Their taxes support local and federal spending on military and police institutions, but when consumers loose the financial ability to consume, the nation will suffer as a whole. This is why demand-side economic policies are vital for the American public and the nation’s global status.
You found the keys to the kingdom, but you, like most, insist on turning them the wrong direction. The nation’s founders gave some exclusive powers of the purse to Congress, the first being the authority to levy taxes. (Article 1: Section 8) They understood that taxes imposed by a government are a necessity to the population accepting the government’s currency and using it to denominate commerce and contracts. thus driving resources into the economy where they are available to the government.
Considerably farther into that section Congress is given the monopoly authority (patent) on creating that currency “for the common welfare”. They made no mention of limiting that creation to collection, and why even mention creating currency when the power to collect taxes was already given if such limitation was their intent? They understood some very basic economic truths that seem to have eluded present-day lawmakers, or those lawmakers simply find those counter to their goals/agenda.
Truth #1: One cannot collect what doesn’t yet exist. Spending must precede collecting or there is nothing to collect. Taxes are levied at the point of a gun or bayonet, but the means to pay them must be provided by the issuer of the currency prior to collection. It is much more accurate to say “spending funds taxes” than the other way around.
Truth #2: For a currency to gain long term acceptance it must provide more than simply acting as a proxy for resources across time. It must also be a store of value to satisfy the desire of the people to save. If the issuing government levies taxes by brute force and then doesn’t spend in considerable deficit of what it taxes back the people will soon figure out that it is stealing resources from them, and that has never ended well.
Truth #3: The natural flow of money in a capitalist economy is upward. In the aggregate, business must make a profit and profit is only achieved if the price of goods produced is in excess of all costs to produce them. This doesn’t work with a system of currency issuance that is constrained by revenue. Each change of hands for the currency would leave a little behind as profit, especially for a net importer. The money supply must always increase, even if some inflation is incurred, or incentive for productivity is killed by the attempt to limit government spending for no reason. The workers at the bottom with the least power or ability to accumulate wealth will always be the first harmed and there are a whole lot more of them than oligarchs. Inflicting undue suffering on the masses has always been the stuff of revolution.
The first currency issued by the US Treasury was burned when it was received back as payment of taxes, and that has been the method of dealing with tax collections ever since, only it is now digital and done by the nation’s clearing bank, the Federal Reserve. The underlying structure of our monetary system was designed to preserve/protect the gold reserve, so it was beneficial, and much easier to account for, that the government never “had” money that was convertible to gold, since it also held the gold.
Instead, the government held “debt” (tax credit) as an accounting entity matching dollars in circulation that would “cancel” those dollars when they got together in the same accounting sector. While this was accurate to anyone who understood dual entry spreadsheet accounting, in hindsight, it might have been better for all if the category were named “private sector reserves”. For anyone who isn’t a currency issuer (anyone not the federal government), the term debt has an entirely different connotation.
When the government sells its “debt” it is making an asset/liquidity swap for the currency that already exists, so, sans a gold reserve to defend the entire function is mostly unnecessary. It only serves to provide a floor for investors (a rich man’s minimum wage/welfare) and to provide the Fed with leverage to set interest rates above the natural rate of zero. I have economist friends who believe we should set that rate at zero permanently, considering Congress provides the reserves needed to purchase bonds when it deficit spends.
If we continue to use the price of money (Monetary policy) to slow an overheated economy, causing involuntary unemployment in the process, it is morally imperative that the government provide some method of replacing that employment for the workers made unemployed through no fault of their own. It is extremely difficult for the US government to make the claim of any purpose “for the people” if it uses its sovereign currency as a bludgeon to hold down their wages and inflict suffering in the process.
In fact, with a sovereign fiat currency that is a no-cost commodity that the Congress is mandated to create “for the common welfare” we can “afford” anything that is for sale in that currency without causing inflation, including the excess labor that the private sector rejects. Once we get past the silliness of balanced budgets and hand wringing over the faux debt such a job guarantee, available at the worker’s option, would provide a floor for wages and benefits in the private sector to finally give the working class the protection from economic ruin that the ruling class takes for granted, This stress alleviation would likely solve many of our social ills and provide a level of security we have never known.
