The Morganist Taxation Model
Developed By Peter Morgan.
What is the Morganist Taxation Model: 3
Advantages of using the Morganist Taxation Model: 3-4
What is the Morganist economic perspective: 5-9
How to install and run the Morganist Taxation Model: 10 - 14
What is the Morganist Taxation Model.
The Morganist Taxation Model is a flat rate taxation model that has been developed to
simplify the income tax system. It takes full advantages of the benefits that a flat rate
taxation system can offer by providing new taxation facilities which enables greater
flexibility, accessibility and usability that other taxation models have not been able to
These new facilities have the potential to eliminate some forms of risk that individuals
and the economy as a whole are likely to encounter. They also create the opportunity
to control economic factors such as inflation and stimulate growth in ways that have
not been used previously.
Advantages of using the Morganist Taxation Model:
The taxation rate is not tiered and therefore does not carry over into the higher
taxation tier if an employee earns more in one month than in another. This simplifies
the taxation calculation and eliminates the need for the tax codes that are used to
calculate the amount of tax that an individual pays if this situation occurs.
This is particularly useful for an individual whose income varies from month to
month or for an individual who has more than one job. It allows them to pay their
income tax on a monthly basis in a simple way rather than having to submit the
Annual Self Assessment or computing the complicated monthly tax calculation.
The simplicity of the system enables all individuals to calculate their income tax on a
monthly basis. This means that a larger percentage of the population will be able to
take advantage of the benefits of paying taxation on a monthly basis rather than
through the Annual Self Assessment. An example of this would be self employed
individuals receiving the benefits of paying monthly pension contributions and
receiving tax relief straight away increasing the value of the compounded interest.
The software is set out in a way that is easy to follow and user friendly it has been
aimed to satisfy the needs of all users and as a result is designed in a fill in box format
that computes the calculation for the user when they have completed the data fields
and pressed the calculation button. Information has been provided in an easily
accessible way to inform the user of what they have to input into each data field
simplifying the technical and legal aspects of income tax accounting.
It also offers the opportunity for people to download the software and printout their
own taxation statements from any computer with internet access in the world. This
has the potential to alter the current method that calculates taxation taking it from a
complicated system that few people understand to a simple model that can be
accessed and worked out in any environment.
The combination of the new software and a flat rate taxation model provides the
potential for great flexibility in income tax computation. The main advantage is that
the tax rate and all of the tax allowances and tax deductibles can be altered on a
monthly basis, enabling the level of inflation and consumer consumption to be altered
on a monthly basis through fiscal policy.
There are many other advantages to this system including the ability to have a more
efficient wealth distribution system through reducing the amount of tax that an
individual pays by the amount that they receive in benefits (if they are working and
receive benefits) until the amount exceeds the taxation that the individual is liable for,
in this situation the individual then receives the amount that they are still owed.
This has the advantage of being able to increase the number of transactions made with
the money that is not taken in tax (as the money is not held by the government until it
is redistributed) and it also reduces the cost of administrating the benefit system.
Having a flat rate taxation system and the new software also enables individuals to
have an individual taxation rate dependent on the decisions that they make or the
situations that they are in. The flat rate taxation system enables new facilities for
example the Current Pension Rebate, the Tax Free Account and the Funds of Social
What is the Morganist economic perspective:
Stagflation occurs when both inflation and unemployment rise at the same time. This
situation defies the principles of Keynesian Economics as it contradicts the Keynesian
Liquidity Preference Theory.
The basic concept of the Keynesian Liquidity Preference Theory is that an increase in
the money supply will create an increase in output and as a result a decrease in
unemployment. This has been a key concept in economic thinking for a long time and
is generally seen as a logical conclusion.
However when Stagflation occurred in the 1970’s the Monetarist Economic
movement argued that if unemployment was increasing at the same time as inflation
then the Keynesian Liquidity Preference Theory could not be correct.
The Monetarists devised an economic model called the Expectations Augmented
Phillips Curve, which stated that when liquidity was increasing it was merely diluting
the money supply and did not increase output.
