Lion of the Blogosphere

What are federal taxes used for?

The answer is that federal taxes are used to prevent government debt from growing faster than it would have without the tax.

Once upon a time, there was a quaint notion that taxes had something to do with government spending. Republican-conservative types came up with the idea that they could “starve the beast,” and by reducing federal tax revenue that would force the government to spend less. But that was proven to be wrong. Reducing tax revenue only caused federal government debt to increase.

Written by Lion of the Blogosphere

July 7, 2017 at 1:55 pm

Posted in Uncategorized

41 Responses

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  1. The Federal and State revenues create nothing to the benefit of the normal working citizen, except to create more mayhem and destruction overseas, when it comes to the US treasury, and the expansion of the police state and welfare programs for losers when it comes to the state level. For the reddy teddy states, Republicans love starving the environs of the beasts of burden (or overspent, overfed proles if you will). Republican based states tend to have poorer infrastructure.

    JS

    July 7, 2017 at 2:07 pm

  2. This is only true so long as the dollar monopoly continues. When it ends we won’t be able to deficit spend endlessly and will in fact be budget constrained at the federal level over the medium term.

    Andrew E.

    July 7, 2017 at 2:25 pm

    • How is the dollar monopoly going to cease? The U.S. dollar is a creature of the Federal government. You might as well say that Starbucks is going to face competition in issuing points on Starbucks cards.

      The U.S. dollar has value because it is the thing that the U.S. government demands to pay taxes. As long as the Feds maintain power to collect taxes, it will always have value.

      jimbo

      July 7, 2017 at 3:15 pm

      • True. The monopoly I’m talking about is its use in foreign settlement as reserve currency. The dollar’s value is vastly inflated by its use outside US jurisdiction and that is not something that is required now that Bretton Woods was abrogated in 1971. Its continued use in such a role is a function of institutional inertia and will end at some point. But there will always be a currency printed by the federal government that will have a monopoly domestically.

        Andrew E.

        July 7, 2017 at 3:53 pm

      • Countries blow up their currencies all the time. Read the international section of the newspaper. Most national budgets are ultimately constrained by tax revenues. Only we in the USA get to print out relatively huge budget and trade deficits for 50 years apparently without consequence because of the petro-dollar arrangement.

        bobbybobbob

        July 7, 2017 at 4:38 pm

      • I think he means the dollar as world reserve currency.

        Magnavox

        July 7, 2017 at 5:40 pm

      • Pound Sterling was of course the reserve currency before the dollar.

        Anthony

        July 7, 2017 at 10:46 pm

  3. ‘Republican-conservative types came up with the idea that they could “starve the beast,” and by reducing federal tax revenue that would force the government to spend less.’

    This was basically my reasoning for supporting lower taxes through my mid- to late-twenties. But it gradually dawned on me that Republicans never actually cut spending after taxes were cut, so all we were doing was basically cost-shifting to future generations. Now I say that citizens should step up to the plate and pay full price for the government services they apparently want.

    I’m not an expert on the subject but I think that this is somewhat less true at the state level. Yeah, the states can debt finance, even against the will of the citizens, but at least in my state this is limited to explicitly capital projects rather than funding for normal operational expenditures.

    Jokah Macpherson

    July 7, 2017 at 3:09 pm

    • Municipalities do not roll over their debt the way the federal government does. Every once in a while, a municipal issuer will get authorization to ‘scoop and chuck’ their debt under cover of calling it a debt re-organization but it is not common practice and this constrains the amount of municipal debt issuance. But almost all muni bonds do have a 10-year par call and because of the convention of how debt refinancing savings are calculated in the muni world and the fact that most buyers of muni bonds demand 5% coupons no matter how low interest rates go, you get a lot of churning of debt that wouldn’t occur without either callable bonds, par coupons or higher interest rates.

      Besides all that, muni issuers have little trouble selling their debt because there’s plenty of suckers who save in debt as a consequence of the dollar reserve system. When that system ends, debt issuance will change dramatically.

