Do taxes fund spending at the federal level?

You often describe the dilemma of politicians -- corporations want the government to provide goods and services for them, and the people also want the government to provide goods and services for them, so these two groups pressure the politicians to provide for their own needs, while wanting to lower their own tax contribution at the same time. This puts the politician in a dilemma, which he or she often solves by borrowing -- satisfying everyone's desires, while not raising taxes. This is certainly true of state and local politicians, but is it also true of Congress? Since the federal government is the issuer of the U.S. dollar, does it really need to "tax" or "borrow" dollars to provision goods and services? Does the federal government even need to worry about "paying off" its "debt" at all?

Official response from submitted

Modern Monetary Theory (MMT) is a group of economists who focus on this point: that the government can (and in large part already does) print money - or what is the same, create accounts for banks that contain deposits they can use. To stimulate and expand an economy, it can create money, and if and when there is too much money it can withdraw that excess money from circulation. Thus the creation of money is not limited by some non-monetary standard; it is whatever the creators of the money want it to be (pubic and./or private creators).

Historically, the power to print/coin money was withdrawn from kings and other politicians who abused it for political gains. It was made to depend on the willingness of the private financial authorities (banks chiefly) to cooperate and thereby enable raising or lowering the supply of money in an economy. Thats why we go through the ritual of having the govt print bonds, sell them to the private banks for money and then enable the private banks to cash them in to the monetary authority (central bank, federal reserve etc) for fresh new money. But the point of MTT is that the banks' intermediation here can be excised out to get back to the ability of a sovereign govt to control money as a lever to shape economic life.

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  • Darin Brown
    commented 2017-01-15 18:42:06 -0500
    Thanks for the quick response! The reason I asked the question is because the #1 reason given for why single-payer health care, or free college, or infrastructure, or a green new deal is “impossible” is because it’s unaffordable — “we just don’t have the money for it”, “we have no way to pay for it”, etc. In fact, I think this was one of the crucial contentions made by the Clinton campaign against Bernie Sanders, and was a very common reason people gave me for why they supported Clinton over Sanders.
  • Darin Brown
    tagged this with good 2017-01-15 18:42:06 -0500
  • Richard Wolff
    responded with submitted 2017-01-15 15:40:09 -0500
  • Darin Brown
    published this page in Ask Prof. Wolff 2017-01-14 17:30:12 -0500