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Introduction

Congress has returned to its frequent discussions about raising the debt ceiling. They believe, and rightly so, that most voters think the government runs like a business or individual. They make a big show of running around trying to figure out, “Where can we get the money to pay for all the spending?” But never has the government not increased the debt ceiling. And here’s why:

Government Spending

Members of Congress euphemistically refer to “government spending” when the government only redistributes other people’s money. When a business or individual spends money, they must first either earn or borrow that money. The government, and the other hand, does not earn money; it simply takes it from other people. It does that through one of three methods: taxation, borrowing, or inflation.

So, the real question is, “Who bears the burden of government spending (i.e. redistribution)?”

Taxation

The government makes most of its redistribution by stealing (taxing) the property of its citizens. So, who bears the burden of government taxation?

Businesses get their tax money by providing goods and services to consumers. Individuals get their money by providing their labor to businesses that, in turn, provide goods and services to consumers.

In the end, all taxes are paid directly or indirectly by consumers.

Borrowing

When the government redistributes more money than it confiscates through taxation, it must borrow the difference (referred to as a budget deficit). Government borrows money from many of the same sources that they tax. Because those sources voluntarily lend money to the government, they must receive interest payments.

So how does the government repay both principal and interest on the money that it borrows?

Businesses and individuals get the tax money used to pay for government borrowing in the same manner as described above. They do so by either directly or indirectly providing goods and services to consumers. Thus, the burden again falls on the consumer.

When a business or individual lends money to the government, they do so because they have no better alternative investment. One type of business, however, does make a difference. Banks do not get the money they use to buy government bonds; they simply create it out of thin air.

Inflation

This third source of money for government “spending” creates an insidious side effect. Monetary inflation, caused by the creation of new money by banks, ultimately leads to price inflation. Price inflation acts as an indirect tax on consumers. In the same way they must earn more money to pay individual taxes, they must earn more money to pay higher prices for goods and services.

Conclusion

The consumer bears the burden of all government spending, no matter how the government gets that money. Taxation, borrowing, and inflation always show up in higher goods prices that the consumer must pay.

Should we now refer to them as “consumer-losers?”