some countries would rather have money than stuff(money which enables them to buy other stuff from foreigners), others, like the US, would rather have the stuff than the money.

And, since the US is a closed economy(meaning they can't use their dollars to buy our infrastructure), we sell them interest bearing bonds.

Foreign trade is a whole other problem. There was kind of an unwritten rule that well-behaved trading partners would accept the bonds to balance out the trade, which would increase our national debt. But the PRC isn't a well-behaved trading partner. The biggest companies in China are owned by the government. The government provides local currency to buy the dollars the company earns but doesn't send the dollars to the US in exchange for the bonds, the Treasury bills. Instead the Chinese are using the dollars to buy companies in the US and Europe.

This is not unprecedented. Japan did the same thing in the 80s. The US pushed back against the practice and the Japanese turned to direct investment by their companies building production facilities in the US. This is a much slower consumer of the dollars so the Japanese started loaning the dollars to anyone with a good story. They became the Texas bankers of Asia. They were the main source of financing for us in China when I took over the office there in the early 1990s. I had a commercial man who had lived in Japan and spoke the language. More importantly, he knew the Japanese and understood them. In my five years there we financed over 250 million dollars in equipment sales to the Chinese.

 

[Horatio Parker]

Not so. The limitation to spending is productivity - if the economy can't absorb the spending, inflation will follow.

The deficit itself is irrelevant - it's a mirror image of private sector surplus. Fear of deficits is a holdover from the gold standard when the money supply was limited by the supply of gold. With a fiat currency, the money supply can expand or contract at will. The deficit is just a residual indicating money created and not taxed back. Debt issuance is another legacy of the gold standard, only now it serves as welfare for the rich, and is used by the Fed to maintain its overnight rate.

That honestly makes sense, that productivity is the deciding metric. But that borrowed money is still money spent that must be repaid, revenues must still be collected. So at some point down the road the tax cuts that were financed by borrowing are just deferred payments.

Is there a limit to annual deficit spending? Is it simply GDP?

If you do it with borrowing you'll reach the point nobody will lend you more money. (This is what crashed the Greek economy. The leftists were blaming the austerity conditions imposed by the IMF but the reason they went to the IMF in the first place is nobody else would lend to them.)

If you do it with the printing press you'll get inflation. You're actually funding it with a hidden tax on money. The limit will be when your economy melts down.

This is a common mistake. Greece was not borrowing in its own currency - which is a critical difference. Also, there are no worries from bond vigilantes with a sovereign currency, because the central bank can buy the issues.

Whether deficits cause inflation or not depends on whether there's slack in the economy. If there is, the extra spending won't be inflationary. But even if there is, that's not necessarily a bad thing. Inflation has been running under its target for years.

 

[Loren Pechtel]

If you do it with borrowing you'll reach the point nobody will lend you more money. (This is what crashed the Greek economy. The leftists were blaming the austerity conditions imposed by the IMF but the reason they went to the IMF in the first place is nobody else would lend to them.)

If you do it with the printing press you'll get inflation. You're actually funding it with a hidden tax on money. The limit will be when your economy melts down.

This is a common mistake. Greece was not borrowing in its own currency - which is a critical difference. Also, there are no worries from bond vigilantes with a sovereign currency, because the central bank can buy the issues.

Whether deficits cause inflation or not depends on whether there's slack in the economy. If there is, the extra spending won't be inflationary. But even if there is, that's not necessarily a bad thing. Inflation has been running under its target for years.

When you're borrowing your own currency you need people to buy your bonds. Same thing.

 

[Horatio Parker]

If you do it with borrowing you'll reach the point nobody will lend you more money. (This is what crashed the Greek economy. The leftists were blaming the austerity conditions imposed by the IMF but the reason they went to the IMF in the first place is nobody else would lend to them.)

If you do it with the printing press you'll get inflation. You're actually funding it with a hidden tax on money. The limit will be when your economy melts down.

This is a common mistake. Greece was not borrowing in its own currency - which is a critical difference. Also, there are no worries from bond vigilantes with a sovereign currency, because the central bank can buy the issues.

Whether deficits cause inflation or not depends on whether there's slack in the economy. If there is, the extra spending won't be inflationary. But even if there is, that's not necessarily a bad thing. Inflation has been running under its target for years.

When you're borrowing your own currency you need people to buy your bonds. Same thing.

No you don't. You either didn't read my post or didn't understand it. Govt can limit the availability of bonds by directing the central bank to buy them. That's not often done here afaik, but can and has been done. Japan has been doing it for decades.

 

[SimpleDon]

Yes, exactly, and these IOUs are in the form of Treasury bills. This is why tax cuts for the rich don't produce growth in the economy, that is, increased economic activity. The tax cuts create money but the money goes to the rich who by and large don't spend it, they save the money.