      Andrew E.

      July 7, 2017 at 4:53 pm

      • “…wouldn’t occur without either callable bonds, par coupons or higher interest rates.”

        Should be: “wouldn’t occur with either non-callable bonds, par coupons or higher interest rates.:

        Andrew E.

        July 7, 2017 at 5:57 pm

      • That is interesting but does debt refinancing have anything to do with the absolute amount of debt outstanding or limiting it to capital projects?

        Jokah Macpherson

        July 7, 2017 at 8:13 pm

      • The churning generates a lot of fees for underwriters, lawyers, financial advisors, etc. But it doesn’t increase the liabilities to the issuer (beyond said fees).

        But muni issuers don’t just borrow for capital projects. They borrow for all sorts of things deemed worthwhile by the local government that won’t necessarily generate its own income. Just as long as the annual principal plus interest payments can be covered from the relevant taxes collected by a certain multiple.

        Andrew E.

        July 8, 2017 at 1:53 pm

    • Theres also the even crazier idea that tax cuts actually increase revenue because of the laffer curve.

      Magnavox

      July 7, 2017 at 5:43 pm

      • I would think that there is a curve describing the amount of taxes collected at any collection rate and that it isn’t a flat line. If true, then it is a mathematical certainty that if you are on the high side of the low point that reducing taxes would increase revenues until you hit the low point.

        CamelCaseRob

        July 7, 2017 at 6:59 pm

  4. Lots of billionaires have made a public show of private charity yet to my knowledge none of them have ever made a public show of paying more than they owe in taxes. This strikes me as not very civic, especially since most of them tend to fall more on the left side politically. I understand that they already pay an outsized share of the total cost to begin with but the symbolism of only paying the minimum they owe doesn’t signal much faith in the government programs they claim to support.

    Jokah Macpherson

    July 7, 2017 at 3:16 pm

    • Trump, in the early 90’s, proposed a 1-time billionaires tax to pay off the national debt. No takers. So much for the wealth wanting to pay more in taxes.

      Andrew E.

      July 7, 2017 at 4:44 pm

    • >>I understand that they already pay an outsized share of the total cost to begin with

      Not those in the hedge fund and private equity world where they get to write off their enormous compensation as “carried interest” and pay at a 15% rate. They pay less of a portion of their multimillion dollar salaries in taxes than you or I do. We are suckers for tolerating this. But they own both parties, so what is to be expected?

      Daniel

      July 7, 2017 at 11:39 pm

    • You can make a donation to the U.S. Treasury specifically for debt reduction. The most ever taken in was just under $8 million in 2012. Billionaires are not doing their part!

      https://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm

      Anthony

      July 8, 2017 at 9:29 am

  5. Nationalist debt competes with globalist debt. The rare sincere conservative will try to cut taxes and government spending, abolish the fed, and leverage up the treasury as much as the market will accept. Not even Ron Paul got it all right.

    Reagan in hindsight did a better job with his “Star Wars” wunderwaffen than Bush’s housing bubble. Worthless beats worse than worthless, which is what real estate speculation and globalist finance are.

    Anonymous Fake

    July 7, 2017 at 4:01 pm

  6. The answer is that federal taxes are used to prevent government debt from growing faster than it would have without the tax.

    You should be punched in the nuts for telling that whopper. This is where the 2016 federal spending went.
    http://federal-budget.insidegov.com/l/119/2016

    37% Social Security, unemployment, and labor
    28% Medicare and general health spending
    15% national defense
    14% All other programs (agriculture, energy, commerce, etc.)
    6% national debt interest

    Cutting entitlements cold turkey would be insane. But we should start weening people off entitlements. People should be required to save a percentage of their income for retirement and healthcare. And I’m actually starting to agree with Nanny Bloomberg a little bit on forcing people to quit smoking, stop drinking soda, lose weight, etc. We’re spending way too much money on self-inflicted health problems. We should also replace entitlements with a negative income tax. And, of course, we should deport illegals and their anchor bastards. I shouldn’t have to pay for another country’s poor people. If America did those things and and used the savings to pay down the national debt then I wouldn’t object to taxes. But I do object to paying more in taxes when government spending is out of control.

    destructure

    July 7, 2017 at 4:19 pm

    • Entitlements can only go away when the FED goes away. Why do the elite get a free ride by printing money? If you want correct monetary and moral behavior then sound money is the only solution.

