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Re: Does the US have a Revenue or Spending Problem?
Old 04-26-2012, 08:05 PM   #2
Bond
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Default Re: Does the US have a Revenue or Spending Problem?

So, I think it is mostly a spending problem, and a bit of a revenue problem. The revenue aspect stems mostly from the economy being terrible. If the economy is able to recover in the coming years, revenue should increase proportionately. Also, as we've discussed before, tax rates and revenue are not correlated. So, the old line politicians often tout that "increasing tax rates increases revenue" is patently false.

I think we need to look at revenue as have two primary functions: 1) to raise money for the government and 2) to curb inflation. The Federal Reserve could theoretically print money ad nauseum and eliminate the need for taxation, but this would cause hyper-inflation.

As an observation, the more I've been thinking about it, the Federal Reserve throws a bit of a wrench into Austrian economics ... I think the basic points of Hayek and Mises still hold, but we do have to account for the Reserve's ability to legitimately create money out of thin air that does not suffer extreme inflation -- it's impressive.
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