Friday, March 25, 2005

Deficits Matter Less Than Taxes.

Deficits do matter, but taxes matter even more (at current rates).

Selling bonds is the most progressive method of raising money. Deficits specifically raise money from those who least need their money and pay the highest price (least interest) for bonds. Bonds also remain most progressive in the future. If a bond holder later needs their money more they can sell the bonds to someone else who needs their money less. Taxes are regressive and tax burden cannot be traded.

People actually have a large demand for our treasury bonds. Our children will be even richer in the future than we are now, and so they will want to buy even more bonds than are held now. The national debt does not ever need to be paid back to our children, they will just want more.

Taxes on work, savings, and investment will decrease work, savings, and investment. Cutting taxes will increase work, savings, and investment, and will increase national income by more than the the amount of interest needed to pay for higher deficits. Demand for bonds increases more than supply, so prices increase and interest rates decrease. This is why interest rates have fallen when taxes have been cut.

A balanced budget should be a budget that is balanced between taxes and borrowing such that taxes and deficits matter the same amount.


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