Where does the revenue gathered from taxes go and what is national debt?

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• Ziggurat@jlai.lu ⁨7⁩ ⁨hours⁩ ago

  In democracy, citizen decide how the tax money is spent by voting, usually it’s an indirect vote : you elect people to vote the budget, which makes sense considering the difficulty on the tax. But typically, left wing will put more money in education, healthcare, and rehabilitation programs while right wing will put money in police, militaires and supp rt outsourcing essential services to private corporations. Stuff can be complex as you need to pay pensions, state worker, fulfill international commitment (EU budget, NATO budget) and maintain all the existing infrastructures, and only then you can invest/re-allocate budget (which can trigger an outrage, cutting welfare expense or closing a hospital can have dramatic consequences for citizen)

  If there isn’t enough money se government can borrow money, typically they don’t go the bank but say they need X billions for Y years and find investor ready to lend them this money (it tends to be quite safe, do you foresee US or Germany not paying their debt in 5 or 10 years?) alternative is to print money (aka inflation) or raise taxes. For structural investment that will bring monee, it makes sense to pay them over 10 years with the extra tax yield thanks to the new highway/university/dam. However, it also means that instead of “taxing the rich” you borr w their money and give them back, while us commoner do n’t directly see our tax money ney back

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  • SleeplessCityLights@programming.dev ⁨1⁩ ⁨hour⁩ ago

    I do forsee the US not being able pay debt in 10+ years and nobody will lend them anymore money.

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  • AfterNova@lemmy.world [bot] ⁨6⁩ ⁨hours⁩ ago

    How high can the debt to gdp get before the economic system collapses?

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    • TubularTittyFrog@lemmy.world ⁨2⁩ ⁨hours⁩ ago

      infinity.

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• workerONE@lemmy.world ⁨15⁩ ⁨hours⁩ ago

  Money collected from taxes is basically recorded in a ledger / account by the Treasury. Some people look at this as the end of the lifespan of that money or the destruction of that money.

  Money begins its life by being spent by the federal government. They essentially create money with the press of a keystroke (granted they are spending funds which are approved by Congress and allocated for projects), the money credits a Treasury account, then they transfer it / spend it which puts the money into circulation.

  The federal government does not NEED the money you pay in taxes to find their spending. Money does not come from people. It is created solely by the treasury. The federal government WANTS to limit the amount of money put into circulation (compared to the amount thru collect from taxes) in order to prevent runaway inflation.

  The federal government does not need to have any debt. But they chose to because creating so much money that they can pay off all debt would create inflation.

  The federal government believes that balancing is important. They want the amount of goods and services that America exports to the test of the world to match the amount Americans import. Each year there is a deficit which means that America receives more goods and services from other countries than it exports. In order to balance this, each year the Treasury issues bonds equaling the amount of the year’s trade deficit. We don’t have to do this but we choose to because we believe it will create financial stability.

  The bonds that are issued by the US Treasury are essentially us debt, which means that the US collects money and gives a promise to make interest payments and to repay those bonds when they are due. This is where US debt comes from. It is from bonds that are issued by the Treasury and which will come due to be paid at the end of the Bond’s term.

  BTW, banks essentially act like a store for money, where their job is to not run out of money. Their biggest fear is a bank run where everyone tries to withdraw at the same time. Deposits that are made, for example into checking accounts, are added to the bank’s reserves but can be used for anything from lending to investing to paying withdrawals. When you make a deposit at the bank, the bank creates an entry in their Ledger saying that they owe you that amount of money. That money is a liability for them (they must pay it to you) and they simultaneously credit their reserves.

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  • litchralee@sh.itjust.works ⁨7⁩ ⁨hours⁩ ago

    For the benefit of non-Google users, here is the unshortened URL for that Bank of England article: bankofengland.co.uk/…/money-creation-in-the-moder…

    With that said, while this comment does correctly describe what the USA federal government does with tax revenues, it is mixing up the separate roles of the government (via the US Treasury) and the Federal Reserve.

    The Federal Reserve is the central bank in the USA, and is equivalent to the Bank of England (despite the name, the BoE serves the entire UK). The Federal Reserve is often shortened to “the Fed” by finance people, which only adds to the confusion between the Fed and the federal government. The central bank is responsible for keeping the currency healthy, such as preventing runaway inflation and preventing banking destabilization.