      NotWesley

      July 7, 2017 at 7:52 pm

    • How are they going to save unless the government goes into debt to give them something to save? Every financail asset is a debt to someone else, and if one sector of the economy (the private sector) has a surplus, another has to have a deficit to balance it.

      jimbo

      July 7, 2017 at 9:40 pm

      • The wealthy save in real assets, not just financial assets. Real assets owned outright, eg. rare art, rare cars, castles, etc., are no one’s debt. You could save in physical gold coins that you keep in your possession. No counterparty risk at all.

        Andrew E.

        July 8, 2017 at 10:08 am

      • “Every financail asset is a debt to someone else,”

        Yes

        “and if one sector of the economy (the private sector) has a surplus, another has to have a deficit to balance it.”

        No. Financial assets aren’t the only kind of assets. Physical assets such as land, buildings, infrastructure, etc don’t necessarily represent a debt to someone else.

        “How are they going to save unless the government goes into debt to give them something to save?”

        Money is really just an IOU. When people work, they receive IOU’s from their employer that they can then trade for other people’s work. You can spend all your IOU’s now. At which point you won’t have any to live on when you retire. Or you can save some of those IOU’s to live on later.

        You’re basically trading the work you did in the past for the work someone else will do in the future. Put another way, the next generation is using their work to buy all the assets you’ve accumulated over your lifetime. In the meantime, those IOU’s are still in circulation. You’re loaning them to companies to pay bills, build factories, buy equipment, etc.

        Why would the government need to go into debt for that? Government debt is when the government borrows money. In this scenario the government isn’t borrowing anything.

        This is all about the allocation of resources. People misallocate resources today because they’re wasting their IOU’s (and work) buying (and making) things people don’t need. If people stopped buying things they don’t need and started saving for retirement by investing in companies that make things people do need then the IOU’s (and work) would be used more efficiently.

        This would result in a higher standard of living for everyone. It would also result in LESS government debt. Because the gov’t wouldn’t need to borrow money to support people who misallocate their IOU’s buying things they don’t need.

        destructure

        July 8, 2017 at 10:25 am

      • Lower IQ individuals tend to waste their pleasure money on consumables (restaurant food, gadgets), and this includes a large number of SWPLs that fuss around Manhattan. They are no different from proles in this regard.

        Higher IQ individuals save their money, invest in the financial market or splurge on things that are liquid with resale value (rare art, rare books, intangibles like a fancy education).

        You’ll be surprise many SWPL types have absolutely nothing invested in themselves. I know, because I get to see their financials.

        JS

        July 8, 2017 at 12:34 pm

      • @ destructure

        Yes, most money does in fact come from the private sector, as you say. A bank gives Bob a mortgage by giving the house-seller Sarah a “deposit,” which is to say a debt to her. Bob’s mortgage is an asset, the value of which, with interest, more than outweighs the debt to Sarah. So the bank’s books balance.

        Where did the money that Sarah has come from? Nowhere. The bankers just made it up. No public sector needed.

        However, there does have to be a clearing house, or central bank, used by the major banks. That way Sarah’s deposit / “bond” can be moved to another bank via a transaction at the clearing house. So that her deposit can be available to her wherever she wants.

        That at least is the main justification for the Federal Reserve. It has the additional purpose of monitoring the money supply and overall lending market, and taking actions as allowed by law, to ensure stability in our money.

        In theory you could have a fully private central bank. The one we have is quasi-private as is.