Saved money earns no interest but is eaten away by inflation. They invest it. While some of it simply sits in the stock market this reduces the dividend percentage and makes stock less attractive, some of it goes towards buying means of production. This sink is factored into our economy, remove it and you would see insane inflation and a major lack of corporate innovation.

You are ignoring the simple fact that business investment in today's economy comes from retained earnings or corporate borrowing and not from the rich buying shares in the stock market. And no, IPOs aren't investments in new businesses, they buy out the ownership in successful, operating businesses. They are the first stock sale in the business and not an investment that starts or grows a business. There are venture capitalists who do this, but venture capital operates separately from the stock market and seldom reaches a total of 10% of the total business investment in a year.

Sorry, I don't understand what you were trying to say with the whole "sits in the stock market and reduces dividends" and "some of it goes toward buying the means of production."

A corporation would have to sale reserve stock or issue new stock to raise investment funds in the stock market. These are known as secondary stock offerings and would be recorded every year, or they would be if they occurred. They are rarely done because they are considered to be the last gasp of a failing company.

The opposite is much more common, corporations regularly buy their own shares on the open market to the tune of trillions of dollars a year, a sure sign that corporations are earning much more in profits than they can reasonably invest in their businesses. They don't pay this in dividends because their shareholders would have to pay income taxes on the dividends as income that have to be paid in the year that they are issued. The corporations buying their stock convert the income into capital gains which are taxed at a lower rate and only have to be paid when the stock is sold. So not only is the stock market a massive casino where people bet on how other betters will value corporations and where gains and losses come from the other betters and not from the businesses, but it is also a massive tax scam.

And what is in the tax scam for the corporations, why do they buy the stock to generate the artificial capital gains? It is not that the corporation wouldn't have better uses for the excess amount of profits that they are earning. They could lower their prices or they could pay higher wages to their employees. Arguably their customers and their employees are much more important to the future of the corporation than their stockholders are.

Corporations buy back their own stock because the "C" suite of the executives is being bribed with bonuses by the shareholders to increase the stock prices. The stockholders have to pay these bonuses or the executives wouldn't have any incentive to raise the stock price, would they?

Only the money circulating in the economy produces increased economic activity. Money that is saved is money that is removed from the economy. The rich save their money by putting it into the stock market which produces inflation in the stock market, of course, but paradoxically this inflation is considered to be a "good" for the economy when it isn't. Or the rich buy real estate producing inflation in the real estate market which is also considered to be another paradoxical "good" that isn't because the inflation in the real estate market increases housing costs that have to be covered by wages, reducing the demand for goods and services in the economy.

It's stupid to count it as "good", it's simply a driving force for the real benefit--investing in new stuff.

Once again, the stock market plays almost no part in raising investment funds. The "good" is strictly for the shareholders and the "C" suite executives that the shareholders bribe to increase the share price.

Do you think that the executives would buy back the company's shares if they weren't being bribed with the bonuses tied to the share price?

Or perhaps you think that increasing housing costs while suppressing wages is an economic "good?"

But most likely they will buy the very same Treasury bill that is being issued to finance their tax cut! The rich then are richer but there is zero impact on the economy.

Disagree--they only buy treasuries if they can't find anything better to do with the money.

Which is the exact position that they find themselves in, having nothing to invest in. Your beloved neoliberalism has converted so much of the middle class' wages into profits and income for already rich that there are no profitable investments left to invest in.

This is not to mention that the neoliberal tax cuts for the rich produce a dollar for a dollar increase in the budget deficit that has to be financed by the sales of Treasury bills. The tax cut meant to increase the funds available for investment results in the sales of bonds paid for out of the available funds for investment, netting a zero increase in the funds available for investment.

This massive increase in the incomes of the already rich is why there has been such a push to privatize government services like education, the military, and prisons, none of which lend themselves to the profit motive. The same is true of health care. The single reason that medical costs in the US have outstripped medical costs in other developed countries is that we turned so much of the health care industry into profit-making businesses, primarily the hospitals and the insurance companies. All of this to try to provide new enterprises for the rich to invest the excessive profits that your neoliberalism converted middle-class wages into.

Business investment isn't constrained by the availability of capital to invest nor is it determined by the amount of money available to invest. Business investment is driven by the demand for goods and services. And thanks to neoliberalism's insane, suicidal dedication to free trade the investment to satisfy the demand will be made in another country.

The main revelation of Keynes was that Say's law is dead, killed by the industrial revolution and its economy. That economic growth depends on the demand for goods and services in the economy and not on the supply of financial capital.

 

[SimpleDon]

When you're borrowing your own currency you need people to buy your bonds. Same thing.

