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Taxes raise revenue to pay for things, but we've been debt financing on the strength and stability of the country forever, and unlike the oft-cited comparisons

by adpirz 8y ago

Taxes raise revenue to pay for things, but we've been debt financing on the strength and stability of the country forever, and unlike the oft-cited comparisons to individual households, it doesn't seem like there will be any serious collections from our debt holders both foreign and domestic any time soon. The US deficit in 2019 is going to come pretty close to $1 trillion, but the general outlook seems fine, bond yields are low, etc. Is there even an incentive at that point to find ways to earn more revenue?

dsr_ 8y ago
Taxes raise revenue to pay for things -- that's true for households, cities and states. It's even true for many countries. It's not true for the US Federal Government: as you can see, the debt that we send out is a representation of the value we add to the world economy. US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.
ch4s3 8y ago
Yeah, we live on cheap debt for now, but interest rates will rise eventually, there will eventually be another downturn, and the interest payments are stacking up. If we end up in a position where all discretionary spend is displaced by servicing the debt, we’ll be in real trouble. We’ve never been able to pull in more than 18% of GDP in tax receipts for more than a short time period. We’re currently collecting ~17%, so we have a tiny bit of head room based on historical precedents. Beyond that, I don’t know what we can do other than cut some spending. Auditing the DoD and means testing Medicare might pick up some low hanging fruit. Hard to say what’s most likely to work, IMO.

by adpirz 8y ago

dsr_ 8y ago

Taxes raise revenue to pay for things -- that's true for households, cities and states. It's even true for many countries. It's not true for the US Federal Government: as you can see, the debt that we send out is a representation of the value we add to the world economy. US Federal taxes are not primarily paying for things. They are to encourage use of the dollar; to redistribute wealth; to act as tools of policy. The government needs to issue debt in quantities similar to the expansion rate of the economy: when less is issued, the economy will suffer, and when more is issued, inflation begins.

ch4s3 8y ago

Yeah, we live on cheap debt for now, but interest rates will rise eventually, there will eventually be another downturn, and the interest payments are stacking up. If we end up in a position where all discretionary spend is displaced by servicing the debt, we’ll be in real trouble. We’ve never been able to pull in more than 18% of GDP in tax receipts for more than a short time period. We’re currently collecting ~17%, so we have a tiny bit of head room based on historical precedents. Beyond that, I don’t know what we can do other than cut some spending. Auditing the DoD and means testing Medicare might pick up some low hanging fruit. Hard to say what’s most likely to work, IMO.