    Whereas the US Treasury is the equivalent to the UK’s HM Treasury, and is the government’s agent that can go to the Federal Reserve to get cash. The Treasury does this by giving the Federal Reserve some bonds, and in turn receives cash that can be spent for employee salaries, capital expenditures, or whatever else Congress has authorized. We have not created any new money yet; this is an equal exchange of bonds for dollars, no different than what you or I can do by going to treasurydirect.gov and buying USA bonds: we give them money, they give us a bond. Such government bonds are an obligation that the government must pay in the future.

    The Federal Reserve is the entity that can creates dollars out of thin air, bevause they control the interest rate of the dollar. But outside of major financial crisis, they only permit the dollar to inflate around 2% per year. That’s 2% new money being created from nothing, and that money can be swapped with the Treasury, thus the Federal Reserve ends up holding a large quantity of federal government bonds.

    Drawing the distinction between the Federal Reserve and the government is important, because their goals can sometimes be at odds: in the late 1970s, the Iranian oil crisis caused horrific inflation, approaching 20%. Such unsustainable inflation threatened to spiral out of control, but also disincentivized investment and business opportunities: why start a new risky venture when a savings account would pay 15% interest? Knowing that this would be the fate of the economy if left unchecked, the Federal Reserve began to sell off huge quantities of its government bonds, thus pulling cash out of the economy. This curbed inflatable, but also created a recession in 1982, because any new venture needs cash but the Feds sucked it all up. Meanwhile, the Reagan administration would not have been pleased about this, because no government likes a recession. In the end, the recession subsided, as did inflation and unemployment levels, thus the economy escaped a doom spiral with only minor bruising.

    To be abundantly clear, the Federal Reserve did indeed cause a recession. But the worse alternative was a recession that also came with a collapsed US dollar, unemployment that would run so deep that whole industries lose the workers needed to restart post-recession, and the wholesale emptying of the Federal Reserve and Treasury’s coffers. In that alternate scenario, we would have fired all our guns and have lost anyway.

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    • AfterNova@lemmy.world [bot] ⁨6⁩ ⁨hours⁩ ago

      Doesn’t the government of the UK own the Bank of England?

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  • booly@sh.itjust.works ⁨7⁩ ⁨hours⁩ ago

    Money begins its life by being spent by the federal government.

    No, in the modern system, money is created by commercial banks when they give a loan.

    At the moment a loan for $1 million is created, a bank takes $0 and then turns it into two accounts: a loan with a balance of negative $1 million owed, and a deposit account with a balance of $1 million that can be withdrawn. From the bank’s perspective, and the borrower’s perspective, they went from having $0 to suddenly each having $1 million in assets and $1 million in liabilities, for a net value of zero. Obviously there are going to be fees and stuff paid out, and interest charged over the life of the loan, but you can think of that as fees for services rendered.

    The money in that deposit account, created out of thin air, can then be spent elsewhere and enter the economy.

    The limits on the ability of banks to do that indefinitely is default risk (the bank is left holding the bag if the borrower doesn’t repay) and liquidity (the bank needs to be able to use the loan balances as an asset on its balance sheets to go and borrow cash for its own operations so that its accountholders always have the ability to withdraw money on demand) and government regulation (the Federal Reserve and the FDIC have various regulations requiring their balance sheets to be able to survive stress tests and other adverse economic events).

    So even though the government, through Federal Reserve policy, controls how private market participants might choose to create money, the actual act of money creation happens in the banks, not in the government (except when the government is acting as a bank by lending money through its loan programs).

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    • workerONE@lemmy.world ⁨5⁩ ⁨hours⁩ ago

      When a bank issues a loan it creates a credit in the borrower’s account. When the borrower withdraws/transfers the money from their account the money comes from the bank’s reserves. The bank’s reserves consists of deposits and other liquid assets. The money in the bank’s reserves started its life by being created by the federal government. You may argue that the bank is loaning money that it does not hold in reserves, but for lack of a better description, this is a huge liability for the bank that can create insolvency issues (bank run). For this reason, I do not agree that banks create money when they issue loans, since in the end their loans must be paid from the reserves. These reserves are not created by the bank.

