At a recent Fox hosted townhall in Bethehem, Bernie Sanders had a hard time convincing the hosts that he could "pay for free healthcare". This is the one thing he gets consistently wrong, but for good reason, because almost everyone gets it wrong.
In fact, tax money does not pay for anything. It is government revenue which gets credited against the Federal deficit. But without a Federal deficit the economy would starve and rapidly fall into recession. Government deficit is private sector surplus. So we always want a rising deficit at all times unless there is too much money in the economy causing inflation.
But free healthcare and free college education cannot cause inflation, because we already have the nurses and doctors and teachers available, so just paying these professionals out of the national deficit is putting money into the productive economy, producing services that already can be met, and cannot therefore cause inflation.
The way you cause inflation is by giving away money for nothing, for no service, for no productive activity. Giving money to banks to bail them out is an example, so is giving bribes to consultants, and also spending on war is wasteful (highly non-productive). These are what cause inflation. Spending deficit fiat currency on healthcare and education and housing and a job guarantee program cannot cause inflation.
So there is nothing to fear in a rising deficit, provided it goes to productive services.
Everyone (including Senator Sanders, and folks like AOC who want a spending plan for a Green New Deal) needs to understand that the deficit pays for such things, not taxes. The Inland Revenue Service does not give the tax dollars to anyone to spend.
The Federal government can never be in true debt, because they can print money. So the deficit is only a measure of how much money has net been put into the economy to fuel private industry and households. It is a record of how much money has flowed from the government to us. * What we should fear is a government surplus*, because that would mean the government is taxing us all too much.
In the townhall Bernie showed he does not understand this. He also showed he does not understand state-based healthcare in States like Vermont must be funded by state taxes --- because a non-sovereign State cannot print money to pay the doctors and nurses. Same for teachers for free state education.
Sanders cannot grasp this!!!! He needs to to change the stupid dialogue about deficits and taxes. ut he is not solely to blame, most people fail to understand these simple issues of money flow and creation.
In point of fact, even non-sovereign States like Vermont could provide free universal healthcare by paying doctors and nurses in a State-originated money token, they could call it something like "V-dollars". Since Vermont would print (or electronically distribute) V-dollars, this currency would likely not be accepted in other States. But so what? It's not perfect, but if Vermont businesses accepted V-dollars as payment for other things, and Vermont accepted them for state taxes, then this would fund Vermont free healthcare. Point of fact: Vermont residents probably are not healthy enough for such a plan, it would require too much taxation of V-dollars most likely, sicne to pay the entire salary of doctors and nurses in V-dollars probably would not be aceptable to these professionals. That's because the US dollar is more valuable.
That's why Federal deficit funding of healthcare and education is the only sustainable way to go. You increase deficit spending to pay for such things. The costs is extra zeros on the deficit number. Nothing bad happens when that occurs. look at history. In fact, when the deficit decreases is when recessions happen (it's also called austerity). Government surpluses are bad, bad, bad, they mean less money in circulation.
The story of taxation is quite simple:
- Taxes are used to make currency valuable (because without earning dollars you will be imprisoned for not paying taxes).
- Taxes do not pay for anything else.
- Taxes help sometimes) to redistribute wealth (if they are progressive, not regressive --- so VAT taxes and wage taxes are bad and regressive and should be abolished, while taxes on non-productive income like rent, capital gains, and finance and inheritance are progressive and good).
- Taxes "cool off" an overheated economy which has hyperinflation, but a moderate level of inflation is not a bad thing.
The story of fiat currency money and deficits is also simple:
- Government surplus is bad, very bad, it means the government is taking more money form us than it gives us. Government surpluses lead to recessions. (This is what neoliberal austerity programs do, they cause recessions.)
- Government deficit is normal and good, it is the fuel for the economy. Businesses cannot create money (it is illegal and is called counterfeiting).
- A government can always pay it's debts, since it is the sole issuer of the currency.
- The Federal deficit is not money owed to anyone. So the deficit can be as high as necessary, and should not be feared. What you should fear is the poles of hyperinflation and austerity.
- Deficit spending on productive services cannot cause hyperinflation. Wasteful corrupt spending is the cause of inflation (like war spending, or no-bid contracting, or bribes, or fraudulent spending on non-productive crap).
- If there is non-zero base unemployment (people who can and are willing to work who cannot find jobs) then the deficit is too low and needs to be raised in order to provide a government job guarantee, so not to waste human potential. Unemployment is a choice, not a necessity.
Anyone how tells you otherwise is not fact-based. The above points are indisputable based on evidence and based on examination of how money flows.
Anyone who can understand that a household needs to ideally be in a money surplus to survive, should realise the same fiscal state for a fiat currency government is the opposite: government print money, so can never be in true debt, and when in surplus they are starving households.
This is why Bernie Sanders (and everyone else in the mainstream media) have it all ass-backwards. Taxes do not pay for government progammes, because governments have the sole power to issue money, they can pay for anything from deficit spending. Governments should be deficit spending most of the time, otherwise the rest of the economy will be shrinking, or relying on credit card debt, which leads to financial crashes (debt-deflation cycles).
A last minor point: you cannot pay taxes directly in Bitcoin or other cryptocurrencies or diamonds or yachts. That's the purpose of dollars, that's why dollars are valuable (rather than worthless bits of paper or worthless digits in a bank account spreadsheet). Taxes have few other purposes (I outlined them above---redistribution and cooling off). Taxes are not needed to pay for any government services.
To see lefites also get the story of taxes and healthcare wrong see the recent M.R. episode favourably discussing Bernie's townhall: