Friday, April 17, 2015

Reality check on government bonds

My understanding is that the primary way governments raise revenue for government services is with taxes, but also there is the issue in our modern world of government bonds.

One way bonds can be convenient for a government is if there is a sudden need for revenue, but it's not feasible to rapidly raise taxes on its population, so instead it issues bonds--letting its citizens loan it money, temporarily.

So what if some of those citizens loan the government money for continuing operations on a longterm basis, yet receive services?

Imagine some situation where the government instead, say, rose taxes by $1 trillion US instead of issuing bonds, then it would take that money directly from its people, where in a progressive tax system that means the wealthy would pay the bulk and just lose that money.

Money paid for taxes is just gone. When you pay your taxes, just say bye-bye to that money.

Instead, let's say the wealthy loan the government that $1 trillion US, and get the services anyway, so now they didn't lose the money! The government owes them for services it provided to its citizens, including them.

So the government still provided the services! In one case they just taxed people to pay for them, while in the other some people got to loan the money in, meaning they can get it back!

See how that works? If it were taxed, they'd just lose the money, though they would also get government services in return. But if instead, they have a government run deficits, they can get it back!

Understand why the wealthy might prefer such a system?

But can it work forever? No. The government is providing services! Those cost money, which have to come in taxes, so it's deferring the costs to later generations, or the government will default down the line.

That means the total national debt rises. But guess who get most of the interest payments?

The wealthy who own the bulk of it. For instance most of the US debt is owned by Americans, so don't get distracted by which foreign power owns a chunk of it. Most of it is owned by American citizens.

That money is owed to them where to pay it the government needs to tax, where presumably they would pay the bulk of it, to get the money owed, yup, to them!  Unless they can live to a ripe old age and die first, of course.

However, if you're some wealthy person who has your taxes cut down by a huge level, do you necessarily care who has to pay for services you received along with others?

I'm not wealthy, so I don't know if they consider that or not.

But, if money is your focus, I wonder if you'd care who has to finally pay for those government services you loaned money to the government to have, versus being taxed for them.

Government services have ballooned under this system. It's not clear to me, if it's fixable, as I see it as a problem. Conceivably we could balance budgets, and run surpluses until national debts are eliminated, but I'm not seeing evidence of a movement in that direction around the world.

Like, our politicians seem remarkably uninterested in making that happen, despite talking about it quite a bit, but um, anyone notice how many of them are rich?


James Harris
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