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    • AfterNova@lemmy.world [bot] ⁨6⁩ ⁨hours⁩ ago

      So that’s what is going on. Good reply.

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• FuglyDuck@lemmy.world ⁨18⁩ ⁨hours⁩ ago

  In the US, at least, the government has 2 ways it can fund itself.

  Taxes, which are collected through a variety of means- income tax, for example, or import taxes, etc. these funds go into the treasury, which then get doled out to pay for things.

  If taxes are insufficient, or there’s some type of emergency that requires an excess of funds more quickly than they can levy with taxes… the government takes on debt. Specifically, they use a number of different instruments including bonds.

  The “national debt” is the the sum of all those bonds, loans and whosiwhats its that are taken out to pay for things.

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  • BlameThePeacock@lemmy.ca ⁨16⁩ ⁨hours⁩ ago

    You’re mostly correct, but I would like to add a piece that not everyone understands.

    The government issuing debt can be good for the government because of inflation and economic stimulus.

    When the government sells debt, it sells $ in the future for a different (usually lower) price today. It doesn’t actually pay interest, the effective interest is determined by how much the market is willing to pay for it.

    Lets say the government sells a billion dollars worth of bonds, which will pay out in 20 years, they sell it today for three quarters of a billion dollars. Sounds like a bad deal, right? The government is clearly losing a quarter of a billion dollars.

    Except, the government doesn’t have to pay it back with money from today, it pays it back with taxes it will earn 20 years from now. If in those 20 years, inflation is say… 3% on average. Lets just ignore compounding to make it simpler, and say the costs of everything goes up by 60% over those 20 years. Assuming the tax rate stays the same (and ignoring compounding effects) they’d be collecting 60% more actual dollars than they would today. Paying back a billion dollars from taxes at that point is now easier than it would have been to try to raise 750 million from taxes today.

    The government just “made” money by borrowing money. Really, it comes from inflation eating away at wealth, which is why the government printing debt like this usually causes inflation. All things inflating equally is a wealth tax.

    Side note: The current inflation issues we’re seeing are not happening equally; wages are not going up as fast as inflation on common necessities like housing and groceries. That’s a different problem, not caused by government debt printing.

    Then there’s the economic effects of spending the money now. More economic activity today usually means more taxes collected overall throughout the years that whatever they spent the money on benefits people. A new bridge or road, better air traffic systems to allow more flights, safer oceans to protect shipping, etc.

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    • FuglyDuck@lemmy.world ⁨12⁩ ⁨hours⁩ ago

      Not sure who downvoted you, lol. You’re quite correct (I just didn’t want to get into the weeds, heh.)

      and yes. it’s good to remember that not all debt is “bad” debt. Especially on a national level. I still think it’d be nice if they passed a balanced budget, though. (and one that covered everything that was important. like healthcare and housing and infrastructure and climate resiliency and stuff, and not bombs for genocidal maniacs)

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  • AfterNova@lemmy.world [bot] ⁨18⁩ ⁨hours⁩ ago

    Where do dollars come from? Is there any limit to how much money the government can create?

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    • FuglyDuck@lemmy.world ⁨17⁩ ⁨hours⁩ ago

      cash is largely minted by the government, and they usually aim to maintain “enough” (currently 2.3k billion dollars currently?)

      Most of the money supply is not in physical cash, though- they call that the m1 supply which is found in things like savings and checking accounts, other kinds of deposit accounts, etc.

      Currency is added to the economy by buying back government securities (think bonds). Specifically this is the Federal Reserve. we also pay interest on money held at by the Fed. (Banks invest the money.)

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• xylogx@lemmy.world ⁨12⁩ ⁨hours⁩ ago

  Have a look at this site, there are some good visualizations: usafacts.org/government-spending/

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• hera@feddit.uk ⁨13⁩ ⁨hours⁩ ago

  When we get our annual tax summary in the UK they give us a summary of where tax was spent, this page explains how they calculate it and there is a table of where the money was spent 2023-2024: gov.uk/…/how-public-spending-was-calculated-in-yo…

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  • AfterNova@lemmy.world [bot] ⁨8⁩ ⁨hours⁩ ago

    How do governments deficit spend?

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