This evidence would suggest that the Keynesian Liquidity Preference Theory is
incorrect, as a higher level of Liquidity was not increasing consumer consumption due
to the population expecting the cost of goods to rise in relation to an increase in
In short the increase in pay that individuals were receiving only compensated for the
price rise for the goods and service in the economy. In other words the amount of
resources that a person could purchase with their income was the same as it was
before the increase in money supply.
This paper will investigate why an increase in Liquidity can sometimes lead to an
increase in output and sometimes have little or no affect on increasing the level of
The first stage of this investigation will explain the relationship between liquidity and
Liquidity or money supply or aggregate demand is the quantity of the monetary
currency circulating the economy during a period of time. Aggregate supply is the
quantity of resources produced by an economy during a period of time.
When aggregate demand increases in relation to aggregate supply there will be a
surplus of the currency in relation to the goods and services in the economy. Because
the quantity of the resources has not increased equally the price of the goods will
This would create an inflationary gap because the purchasing power of the currency
has decreased. For example if there was an increase in the money supply of ten
percent then it would take 1.1 to purchase a basket of goods that it would previously
have cost 1 to purchase the same basket of goods.
Inflation can be created either by a relative increase in aggregate demand in relation to
aggregate supply or by a relative decrease in aggregate supply in relation to aggregate
demand. When aggregate demand increases in relation to aggregate supply it is called
demand-pull inflation. When aggregate supply decreases in relation to aggregate
demand it is called cost push inflation.
There are two ways that the level of money supply can be altered an increase or
decrease in interest rates or an increase or decrease in taxation. The mechanism
altering interest rates is called Monetary Policy and the mechanism altering taxation is
called Fiscal Policy.
The combination of the level of interest rate and taxation chosen is called the Policy
mix. Governments choose different Policy Mixes to achieve different economic
targets. However it is better for a Government to use either Monetary or Fiscal Policy
to control different types of inflation.
When demand-pull inflation occurs an increase in interest rates will make borrowing
more expensive it will also encourage saving due to higher returns. This is a very
affective method of reducing the level of liquidity in this situation as the inflationary
gap has occurred as a result of a relative increase in money supply against output.
However this method of economic control is dependent on the interest rate being able
to control inflation. If cost-push inflation occurs then output has decreased in relation
to the money supply. This means the economy is less productive than it used to be.
This could be caused by many factors for example war, freak weather condition,
strikes etc. In short anything that reduces the output of the economy will create cost-
In this situation inflation will rise and as a result interest rates will have to rise to
encourage individuals to save. If the level of inflation is higher than the interest paid
to individuals then there is not incentive for individuals to save, as they would lose
more money than they would make through saving. Is it possible therefore to state
that when inflation is created through a reduction in output, inflation controls the
If this conclusion is true then another form of economic control is needed to control
the level of inflation when cost-push inflation occurs. The other method of controlling
inflation is Fiscal Policy, which controls the level of liquidity through taxation. This
method of increasing liquidity may be better at controlling the economy in a recession
as it is not dependent on the saving mechanism and therefore is not affected by an
increase in inflation.
However the previous attempts to control the money supply when cost-push inflation
occurred have been centred on diluting the money supply through a technique called
seigniorage. This is when more money is printed and redistributed throughout the
economy in the hope that it will increase the level of output through increasing
But as the money supply has only been diluted there is no real gain unless specific
sections of the economy are given all of the extra money in which case they have
become wealthier at the expense of everybody else.
If a reduction in the level of tax paid by individuals was introduced then no matter
what the level of output or money supply is then the individuals will receive a real
financial gain. In short no matter how big or small the cake is the population will
receive more of it increasing consumer consumption and as a result output.
There is an argument that the individuals might not necessarily spend the extra money
that they receive. However this could also occur if the interest rate has decreased and
they have more money to spend as a result of having to pay less interest on loans.
Also different groups in society will spend more than others so if these groups were
targeted for having the tax reductions then it is more likely that they would spend the
money that they receive.
Another argument that is made is whether cost push inflation is occurring as it is
difficult to determine what factors are creating inflation with absolute certainty. In
Britain at the moment interest rates are rising on a continual basis and inflation is
continuing to rise. This would suggest that cost push inflation is occurring because if
interest rates are rising, which creates a reduction in the level of aggregate demand
and taxation is also very high (as it is currently in Britain) then the inflationary gap
cannot be caused by an increase in aggregate demand in relation to aggregate supply.