        The only reason the gov’t issues debt is that it needs to finance its fiscal policy. That’s pretty much it. And unfortunately, in my view, it’s important these days that the gov’t has expansive fiscal policy. Otherwise we wouldn’t really do any physical or medical research at all. The private sector doesn’t much pay for any of that, and it would take a major intellectual sea change for that to happen.

        Lowe

        July 8, 2017 at 2:46 pm

    • @ destructure

      The fat definitely does need to be cut from the Federal budget, including all the entitlement spending. These programs are socially pernicious, as you are aware. But even gradual weening of the old and the poor off these programs will result in a big political pushback.

      Trump only barely skirted into the presidency, which was amazing to watch. Imagine if he’d actually run on a platform involving cuts to Social Security, Medicare, or Medicaid. Now that he’s in office the Republicans want to cut Medicaid… and there is already much gnashing of teeth in the press. If Trump had run explicitly on such cuts, he’d have lost.

      I am not sure there’s any path forward, other than a continued slow decline. I expect the power, prestige, economic dynamism, and general health of this country to decline steadily throughout the rest of my life. I prefer the decline more like Japan, less like France.

      The outside hope is that we get a strongman, or a political mastermind, who can reform our deeply broken immigration system, and crush our viperous universities to dust. Then the entitlement cuts would be a matter of course. That would probably require a military coup though. So far it doesn’t look like Trump can deliver, although I’d love to be wrong.

      Lowe

      July 8, 2017 at 3:26 pm

  7. And when, as it must eventually happen, interest rates return to historical norms, the government will be crushed by debt servicing. This is when the poop hits the fan, and maybe we get the total economic crisis that will usher in a new day, with a thousand and one traitors swinging from lamp posts. I hope, anyway.

    peterike

    July 7, 2017 at 4:22 pm

    • The FRB can arbitrarily keep the interest rates historically low for a lot longer than anyone in the middle class can stay alive.

      cesqy

      July 7, 2017 at 8:50 pm

    • @ peterike

      Interest rates are set by the central bankers, through literally setting the reserve rate and the inter-bank rate, and through open market operations (buying and selling gov’t bonds).

      When they do this, they do it for a reason. They are examining the private credit market, that is, all the lending statistics they have reported from the prime lender banks and small banks as well. Something like 2/3 to 3/4 of all checkbook (non-physical) money is created by private banks via the bank’s balance sheet. So the central bankers are watching the lending market, and the money supply.

      If the lending market cools, the Fed targets lower rates, to incentivize prospective borrowers, and motivate banks to be more ambitious with their capital, rather than just parking it in gov’t bonds. Likewise if the market is hot, they raise rates, to disincentivize borrowers, and push banks to be more conservative. Lately this is what Yellen has been doing, raising rates a bit, and paring down the Fed bond portfolio a bit.

      That means she and her colleagues are reasonably sure the lending market is healthy, or getting healthier. However, there are long-term reasons to think rates will not go up by a large amount, because the lending market can only get somewhat hotter / healthier.

      The country and the world are in a long term demographic trend that is deflationary, or at most only mildly inflationary to prices. The most productive workers are having few children, and also living long past retirement. The world is filling with dependents, and fewer producers capable of taking on substantial debt (in the form of auto-loans, mortgages, and most important, business loans). The upward demographic trends of Africa are also important here, because Africans will basically work for nothing, bidding down wages, but generally they are not enterprising enough to take on large debt, especially for business ventures.

      The future doesn’t look inflationary, barring a large and unexpected baby boom among Western whites. So this is the long-winded way of saying that you are wrong. The Fed will not raise rates much for quite a while, because the private lending market will not justify it. Barring a lot of irrationality.

      So the US gov’t isn’t going to have a problem making interest payments anytime soon.

      Further, that situation is probably impossible, because rates can only get high because private lending gets hot. In that case tax revenues should be higher because prices on cars, houses, and other goods will have been bid up, and there should be more businesses and workers paying income tax. So increased tax revenues will offset the increased interest rates on newly issued gov’t debt.

