Jude Wanniski once said that even at 100% tax rate the economic activity would not cease. However it would change to a form of barter.
This is the best argument I could forward against a balanced budget. Isn’t “100% tax rate” an accurate description of clawing back all payments into the private sector via taxation? The answer to that question would depend upon the government’s use of collected taxation. The only way the statement doesn’t hold true is if it were possible for the collected taxes to balance to zero the debt that created it and survive that operation to be “spent” by the government.
The dual entry spreadsheet accounting mechanism used to track money worldwide would not support this. It would state that whenever two opposing entries meet in the same sector they balance to zero -end of story. Ending the domestic convertibility of our currency to gold in ’34 made taxing for revenue obsolete, as verified by a paper written by Beardsley Ruml, former chairman of the St Loius Federal Reserve in ’45 titled “Taxing For Revenue Is Obsolete”. As my favorite economist, Dr. Stephanie Kelton, Bernie’s econ advisor, states, “Tax revenue is an oxymoron for regular morons”.
This is not to argue for or against the validity of Laffer’s work as a study of human reaction dynamics, only to question its application to a government that neither needs nor uses “revenue” except to define the level of spending constituting deficit and requiring the offset of Treasury debt for any above that. Given that only deficit spending can generate the excess reserves needed to purchase that debt it follows that “all” spending is via new currency creation and that operation “funds” both taxation and bond sales, not the other way around. Issuing Treasury debt is not a funding operation for the monopoly issuer of a sovereign fiat currency.
Should we achieve the holy grail of balanced budgets, especially as a net importer, for any length of time we would certainly be reduced to barter as no store of value would be produced to incentivize commerce, net save, or retire private sector bank debt. It would quickly become evident that such balance is the theft of private sector resources by the government and the end of private sector banking as well. The longer we continue to manage the economy thinking of taxation and bonds as “revenue” the more the inevitable decline of our economy will proceed.