This means that the increases in inflation must have been created by a reduction of the
level of aggregate supply. In short the ability of the economy to produce the goods
and resources at the quantity and price it has done previously is diminished.
This suggests that stagflation is occurring again or at least beginning to occur again
because if cost push inflation has appeared it means that the level of aggregate supply
has decreased and unemployment would have risen as a result. And if unemployment
and inflation are both increasing at the same time then it would suggest that
stagflation is occurring.
However Britain has been using the Monetarist economic principles to control the
economy, the technique known as inflation targeting. If stagflation is occurring again
even though the Government has adopted this Monetarist economic strategy it would
suggest that Monetarist economic principles are incorrect.
If this conclusion is correct it would indicate that there is not an effective economic
theory currently available to control and maintain a stable economy. It would also
suggest that the future prospects of the country are very bleak.
The Morganist Economic Perspective:
The Morganist economic theory believes that the reason that the economy is seeing
interest rate increases with continued inflation increases is due to inflation targeting
encouraging large levels of debt to accumulate over a long period of time due a
sustained low cost of borrowing.
The Morganist economic perspective believes that business entities in the economy
i.e. individuals, corporations, organisation etc become so dependent on the income
from borrowing and so complacent that the interest rate will stay low that they borrow
to the point that they cannot afford to pay back the amount that they owe or even the
interest if the interest rate rises.
This then leads to a large number of insolvencies when the interest rate does rise
reducing the ability of the economy to produce as much as it could previously due the
number business entities that can no longer operate at the level that they used to and
have to downsize or cease trading altogether.
This then creates a reduction in the level of aggregate supply creating a cost push
inflationary gap. As a result interest rates have to rise to reduce the level of inflation,
which then makes more business entities that owe money reduce their operations or
cease trading and creates even more cost push inflation through reducing the
The Morganist’s believe that this cycle will continue to reduce the level of aggregate
supply and the level of aggregate demand creating a reoccurring decrease in economic
The Morganist’s believe that when cost push inflation occurs, the method of
controlling inflation should not be to reduce aggregate demand but to stimulate
growth in aggregate supply. Using this method the inflationary gap is closed by the
increase in aggregate supply and the economy will be able to maintain output at the
level that it had done previously.
The Morganist’s perspective states the most appropriate method of stimulating an
increase in the level of aggregate supply is to reduce taxation as it will create a
relative increase in the amount an individual will receive in income no matter what
the level of output or the money supply.
The Morganist’s describe this method of increasing liquidity as a positive liquidity as
they believe that it will lead to an increase in consumer consumption especially if the
less affluent sectors of society are given the tax reduction as they will have to spend
the money through necessity.
The Morganist’s espouse to the Keynesian economic liquidity preference theory when
the liquidity is positive liquidity. However they believe that the occurrence of
stagflation in the 1970’s was created by what they describe as negative liquidity,
which is an increase in liquidity that does not create an increase in consumer
consumption or at least not a significant increase.
The Morganist’s therefore believe that when level of aggregate supply needs to
increase (i.e. when cost push inflation occurs) tax reduction is the method that should
be adopted rather than seigniorage, as they believe that it will only dilute the money
supply and not lead to a real gain in aggregate supply.
However a tax reduction would lead to a higher level of liquidity and regardless of
whether the liquidity increases consumer consumption or not interest rates would
have to rise unless there is another way of compensating for the increased level of
liquidity to reduce the potential increase in inflation that the tax reductions would
The Morganist’s therefore devised a mechanism called the Current Pension Rebate,
this facility enables an individual to save money for their pension which is not taxed
and then receive some of the money back straight away that is not taxed. However
this current tax reduction is only available if the individual pays into a pension
The aim of this facility is not just to increase the level of pension saving (which
unfortunately it has been perceived as being in the past) but to offset the increased
liquidity that a tax reduction would create by reducing the level of liquidity through
In short the tax reduction that is needed to stimulate the level of aggregate supply
does not create more liquidity leading to a higher level of inflation and ultimately an
interest rate rise because the increase in liquidity that is created through the tax
reductions is offset by the pension saving, which has the added advantage of
increasing the level of pension saving.