      Which btw is the real purpose of taxes: to serve as a safety valve on the monetary system. It’s incidental that we use them to enact social policy (i.e. attack our rivals).

      Lowe

      July 8, 2017 at 12:48 pm

      • From my view in So Cal, prices on homes, cars, and other goods are heading the same direction they were in 2007. House prices are nearing those historic highs once again, and construction is ramping back up.

        Seth Largo

        July 8, 2017 at 3:41 pm

  8. Isn’t this taxation without representation for all intents and purposes? Had not Americans made a revolution because of it? Is everyone supposed to just keep paying sheepishly? Where is common sense? Very confusing.

    Yakov

    July 7, 2017 at 5:16 pm

  9. I’m disappointed the Lion still wants to raise taxes on Trump and Yakov.

    Trump will not sign a bill raises taxes on Trump while Yakov will not pay it even if Trump signs a tax increase on the 1%.

    The real money is in Catholic Zionism – if one knows how to argue for it persuasively:

    https://pragmaticallydistributed.wordpress.com/2017/07/07/zionism-catholicism/

    I am not the Pope.

    Unless something has gone very haywire with my reality simulation.

    Be certain that if definitive proof were put forward that I am the Pope I would be as surprised and eager to review such incredible evidence as any of you would be.

    But, so far as my own synaptic algorithms can calculate within my precocious simulation, the Pope is not this Jew.

    I have also never wondered whether I am the Pope.

    But the Pope has often wondered if he is a Jew. Or, specifically, what is the relationship of his branch of New Judaism to Old Judaism.

    It is because Catholics insist on making the Jews their business that this Jew offers this helpful speculation into Catholic business.

    To me a deep relationship is obvious and robust.

    The founder of Christianity is a Jew descended from King David. Jesus’ mom is a Jew as is dad, all of the apostles, and so on and so forth.

    Yet there has been a centuries long hesitancy within Catholicism to link the Church to Judaism.

    The name for the ancient doctrinal debate about where Jews stand in Catholicism is Supersessionism. Its topic is to what degree Christianity has divinely superseded Judaism since Jesus to become a “New Israel” with all of the blessings given to the Jews beginning with the Abrahamic Covenant and after.

    Supersession is a topic in all Christian denominations. But it has been most thoroughly analyzed by the Catholic Church. It is because Catholicism has the oldest theological doctrines of any denomination that my own analysis centers on the Catholic viewpoint.

    Supersession comes in numerous guises. Some claim Christians completely replace/supercede Jews as God’s chosen people. Less extreme versions claim parts of the Biblical law still favor Jews, although only Christians enjoy God’s most complete religious favor.

    The Catholic Church has never declared an official dogmatic position on supersession despite the antiquity of this debate stretching back to the apostles themselves.

    Judging the Catholic Church by its own internal logic, I propose that it’s doctrine should officially become –

    The eternal and unconditional Abrahamic Covenant still applies completely to Jews as much as Catholics while God’s other favors remain only with devotees of Catholicism.

    I view this compromise as fair to both parties.

    My justification for amending the Catholic Church’s Constitution is that the restoration of the state of Israel itself proves, under Catholic doctrine, that Jews still enjoy all of the benefits of the Abrahamic Covenant.

    The Covenant itself was an eternal and unconditional promise made by God to reward Abraham with the land of Israel, bless his descendants as God’s chosen people and bless their allies and curse their enemies, and make Abraham father of many nations.

    If Jews had been completely superseded in the eyes of God by Catholicism, then the Holy Land should have fallen under the permanent control of Christians who have become the “New Israelites” with title to the land of Israel. Since the Abrahamic Covenant is eternal, the land of Israel must be controlled either by Jews or Catholics.

    That Israel was restored not simply by Jews who did not accept Jesus as Messiah, but by secular Jewish founders who would be considered religious apostates and heretics to Judaism by just about every rabbinical authority prior to the 19th century is a clear demonstration – on grounds of Catholicism’s own doctrine – that the Abrahamic Covenant still fully applies to modern Jewry.

