How Governments Can Actually Raise More Revenues | Taxation Expert Richard Murphy
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Podcast Summary
In this comprehensive interview, Richard Murphy, political economist and tax expert from the University of Sheffield, shares his philosophy on taxation and modern monetary theory with host Jack. Murphy explains how fiat currency systems work, where governments create money to spend and use taxation to control inflation and redistribute wealth. (01:24) He argues that tax serves six critical functions: funding spending, controlling inflation, tackling inequality, repricing market failures, delivering fiscal policy, and ensuring justice. Murphy strongly advocates for higher corporate tax rates and increased taxation on wealthy individuals, not out of politics of envy, but because concentrated wealth reduces economic circulation and multiplier effects.
Speakers
Richard Murphy
Richard Murphy is a political economist, expert on taxation, and emeritus professor of accounting practice at the University of Sheffield. He was a chartered accountant for 42 years and has run and sold real companies at a profit. Murphy created the concept of country-by-country reporting that became OECD policy in 2015 and is now law in 70 countries worldwide, helping raise more tax from large corporations by preventing profit-hiding in tax havens.
Jack (Host)
Jack is the host of the Monetary Matters podcast, conducting interviews with economic experts and policy makers on complex financial topics.
Key Takeaways
Tax as a Social Good and Economic Multiplier
Murphy emphasizes that taxation should be viewed as a positive force rather than a burden. (05:08) He explains that while nobody enjoys paying taxes, people generally appreciate what taxation delivers - defense, healthcare, education, and infrastructure. The key insight is that tax redistribution from wealthy to lower-income individuals creates powerful economic multipliers, as those with less wealth spend every additional dollar they receive, increasing economic circulation and benefiting everyone, including business owners through increased demand and profits.
Modern Monetary Theory Fundamentals
In fiat currency systems, governments create money first to spend, then use taxation to withdraw money from the economy to control inflation. (02:17) This challenges the common misconception that governments must collect taxes before spending. Murphy explains that every day, central banks create money for government spending as long as there's a legal budget. This understanding reshapes how we think about government deficits and the relationship between spending and taxation, suggesting deficits aren't inherently problematic if they serve economic purposes.
Corporate Tax Rates Need Significant Increase
Murphy points out that UK corporate tax rates dropped from 52% to 25% - essentially flipping the numbers and reducing corporate contributions by 27 percentage points. (05:59) Large corporations impose significant costs on society through climate change, monopoly profits, and excessive rents, yet contribute proportionally less than they did historically. His country-by-country reporting initiative has already increased effective corporate tax rates by preventing profit-shifting to tax havens, demonstrating that higher corporate taxation is both feasible and necessary.
Wealth Concentration Reduces Economic Flow
The core economic argument for higher taxes on the wealthy isn't punitive but practical. (09:01) Money hoarded by wealthy individuals becomes a "stock" rather than a "flow" in the economy. When wealth is redistributed to those who spend immediately, it increases the velocity of money circulation, creating beneficial multiplier effects that strengthen local economies, increase employment, and potentially raise wages. This pro-business approach actually benefits wealth owners through increased economic activity and higher returns on their business investments.
Interest Rates and Inflation Are Directly Connected
Murphy argues that high base rates directly contribute to inflation rather than controlling it. (27:59) In the UK, where 90% of vehicles are leased and mobile phones are sold with credit arrangements, the base rate affects a large portion of consumer prices that feed into inflation calculations. Additionally, rents correlate with base rates as landlords pass borrowing costs to tenants. This suggests that lowering interest rates would actually reduce inflation, contradicting conventional monetary policy wisdom and highlighting the interconnected nature of financial policy decisions.
Statistics & Facts
- UK corporate tax rates dropped from 52% to 25% over recent decades, representing a 27 percentage point reduction in corporate contributions. (05:59) Murphy notes this dramatic flip in numbers shows how large corporations have reduced their societal contributions significantly.
- 85% of all insurable properties in the UK will be underwater at some point within 50 years, making them uninsurable and potentially collapsing the entire City of London banking system. (35:54) This statistic highlights the massive infrastructure investment needs that justify government borrowing.
- In the UK, 90% of all vehicles are leased and mobile phones are sold on lease arrangements, with interest elements included in retail price calculations. (28:14) This demonstrates how base interest rates directly feed into inflation measurements through widespread credit arrangements.
