The American Jobs Act

[BigV]

What do you say classicman about how the American Jobs Act will be paid for? The AP story you linked to is getting nearly universal coverage, due mostly to the fact that it was very early out of the gate. Here are my thoughts.

Clearly, any government spending is paid for by taxes. Of course. Further exploration of this inevitably involves some other factors and we'd be wise to explicitly identify them. Debt, Deficit, Borrowing, Taxes, let's start with these.

Deficit. Since our country is currently operating at a deficit, ALL SPENDING is deficit spending until our country is operating at with a budget surplus. All government spending, including defense, debt service, medicare, just everything, and this program too. The proposal is to pay individuals and companies for various kinds of work and the funds to make such payments will come from mostly from borrowing, and some from tax collections.

Which brings us to debt and borrowing. We, Americans, have a going concern here (so to speak) as a country, we have work that needs to be done; we have contracts we've entered into that obligate us to pay; we have taxes that are due to us (the government); we have earned benefits we've promised to pay, etc etc. Our cash flow is negative. We're spending more than we're collecting. For you and me, this is a death spiral if we persist in it too long. You and I have options, like bankruptcy, or credit cards if it continues beyond our savings cushion. Governments have other options, like borrowing (similar to credit cards for you and me), and printing money (to identify the main ones). You and I can't print money. The government can. And has, it has done both to finance our spending choices to this point. The effect of the money printing has been zero until recently. The only negative result of the printing has been to cause our credit rating to be diminished a little bit. The effect of borrowing has been much more persistent and much more objective. We've accumulated a great deal of debt.

And at the other end of that cash flow pipeline is tax collection. We do collect taxes. The taxes we collect will be used to pay for our spending, and that includes all the debt service (interest to treasury bond holders), all the payroll for all the government employees, all the contracts we've entered, etc.

So. This act will be paid for by taxes, period. The taxes we collect will be used to pay for this program and for all the other things we've committed to to this point. What we haven't discussed yet is the timing of this payment. And there's the undefined area where talking points and pundits etc will be shouting past each other in the coming hours and days.

To be continued...