Where the $ comes from

This seems to be totally missing from the discussion on tax cuts, etc. I find it interesting that people mentally treat tax cuts as money that is simply 'created', like it just sort of falls out of the sky into people's laps.

Let's talk for a minute about where the money for that tax-cut ultimately comes from. It's not an expenditure per se, but rather a decrease in government income, but the mathematical result is the same.

Now, most people are aware on some vague level that it's financed by the budget deficit. But what does that mean in the 'real' world? Well, it means the government has to go out and sell a treasury bond, out on the open market. So to get funding that does not come from taxes, the government has to go out on the open market and compete for it, compete against other investment options such as corporate bonds, municipal bond issues, and the stock market.

That means that for every dollar that comes out of the government income, a dollar has to come in from the capital markets, unless you fund dollar-for-dollar with spending cuts. In either case, we're just taking a nickel out of one pocket and sticking it in the other.

That is, ultimately, the crux of the whole thing isn't it. Trying to increase the 'velocity' of money, while the fed tries to increase the supply of it.

Paul,
Two things..
the interest due and paid on the national debt which in essence takes money away from goverment services..
the giving away penny on the dollar, of the nations natural resources..for example the tax cuts to oil companies as incentives for offshore oil well developement..these are companies posting record profits over the last several years..if Iraq's oil belongs to the Iraqi people, then what about "our" oil..I'm just asking...
Deputy Interior Secretary J. Steven Griles, a Bush appointee, lobbied for "National Environmental Strategies," a firm that represents the National Mining Association. As a Reagan administration official, Griles was involved in the controversial sale of 17,000 acres of federal land for $2.50 an acre under the 1872 Mining Law. The buyers quickly resold it, making a $37 million profit.