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> real returns on that debt, its real burden It's real GDP, and it's not being inflated away. It theoretically attempts to, (2% inflation), but because more re

> real returns on that debt, its real burden It's real GDP, and it's not being inflated away. It theoretically attempts to, (2% inflation), but because more real debt is taken out, GDP still goes from 100% -> 105% the next year. The real returns on this debt is hardly investments and infrastructure that will make more things in the future, it's mostly social spending like healthcare. > that debt is serviced with taxes. Adding it to the tax burden is double counting. If I would normally pay 35% taxes for the country's defense and social spending, but there's also servicing interest, I now have to pay 40% taxes. So it's an extra indefinite 5%/yr tax like I said, but I only got 35% of defense and social benefits.

JumpCrisscross 2y ago
> If I would normally pay 35% taxes for the country's defense and social spending, but there's also servicing interest, I now have to pay 40% taxes This is where interagency holdings and real debt burdens kick in. (Also, again, that 35% already includes interest payments already.) Let's assume a rule that says no new borrowing and no spending cuts. There would need to be tax raises. But if we know one thing, we know it would be less than 5%. Even if we remove the 20% held by agencies [1], which is absolutely not a clean procedure, we know the number would still be less than 4%. Because that debt is nominally denominated, and you're making interest payments in the future with less-valuable money, and, of course, the double counting. This is before we even touch monetising the debt. Taxation is a bad mental model for thinking about our federal debt. It's in some ways more benign, and other ways much nastier, than a simple tax increase. [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
- reducesuffering 2y ago
  > (Also, again, that 35% already includes interest payments already.) Again, no, because if the 35% included interest payments, then if hypothetically there were no interest payments, my tax burden would be 30% now (no 5% taxes to interest). I understand that if nominal debt remained the same, then 2% inflation would eventually whittle it away (or whichever inflation/monetizing rate), but effectively whether by monetary inflation or taxes, taxpayers still pays the same amount, just a matter of when and in what way.
  - JumpCrisscross 2y ago
    > no, because if the 35% included interest payments, then if hypothetically there were no interest payments, my tax burden would be 30% now (no 5% taxes to interest) No. To illustrate one element of the complexity, imagine we just defaulted on our debt and ignore the credit (but not asset) consequences. No more government debt. Let's now assume that no new spending is allowed, and the surplus must be returned in the form of tax cuts. You would expect the surplus to vastly exceed the amount of interest being paid. Because now we're talking about principal, too. You'd also expect tax receipts to fall as everyone who expected those interest payments pulls back spending. That money paid to Americans supports the economy--and through it, taxation--in a complicatedly circular way. (You're also conflating personal income and GDP, but we'll let that slip and count any taxes you incur directly or indirectly, as taxes you pay.) > effectively whether by monetary inflation or taxes, taxpayers still pays the same amount, just a matter of when and in what way No, that's the point. Inflation is heterogenous in a way taxation is not. You could erode the purchasing power of a Treasury by $1 without causing a commensurate amount of inflation. It might be more or less depending on a number of factors. Your mental model works for a small country with a pegged currency, e.g. Panama. It doesn't when we consider monetary effects.

JumpCrisscross 2y ago

> If I would normally pay 35% taxes for the country's defense and social spending, but there's also servicing interest, I now have to pay 40% taxes This is where interagency holdings and real debt burdens kick in. (Also, again, that 35% already includes interest payments already.) Let's assume a rule that says no new borrowing and no spending cuts. There would need to be tax raises. But if we know one thing, we know it would be less than 5%. Even if we remove the 20% held by agencies [1], which is absolutely not a clean procedure, we know the number would still be less than 4%. Because that debt is nominally denominated, and you're making interest payments in the future with less-valuable money, and, of course, the double counting. This is before we even touch monetising the debt. Taxation is a bad mental model for thinking about our federal debt. It's in some ways more benign, and other ways much nastier, than a simple tax increase. [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St...

reducesuffering 2y ago
> (Also, again, that 35% already includes interest payments already.) Again, no, because if the 35% included interest payments, then if hypothetically there were no interest payments, my tax burden would be 30% now (no 5% taxes to interest). I understand that if nominal debt remained the same, then 2% inflation would eventually whittle it away (or whichever inflation/monetizing rate), but effectively whether by monetary inflation or taxes, taxpayers still pays the same amount, just a matter of when and in what way.
- JumpCrisscross 2y ago
  > no, because if the 35% included interest payments, then if hypothetically there were no interest payments, my tax burden would be 30% now (no 5% taxes to interest) No. To illustrate one element of the complexity, imagine we just defaulted on our debt and ignore the credit (but not asset) consequences. No more government debt. Let's now assume that no new spending is allowed, and the surplus must be returned in the form of tax cuts. You would expect the surplus to vastly exceed the amount of interest being paid. Because now we're talking about principal, too. You'd also expect tax receipts to fall as everyone who expected those interest payments pulls back spending. That money paid to Americans supports the economy--and through it, taxation--in a complicatedly circular way. (You're also conflating personal income and GDP, but we'll let that slip and count any taxes you incur directly or indirectly, as taxes you pay.) > effectively whether by monetary inflation or taxes, taxpayers still pays the same amount, just a matter of when and in what way No, that's the point. Inflation is heterogenous in a way taxation is not. You could erode the purchasing power of a Treasury by $1 without causing a commensurate amount of inflation. It might be more or less depending on a number of factors. Your mental model works for a small country with a pegged currency, e.g. Panama. It doesn't when we consider monetary effects.