Federal Spending vs. Taxes vs. Debt

If we had to choose between lower federal spending or lower federal taxes, which would be better?

That’s easy. Lower spending is better than lower taxes.

Suppose the government spent nothing. That means the government wouldn’t be doing anything. It wouldn’t be interfering with our lives or our economy. We would have maximum freedom and maximum prosperity.

Now I know what you’re thinking, but if government spent nothing and still collected all those taxes, then that money would basically just disappear from the economy. All of our dollars would be worth more because there would be fewer of them. Over time, our salaries would go down by the same amount, but prices would also go down by the same amount, so we could still buy the same stuff as before – no harm done.

Some of you are also thinking that government spending helps the economy. Really? How is that possible when government gives most of our tax dollars to people who produce nothing? Social Security is no different because seniors voted for politicians who have already spent their social security trust fund. They chose poorly. There is no trust fund. Social security is just a transfer of wealth from working people to retired people.

Government gives the rest of our tax dollars to those who loaned it money in the past. It does this when it pays interest on the federal debt, which is about 25% of federal spending.

What about roads and schools?

Gasoline taxes pay for roads, and government schools not only range from poor to mediocre, but they could achieve the same result for 10% of what they spend. We have achieved our current level of success in spite of government schools. Furthermore, most of the money for roads comes from local taxes, and nearly all of the money for government schools comes from local taxes.

It gets even better. Imagine the innovation that would result if all government were local. Every state and local government would be competing with each other in more areas of responsibility than now, and they would be more free to experiment than now.

For all these reasons, federal spending is thus much worse than federal taxes.

What about federal debt?

If the federal government eliminated taxes, but kept spending, we would have an even bigger debt than now, but we could always default on the debt. As I have written earlier:

The American government has been spending trillions of dollars on programs it had no Constitutional authority to create, and such unconstitutional expenditures exceed the amount of the federal debt. Therefore, the federal debt is unconstitutional, and given that the US Constitution is pretty simple, then anyone who loaned money to the US government should have known that they were loaning money to a fraudulent enterprise and thus should not expect repayment.

Ha! Ha!

Nanner! Nanner! Nanner!

Of course, there would be a huge consequence – no one would be willing to loan money to the US government again until it started obeying the Constitution, which would be …


For all these reasons, federal spending is worse than federal taxes, which are worse than federal debt.


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Dennis Gorelik - April 1, 2012

Exactly: federal spending is a way to convert productive part of economy into non-productive.
That's why it's the worst.

Taxes are unpleasant, but ok.

And government the debt is the way to weaken the government.


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