A SHORT INTRODUCTION TO HOW GOVERNMENT FINANCE WORKS (ANY QUESTIONS?)
A little about me. I retired after 25 years in DOD finance, attended (there is no graduation) Federal Accounting School and was authorized to sign Treasury Checks (when we still used checks). I served under 5 presidents. I felt compelled to write this because everyone complains about money in the government and no one knows how it works. There is MUCH, MUCH more but no time.
THE GOVERNMENT IS NOT A CORPORATION AND IS NOT REQUIRED TO MAKE A PROFIT. IT EXISTS TO DO CERTAIN JOBS FOR US, PERIOD. Government of, by an for the people. We always for get the “by the people” part.
1. DEFICITS. Ok, this is easy. Deficits effect every day life in this way. When the Gov. runs a deficit they BORROW money (mostly to cover the interest on money they have already borrowed). When the government is borrowing the amount of available cash to borrow shrinks for everyone else making interest rates rise. Under Reagan interest rates were as high as 18%, homes were 12%. There are good deficits and bad deficits. A good deficit is like the ones from the Eisenhower era, when we were building (a lot). These create jobs and the money filters back into the economy and back into the tax coffers. Bad deficits are war expenditures as under Bush II, self-explanatory. Not trying to be partisan here but, under certain administrations deficits don’t matter until the opposite party gains power and then they are HORRIBLE. They can use this argument because people don’t bother to find out how they work or why we are running a deficit in the first place.
2. TARIFFS. Tariffs ARE TAXES. Just another word. Taxes are what you pay for the benefits your government can supply. Tariffs are used for balance. Say country X is importing way too many widgets and flooding your market. You apply a tariff to discourage this behavior and balance the costs to your local widget manufacturers. Tariffs have never accomplished their stated goals.
3. TAXES. Taxes are an irritation but NECESSARY to civilization. Take your gross income and the amount AFTER your refund and figure the percentage. For most people that is about 7%. 7% is a tiny amount to pay for roads, military and all the other things government has to do. Our tax system is screwed up, no argument there. Corporations in this country DO NOT pay the same percentage of income as you or I. In countries that supply universal health care, child care, free university, etc. taxes are higher but out-of-pocket expenses are drastically LOWER. Low enough to offset the increase in taxes.
4. CONTRACTING. This is harder. Sometimes contractors can do a job more efficiently than the government but they still HAVE TO MAKE A PROFIT. The government just needs to get the job done. It sounds easy. “Turn that over to private industry. It’ll create jobs and be cheaper”. NO. The cost of doing the job plus profit margin INCREASES costs to the government. The job has already created jobs. That’s a wash. 10 people as government employees or 10 people as private employees. All 10 are being paid by taxpayers, either way. It requires another 30 people in the government to research and negotiate the contracts, and vet the contractors (some are not good guys), coordinate government work and contractors and inspect to make sure the job is getting done to government standards. The government as a rule has higher standards. Then, after all that, the contracts expire and we start all over again.
5. GOVERNMENTAL EFFECTS ON THE ECONOMY. This is my favorite. IT TAKES 3 T0 5 YEARS TO EFFECT THE ECONOMY. Say congress passes a spending bill. Takes months to write the bill, lobby for and against it, add amendments, figure costs, and get it into operation. Unless it’s something immediate, like a war or MAJOR building plan, another year or two to filter down to you and me. This is why every new president either starts with a great economy (like Trump) or starts with a major mess (like Clinton and Obama). I’ve never understood why people don’t see this except for tribalism.
I could go on and on but the simple fact is the government exists to coordinate all those things that are just too big to be done by individuals, to free us up to live our lives. Government (no matter what Reagan said) is NOT the enemy. Are you gonna build your own road, school, airport? We live better than some countries, not as well as some others but we, as a people, don’t bother to KNOW what we’re bitching about.
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