No you don't. You either didn't read my post or didn't understand it. Govt can limit the availability of bonds by directing the central bank to buy them. That's not often done here afaik, but can and has been done. Japan has been doing it for decades.

Or in a new twist, the Federal Reserve Bank can require banks to buy bonds with their reserve accounts and then the banks deposit the bonds in the reserve account, doing the same thing. Government bonds are money.

 

[Loren Pechtel]

You are ignoring the simple fact that business investment in today's economy comes from retained earnings or corporate borrowing and not from the rich buying shares in the stock market. And no, IPOs aren't investments in new businesses, they buy out the ownership in successful, operating businesses. They are the first stock sale in the business and not an investment that starts or grows a business. There are venture capitalists who do this, but venture capital operates separately from the stock market and seldom reaches a total of 10% of the total business investment in a year.

Growth of existing companies is generally from retained earnings. New ventures usually aren't. And the venture capitalists are not separate from the stock market--they are relying on the stock market to cash out their winners. No stock market, no cashing out, venture capital pretty much doesn't exist anymore.

 

[Elixir]

You are ignoring the simple fact that business investment in today's economy comes from retained earnings or corporate borrowing and not from the rich buying shares in the stock market. And no, IPOs aren't investments in new businesses, they buy out the ownership in successful, operating businesses. They are the first stock sale in the business and not an investment that starts or grows a business. There are venture capitalists who do this, but venture capital operates separately from the stock market and seldom reaches a total of 10% of the total business investment in a year.

Growth of existing companies is generally from retained earnings. New ventures usually aren't. And the venture capitalists are not separate from the stock market--they are relying on the stock market to cash out their winners. No stock market, no cashing out, venture capital pretty much doesn't exist anymore.

WUT?
Just sold a Company to a VC group. Their model was to cut costs, not invest additional capital in the operation. They thought that moving it to a lower-cost labor market from the high-cost labor market where we started it, and housing it under the same roof as one of their existing holdings would do wonders for the profit margins and therefore the Company's value. The plan was to let it grow a bit organically while they continued to acquire a couple more entities in related fields, then sell the entire consortium of companies to another VC group. They were wrong about the labor cost thing, as it dawned on them fairly quickly that they could not get the required functions fulfilled with minimum wage personnel or anything close to that. But the physical consolidation and the growth momentum they inherited from us definitely makes it look right now as if their plan is going to succeed in large part.

This is the second "new venture" company I have been involved in from startup to sale, both of which grew solely from retained earnings using nothing more than a revolving line of credit that was always paid down to zero every couple of months.
In the first instance the VC group had a similar idea of creating a consortium but couldn't pull it off, and ended up selling off the brands they had acquired one by one to other entities (of course they still made money). In neither instance was the VC group counting on the stock market to have anything to do with the final outcome they were seeking* (nor did it - at least not yet).

* The VC group in the first instance did sell some brands to entities that have since gone public... maybe at a level I have never played at, what you're saying is how it is. But most "new ventures" don't grow into the billions of dollars prior to being sold.

 

[Loren Pechtel]

You are ignoring the simple fact that business investment in today's economy comes from retained earnings or corporate borrowing and not from the rich buying shares in the stock market. And no, IPOs aren't investments in new businesses, they buy out the ownership in successful, operating businesses. They are the first stock sale in the business and not an investment that starts or grows a business. There are venture capitalists who do this, but venture capital operates separately from the stock market and seldom reaches a total of 10% of the total business investment in a year.

Growth of existing companies is generally from retained earnings. New ventures usually aren't. And the venture capitalists are not separate from the stock market--they are relying on the stock market to cash out their winners. No stock market, no cashing out, venture capital pretty much doesn't exist anymore.

WUT?
Just sold a Company to a VC group. Their model was to cut costs, not invest additional capital in the operation. They thought that moving it to a lower-cost labor market from the high-cost labor market where we started it, and housing it under the same roof as one of their existing holdings would do wonders for the profit margins and therefore the Company's value. The plan was to let it grow a bit organically while they continued to acquire a couple more entities in related fields, then sell the entire consortium of companies to another VC group. They were wrong about the labor cost thing, as it dawned on them fairly quickly that they could not get the required functions fulfilled with minimum wage personnel or anything close to that. But the physical consolidation and the growth momentum they inherited from us definitely makes it look right now as if their plan is going to succeed in large part.

This is the second "new venture" company I have been involved in from startup to sale, both of which grew solely from retained earnings using nothing more than a revolving line of credit that was always paid down to zero every couple of months.
In the first instance the VC group had a similar idea of creating a consortium but couldn't pull it off, and ended up selling off the brands they had acquired one by one to other entities (of course they still made money). In neither instance was the VC group counting on the stock market to have anything to do with the final outcome they were seeking* (nor did it - at least not yet).

