Re: Refuting supply-side economics

royls_at_telus.net
Date: 09/28/04 

Date: Tue, 28 Sep 2004 19:58:47 GMT

On Tue, 28 Sep 2004 16:11:31 GMT, William F Hummel
<wfhummel@comcast.net> wrote:

>On Mon, 27 Sep 2004 22:36:34 -0400, "Mark Monson" <m_monson@ztech.com>
>wrote:
>>
>>"William F Hummel" <wfhummel@comcast.net> wrote in message
>>news:f11el01h99hhig6kvtr0gp83igbj60a5pi@4ax.com...
>>>
>>> Taxing or borrowing represent equal cost to the tax payers.
>>
>>But not equal benefits. With taxation alone, all the goods the government purchase
>>are in
>>theory going for purposes of mutual benefit. With borrowing, the interest payments
>>definitely benefit only bond holders at the expense of tax payers.
>
>Bond holders benefit from interest payments, but not at the expense of
>tax payers. That's the fallacy.

No, the idea that some can get an unearned benefit at no cost to
anyone else is the fallacy.

>Let's go back to my original model in which the government plans to
>spend 10 billion on a new program, presumably for the benefit of all.
>Taxes will ultimately have to pay for the program. Tax payers could
>pay up front with a tax surcharge, for example.

I have already proved that claim is false. Government can't just
increase everyone's tax burden by a certain percent: some people don't
have any more money to give.

>Or the government
>could borrow the money from those willing and able to buy the bonds,
>which we will assume are one-year bonds at 5%.
>
>Now suppose the debt is to be paid off at the end of the year. The
>taxpayers would have to cough up 10.5 billion to cover the principal
>and interest. The bondholders receive their money back plus 0.5
>billion in interest.
>
>The cost to the tax payers is exactly the same as it would have been
>if they paid the taxes up front, namely 10 billion. Why ? Because in
>principle they could have invested 10 billion (in proportion to their
>tax liabilities) in one-year bonds at 5%.

I have already proved that is false, too. Taxpayers' liquid assets
available to buy government debt are not proportional to their tax
burdens, and the additional taxes needed to fund the spending
_could_not_possibly_ have been imposed as a flat percent surcharge on
current taxes. Like bond proceeds, taxes can only come from people
who have the money. The point of borrowing rather than taxing is to
shift the burden of current spending off those who currently have
money, and onto those who currently don't have money, but will have
some in the future: i.e., working people. Borrowing shifts the tax
burden off the current rich and onto future taxpayers, and adds an
interest burden on top.

>That would return exactly
>what they need to cover the taxes due at the end of the year. If you
>think about, that's equivalent to tax payers having bought the
>government bonds themselves.

No, that is just flat false, because taxpayers do not, would not, and
_cannot_ buy government debt in proportion to their tax burdens. That
is most precisely the point: the people who buy the bonds aren't doing
so with the idea that they are going to be the ones who are taxed to
repay themselves plus interest. They are doing it with the idea that
the _working_people_ who pay almost all of the taxes, and buy almost
none of the bonds, will be the ones who are robbed to repay the
bondholders plus interest.

>The bondholders gain nothing that they wouldn't have gained in some
>other investment.

Yes, they do: they are relieved of the additional burden of current
taxation, which _they_ are able to assume, and working people aren't.
Furthermore, they get interest without having to take a risk, and
without having to contribute anything to production.

>Bottom line: The interest earnings of the bond holders do not come at
>the expense of the tax payers.

That claim is false, stupid, dishonest and outrageous, as _proved_
above. And bond interest is not "earned."

>>Interest
>>> on government bonds is simply the cost of deferring the tax payment to
>>> cover government spending.
>>
>>As you correctly state above, costs to taxpayers are the same whether borrowing or
>>taxing. Since taxpayers are not allowed to defer payment of interest, benefits
>>received are reduced in the public debt system.
>
>The benefits received are simply what the government program offers.
>Those benefits are not affected by interest payments in any way.

?? Paying interest on debt reduces the amount of money available for
beneficial programs. Duh.

>>In either case, the public gets the same
>>> amount of NET (after interest) government spending , whether the
>>> result of that spending is good or bad.
>>
>>???
>>
>>Public goods and services are certainly increased in the case where all
>>revenues are collected via taxation rather than in the case where 14% of public
>>contributions to government are spent on interest.
>>
>This implies that the government can either spend on goods and
>services or on interest payments. That's another hoary fallacy.

?? How can it spend the same $X on interest and on services?

>What
>the government spends on public goods and services is independent of
>the interest paid on the debt.

Wrong. Paying interest does not increase the sustainable tax burden
by the same amount.

>>> >The bond holder as bond holder is the privileged recipient of tax dollars without
>>> >giving anything of value to taxpayers in return.
>>>
>>> No. The taxpayers receive value in whatever the government spends the
>>> money on, just the same as the bond holders (most of whom are tax
>>> payers). I've explained this in some detail in another post.
>>
>>You have yet to explain how taxpayers are served by the private goods consumed
>>through bond interest.
>>
>It appears you are saying that interest on the debt consumes private
>goods.

It redirects them, anyway.

>If so, that is the same fallacy that I just noted. Interest
>payments consume nothing in terms of private goods.

Uh, if interest on government debt does not permit greater consumption
of private goods, why would anyone lend the government any money?
Hello?

-- Roy L

Relevant Pages

  • Re: Debtor Nation, another view
    ... >>is not a liability for future taxpayers, ... You are also carefully eliding the fact that even if the tax bill is ... Government borrowing does not transfer the tax liability ... >>>who buy corporate bonds, for example. ...
    (sci.econ)
  • Re: {OT}Social Security strained by early retirements
    ... No only is SS running a deficit, the government will TAX you to pay back the ... US bonds that the SS system will need to redeem to pay for you monthly ...
    (alt.autos.toyota)
  • Re: Refuting supply-side economics
    ... People who retire during the year, assuming they have no tax ... Young people who start their first job will pay taxes whether or not ... the government borrowed. ... It doesn't matter who owns the government bonds. ...
    (sci.econ)
  • Re: Debtor Nation, another view
    ... >>is not a liability for future taxpayers, ... dollar for dollar without affecting the tax bill. ... >>>who buy corporate bonds, for example. ... >Unless you assume the government will disappear, ...
    (sci.econ)
  • Re: Refuting supply-side economics
    ... >>The government has unlimited power to issue bits of paper. ... >>But they don't have the power to buy unlimited goods and services. ... When they sell bonds, it's not really recapturing paper, it's just exchanging ...
    (sci.econ)
Loading