The Myth of Taxpayer Money

“How are you going to pay for that?” You’ve seen it a hundred times: some serious-looking pundit with glasses and a suit interrogates some over-eager politician who actually wants to do something meaningful with their elected position. They recite some jargon about taxes and savings, bicker briefly with the pundit, and then the segment ends. The pundit is proud to have done their job holding this politician accountable to fiscal responsibility; what could be more important? After all, there isn’t an infinite supply of money. Except, in a very important sense, there is.

Let’s go back in time. Prior to 1933, the U.S. dollar, like most currencies, was on the gold standard, limiting the amount of money the U.S. could create. However, this is no longer the case.

Today, the United States is the sole issuer of the U.S. dollar. As a fiat currency, it is inconvertible into any real resource. In 1946, then-chairman of the New York Federal Reserve, Beardsley Ruml, published an article declaring that, as a result, “our Federal Government has final freedom from the money market in meeting its financial requirements.” This is stated in plain English in the article’s title: “Taxes for Revenue are Obsolete.”

This may be surprising; it certainly contradicts mainstream discourse about spending. Concerns about debt or inflation are still valid, and it is still reasonable to debate by how much government spending should exceed tax revenue. But there is no physical restriction on the amount of money the U.S. can spend.

If the federal government wants to pay you $100, they can tell your bank to increase the number in your bank account by 100. There is no need for physical dollar bills or borrowing money; all that is required is an update in your bank’s computer system and now you are $100 richer. The opposite occurs when you pay taxes; you give a bank account to the government and they subtract from the number in your account. There is no exchange of actual dollar bills here, but money is removed from circulation nonetheless. The government creates money by spending and destroys it by taxation, and it does both without worrying about the supply of coins and bills. This means there is no physical restriction on the amount of money it can create.

The implications of this process are profound and far-reaching. No longer do politicians have to play the “how do you pay for it” game; the government can simply create new money. The government may want to tax to reduce inflation resulting from an increase in the money supply, but this does not prevent them from spending it in the first place. The true constraint on government spending is resources. Can the U.S. government buy everyone a Ferrari? Sadly no, because there are far less than 327 million Ferraris in existence. But if there were 327 million Ferraris up for sale, it would theoretically be possible for the federal government to buy them all and give one to every American.

Recently, Bernie Sanders proposed universal childcare and pre-K plan that he claimed would be paid for by a wealth tax on the richest Americans. Can we achieve universal child care? If there are enough people willing to work in child care to meet the demand, yes. But reducing the number in Jeff Bezos’ bank account will not create new child care resources. It may be necessary to increase taxes to deal with the economic effects of this increased spending, but taking dollar bills from billionaires is not necessary for spending in the first place.

The taxpayer money myth is the antiquated belief that taxes fund government spending, and the existence of this idea is an existential threat to progressive policy. This myth legitimizes harmful ideas such as “welfare recipients mooch off of taxpayers” and makes cutting welfare programs much more popular. The myth establishes “taxpayers” as a privileged class. If taxpayers fund the government, then it follows that they should decide what the government does — after all, it’s their money. As a result, the most marginalized and disadvantaged people are seen as the least worthy recipients of government assistance while the rich and powerful rig the levers of power to receive favor after favor.

It all comes down to protecting wealthy interests. The rich and powerful oppose universal healthcare because it would prevent employers from using the threat of a lack of healthcare access to coerce their employees; programs like universal healthcare transfer power from the rich to ordinary people. Of course, they would never say that they’re willing to let poor people die to protect their own interests. They complain that it will raise middle-class taxes, which is equivalent to stealing people’s hard-earned money. Why should taxpayers pay for other people’s healthcare? Progressives can try to respond to this objection, but we don’t have to. We can reject the premise of the question altogether by realizing that we already have the resources to provide healthcare to all Americans, we just need to make them accessible to everyone.

The progressive movement in the United States should stop playing the “where is the money” game. If we are serious about getting things done — universal healthcare, basic income, solving climate change — we need to reject the taxpayer money myth in its entirety. We waste the power of the federal government by not taking advantage of all of the resources at our disposal to make our lives better. If we spend our time scrounging around for tax dollars, we will never accomplish what needs to be done. Let’s start getting things done.

Matthew B. Gilbert ’21 is a Computer Science concentrator in Adams House. His column appears on alternate Thursdays.

Editor’s Note: Due to editorial changes regarding the novel coronavirus, this article’s publication was delayed.