Planned and Organized Deficit Spending V/S Banking Transaction Tax V/S Modern Monetary Theory
PODS (Planned and Organised Deficit Spending) V/S BTT (banking transaction tax). It has been proposed by CAs that a BTT be imposed in India and income tax be totally removed. So, revenues for the GOI (Government of India) will be restricted to the tax collected via the BTT. So, under the BTT model, there would be a constraint on money being a given as PODS (Sahgal, 2022) suggests. Remember, under the PODS system, digital money is electronically issued which is backed by a future-produced asset, healthy, satisfied & working/employed citizen, good, service, or agro.
Not backed by gold or by a peg to a basket of currencies...what would one do with gold or hard currency if there are no goods, services, or agros to consume. Remember, there is a production lag: theoretically, it is assumed away, but practically the lag could be short enough not to create inflation. PODS (Sahgal, 2022) when compared to BTT is lighter on the digital electronic infrastructure that would be required, as transactions need not be recorded because there is no tax, and all that would be required would be to monitor production-consumption matches that would have to be always balanced. BTT would be an automated system creating fewer jobs, while PODS will create millions of jobs with CAs having hundreds of article clerks who would remain as relevant sector auditors monitoring demand & supply matches across the economy in a non-invasive manner.
In the BTT System, the government will be answerable to the citizens on their spending because they tax, but under PODS, money is never in short supply, and as the government doesn't tax, it will arguably not be answerable to its citizens on any spending, at least up to the elections, where they (GOI) will be voted in depending on their previous quality of spending & not on promises of spending. Lastly, BTT would encourage more cash transactions instead of cashless transactions.
MODERN MONETARY THEORY (MMT) V/S PODS
Modern monetary theory is a macroeconomic theory that describes the currency as a public monopoly and shows unemployment as evidence that a currency monopolist is overly restricting the supply of financial assets needed to pay taxes and satisfy wants.
● Moreover, Modern monetary theory or MMT is more like a fallacy that might or most usually might not work due to its unrealistic and non-traditional approach.
● The approach of a traditional economy would be to make a budget, follow it and spend as much as needed, neither more nor less.
● However, this might not be the case in MMT. It goes forward with the idea of money creation for, let’s say, compensation for unemployment opportunities, lay the rules, and say budget deficits are okay or national debt is no sign of worry in any economy.
● This, as unideal and delusional as it might seem, can also be a cause of hyperinflation like the ones that happened in Zimbabwe in 2008.
Professor Stephanie Kelton, former chief economist of the US senate budget committee, in her book, The Deficit Myth, talks about MMT and describes it as ‘... first and foremost, a description of how the modern fiat currency works’ fiat being the legal tender used by the citizens of the country as a medium of exchange where the government is the creator of the money.
The question, however, arises - that if the government holds the power to create money, why bother with taxes? The simple answer is inflation. However, MMT explains that the government can create money for public works and create employment as long as there is spare economic capacity. Our idea that the government runs on the taxes paid by the citizens is something the expert, Professor Kelton, calls the idea that taxes that the government spends are ‘pure fantasy’.
From the perspective of modern monetary policy, taxes perform two key functions: -
● They ensure that people are prepared to use a government-backed currency
● Secondly, taxes serve to withdraw money from the economy
The idea that spending should be equal to taxes is what MMT opposes. In fact, it says that the budget should reflect the economic conditions injecting or removing money from the economy to properly manage inflation and unemployment.
We know that the modern world is unique and hence it isn’t tied to any standard of a commodity such as gold to hold up its value. MMT has critics who say that the modern monetary system is a dangerous system that might lead to hyperinflation, as per mainstream economists, as nowhere in the MMT theory has theorized reinforcement of supply of goods, services and agros
PODS does not tax at all except at times of remitting your profits overseas or in the case of hard currencies required by the government where a request tax in hard currency is collected from the foreign settled diaspora with an immediate digital credit in the domestic currency in their accounts for exchange of the hard currency tax and this credit earns tax-free interest and can be spent digitally and there will be no speculation of these digital monies.
Secondly, the banking paradigm in PODS is different from the MMT one. PODS guarantee one hundred percent of the deposit and interest payments as long as they are used digitally and no speculation takes place.
Would you agree that PODS is superior, especially in democracies?
By Dr. Vidur Sahgal and Gul Narendra Begwani (refer the book Planned and Organized Deficit Spending by Dr.Vidur Sahgal)