    In the past, when Jews had not yet returned to govern Israel, elements in the Church could argue for purer forms of supersession that limited or excluded the application of even the Abrahamic Covenant to Jews.

    After the establishment of Israel it becomes much harder, probably impossible, for a Catholic theologian to argue the Covenant does not fully apply to Jews.

    For decades Evangelicals have interpreted the return of Israel to the Jews in this way and it is this which explains the Evangelical embrace of Zionism.

    The Church, being a centralized hierarchy slow to change, has not updated its doctrine as swiftly as Evangelicals have.

    But the Catholic Church would do well to update its dogma as proposed here.

    What practical, political, form should this new doctrine take?

    I say nothing extravagant is needed. Simply maintaining decent relations with Israel and Jews generally would be sufficient.

    Specifically the Church could drop its diplomatic support for a Palestinian state. Theologically speaking, a Palestinian state would contravene the promise made to Abraham by dividing the Holy Land with Muslims who are sworn enemies of both Catholics and Jews.

    In more practical terms it would somewhat help if their diplomatic position were altered since a Palestinian state will bring nothing to the world except another failed Islamic nation with terrorist organizations running rampant.

    Having the IDF perpetually repress the Palestinians would then count as yet another gift for the Vatican from the children of Abraham.

    The Undiscovered Jew

    July 7, 2017 at 5:22 pm

  10. What video game is Lion playing next?

    The Undiscovered Jew

    July 7, 2017 at 5:28 pm

  11. The Republican approach you described was embraced because it allowed the Rs to pretend they were taking on the Deep State without actually doing so. The R party is not a true opposition party. They are a careerist theory generating rump of the Deep State.

    Curle

    July 7, 2017 at 6:15 pm

    • Correct, chumps need to dump the rumps and that’s why they voted the grump the Trump.

      JS

      July 7, 2017 at 11:07 pm

  12. Federal taxes are used to reduce the amount of money in circulation so the government can spend the same amount without creating inflation. But the debt is meaningless. The government doesn’t *need* to borrow to spend. It could just “print money”. We could actually have zero Federal taxes and the government would run just the same — but inflation.

    CamelCaseRob

    July 7, 2017 at 6:43 pm

  13. Most of the federal government should not exist according to the Constitution, but thanks to crappy public education and a number of other factors like graft at the top level with a corporatocracy in charge, the system will have to collapse under it’s own absurdities.

    Someone

    July 7, 2017 at 7:22 pm

  14. Lion, I think you’ve laboured this point long enough–and for what it’s worth I agree that a lot of 1%ers are Democratic voting assholes–but in principle their money is their money and does not belong to the government.

    Roli

    July 8, 2017 at 12:05 am

  15. Lion, ONCE AGAIN

    The United States of America is the most powerful nation in the history of mankind and is the sole sovereign entity that has the right to create United States Dollars.

    Taxes in the modernity serve one purpose, and one purpose alone, to control the inflation that results from the ruling Sovereignty delegating the right to create money to banks. Banks do not lend money. Banks create debt from nothing, with the notes enforced via the civil court system.

    The United States of America has no need to tax in order to raise revenue. None at all. The US can create an unlimited amount of dollars as needed.

    There ARE however implications in the post Nixon Shock world, and I urge you to study the first UN conference in 1944 and Keynes’ Bancor.

    Helmut

    July 8, 2017 at 1:48 am

  16. to…

    Reducing tax revenue only caused federal government debt to increase.

    should be added…

    contrary to GOP jive this is NOT necessarily a bad thing and does NOT necessarily cause inflation.

    this is very hard for GOP rappers to get. they can’t feel it.

    and what is rand paul except an inverse oreo, a black man pretending to be white?

    paul ryan’s GOP = black men acting white. sad!

    Beverly Hills Ninja

    July 8, 2017 at 8:19 pm


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