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Volume 9: Fiscal Policy, Part I: Taxes


The belly of the beast

Where does it come from?

“There’s one for you, nineteen for me.” – The Beatles

The U.S. Federal Government does almost everything on a massive scale.

The rest of the world shares eight aircraft carriers. The U.S. has ten. Eisenhower wanted some highways like the ones he saw in Germany? Let’s build 47,856 miles of Interstates. The Federal Government spends close to $1.1 trillion per year just on health. That’s more than the entire GDP of Mexico – and 180 other countries.

But the Federal Government is almost as good at collecting money as they are at spending it. To pay for all these goodies, they need to collect $3.6 trillion each year. That’s $10 billion per day, seven days a week, 365 days a year. The collection of this money greatly affects everything citizens do: how people work, invest and spend.

  • What is the difference between the deficit and the debt?

  • What are some principles of a good tax policy?

  • How does the Federal Government raise tax revenue?

What is the difference between the deficit and the debt?

Before we dive into the weeds, we’re gonna get some of our terminology and concepts straight. If you think you already know this, well, you can skip ahead at your own peril. But it isn’t an easy topic – so if we are going to talk about it, we need to agree what we’re talking about.