* The VC group in the first instance did sell some brands to entities that have since gone public... maybe at a level I have never played at, what you're saying is how it is. But most "new ventures" don't grow into the billions of dollars prior to being sold.

And buying the company isn't a form of investing in it?

 

[Elixir]

WUT?
Just sold a Company to a VC group. Their model was to cut costs, not invest additional capital in the operation. They thought that moving it to a lower-cost labor market from the high-cost labor market where we started it, and housing it under the same roof as one of their existing holdings would do wonders for the profit margins and therefore the Company's value. The plan was to let it grow a bit organically while they continued to acquire a couple more entities in related fields, then sell the entire consortium of companies to another VC group. They were wrong about the labor cost thing, as it dawned on them fairly quickly that they could not get the required functions fulfilled with minimum wage personnel or anything close to that. But the physical consolidation and the growth momentum they inherited from us definitely makes it look right now as if their plan is going to succeed in large part.

This is the second "new venture" company I have been involved in from startup to sale, both of which grew solely from retained earnings using nothing more than a revolving line of credit that was always paid down to zero every couple of months.
In the first instance the VC group had a similar idea of creating a consortium but couldn't pull it off, and ended up selling off the brands they had acquired one by one to other entities (of course they still made money). In neither instance was the VC group counting on the stock market to have anything to do with the final outcome they were seeking* (nor did it - at least not yet).

* The VC group in the first instance did sell some brands to entities that have since gone public... maybe at a level I have never played at, what you're saying is how it is. But most "new ventures" don't grow into the billions of dollars prior to being sold.

And buying the company isn't a form of investing in it?

No. Not in the sense of increasing its access to capital, anyhow. In fact the group that just bought our Company (last payment due 1/1/2020 - yay!) had to borrow on the equity they had in a brand they had acquired a couple of years previously in order to finance the purchase. Not sure that is responsive to your question though. Certainly they did spend money on something they believed would increase in value, so in that sense, yeah - they invested. My beef is with the assertion "venture capitalists are not separate from the stock market--they are relying on the stock market to cash out their winners", as that is not always the case, and has never been the case in my experience. As I alluded previously, I suspect that at the level of multi-billions, that's likely the case, but IMHO that's out of the "new venture" category we were discussing. I think of shoestring startups, not new automobile manufacturers, as more representative of new ventures.

 

[Loren Pechtel]

WUT?
Just sold a Company to a VC group. Their model was to cut costs, not invest additional capital in the operation. They thought that moving it to a lower-cost labor market from the high-cost labor market where we started it, and housing it under the same roof as one of their existing holdings would do wonders for the profit margins and therefore the Company's value. The plan was to let it grow a bit organically while they continued to acquire a couple more entities in related fields, then sell the entire consortium of companies to another VC group. They were wrong about the labor cost thing, as it dawned on them fairly quickly that they could not get the required functions fulfilled with minimum wage personnel or anything close to that. But the physical consolidation and the growth momentum they inherited from us definitely makes it look right now as if their plan is going to succeed in large part.

This is the second "new venture" company I have been involved in from startup to sale, both of which grew solely from retained earnings using nothing more than a revolving line of credit that was always paid down to zero every couple of months.
In the first instance the VC group had a similar idea of creating a consortium but couldn't pull it off, and ended up selling off the brands they had acquired one by one to other entities (of course they still made money). In neither instance was the VC group counting on the stock market to have anything to do with the final outcome they were seeking* (nor did it - at least not yet).

* The VC group in the first instance did sell some brands to entities that have since gone public... maybe at a level I have never played at, what you're saying is how it is. But most "new ventures" don't grow into the billions of dollars prior to being sold.

And buying the company isn't a form of investing in it?

No. Not in the sense of increasing its access to capital, anyhow. In fact the group that just bought our Company (last payment due 1/1/2020 - yay!) had to borrow on the equity they had in a brand they had acquired a couple of years previously in order to finance the purchase. Not sure that is responsive to your question though. Certainly they did spend money on something they believed would increase in value, so in that sense, yeah - they invested. My beef is with the assertion "venture capitalists are not separate from the stock market--they are relying on the stock market to cash out their winners", as that is not always the case, and has never been the case in my experience. As I alluded previously, I suspect that at the level of multi-billions, that's likely the case, but IMHO that's out of the "new venture" category we were discussing. I think of shoestring startups, not new automobile manufacturers, as more representative of new ventures.

I'm saying they're buying it to put money into it to develop things. Venture capitalists aren't into ordinary stock investing.

 

[Elixir]

I'm saying they're buying it to put money into it to develop things. Venture capitalists aren't into ordinary stock investing.

"Things" in the recent case was a market that we assessed in our business plan as only about 20% mature. No innovation was part of the plan.