I think it's rarely valid to compare countries' economics to your own personal finance, macroeconomics are a lot more complicated. Example: for employed people, going into (or avoiding) debt generally won't affect their yearly wages, but analogously it can for countries (e.g. well spent debt can stimulate economic growth).
> Example: for employed people, going into (or avoiding) debt generally won't affect their yearly wages, but analogously it can for countries
While I do agree that personal finances are a bad analogy for state finances, that is not an illustrative example as to the reasons. An employed person can absolutely improve their yearly wage by going into debt, be it for investing in education to aspire to better paying positions, buying a car which increases their employment catchment area, or even —for a flexible definition of wage— investing in setting up a business.
The downside of state debt is the downward spiral.
If you spend 1/2 your tax income on just servicing the debt, that means either fewer services for people, or borrowing yet more, just to keep things going.
If you borrow more, then it gets even worse.
I really prefer that 1/2 my tax bill doesn't go to interest payments.
Let's say a city builds a bridge that doubles its tax income by opening up a lot of economic opportunities. It pays for this with a 35 year bond. During these 35 years, the entire additional income that the bridge generated goes towards paying off the bond. After the 35 years the bond is paid off and the city enjoys permanently raised tax income (not to mention better economy for residents).
Was there a problem that the city spent 1/2 of tax income on just servicing the debt?
I could go into a lot of reasons, but I'll keep it simple.
It is incredibly rare for governments to break that cycle. This has been demonstrated over and over. Thus, there is no end in 35 years. There is just perpetual 50% taxes to interest on debt.
This means that as it is a persistent state, not perpetually losing 50% tax revenue would make an enormous difference.
Think of it the other extreme though. Imagine governments never borrowed and only used actual 'cash' to build things. I suspect that virtually nothing would have been built over the past 200 years and the world economy would be 1% the size it currently is.
I think you are right in that governments (probably?) shouldn't be funding day to day spending anywhere near as much as they do with debt. This has been a more recent (post WW2) phenomenon with huge expansions of social security programs. But capital expenditure virtually has to be paid with debt.
It's easy to say with trillions of dollars of debt funded infrastructure debt is too high, but imagine the counterfactual - would you be happy with virtually no infrastructure but no debt?
Think of it the other extreme though. Imagine governments never borrowed and only used actual 'cash' to build things. I suspect that virtually nothing would have been built over the past 200 years and the world economy would be 1% the size it currently is.
200 years ago had vastly different taxation methods than today, so I'll stick to the last 100 years.
Your point is countered, by the fact that governments build roads, bridges, and more without any debt or by borrowing money. I think you are underestimating how large a budget governments of all levels have, especially when 50% of it is being used to finance debt. That 50% of tax income, literally disappearing to pay only interest on debt, instead could (for larger cities) literally be used to plop down cash for a bridge in one year.
A lot of this could be solved by better allocating taxation to its intended purpose. There are gas taxes, but often those taxes are appropriated into a general budget. Far better if those taxes were only used for roads, and adjusted accordingly.
(Even if you decide that some gas tax should be an 'environmental' tax, a portion of that gas tax can be allocated as 'road tax', and the above still gels. This could also be a 'tire' tax, or a 'register your car' tax, the method does not matter.)
There is a lot of nuance with taxation, but quite literally throwing 50% of tax revenue away just to pay interest to bankers is very poor form.
I want to add here that, as a Canadian, this isn't a "team" thing in the mental sphere of US politics. And regardless, every single government in the US, federal, state, and often city engages in this practice, regardless of political bent.
This is a "governments love to give things to get votes" problem, which covers all political spheres, and harms us all.
Which country spends 50% of tax income on interest payments? UK spends 8.4% (which is much higher than it used to be because of higher interest rates at the moment - was historically half that).
The US fed government is at ~20% from a quick google, which again is much higher because of interest rates (which again are to come down). Canada spends 10%
Where are you getting this 50% from? For comparison, Walmart spent $550m or so on net interest in their last quarter - out of $8bn operating income, so not a huge difference in the private sector.
capital has upkeep costs, yes, but it seems trivial to look up infrastructure spending, debt service costs, GDP, tax burden, for various tax jurisdictions.
these things are pretty well studied. taxes do go down.
When I look at my federal and provincial government, I see 50% or more being spent on interest only payments. I've seen that number fluctuate a bit, but it's always been between 30% and 50%, if not higher at times.
When you look at the US fed, you see the same sort of thing.
That's demonstrated, therefore, over and over.
I'll put it another way. If Canadian federal and provincial governments weren't paying 1/2 their yearly tax revenue to interest payments on debt, I'll repeat that.. only interest payments, not principle, all of the funding issues with health care, and the military would be gone.
Put yourself in the same situation. Imagine you decide to spent 1/2 your post-tax income on only interest payments. You never make headway on the principle. So the debt is never going away. Now if times are tight (after all, why did you borrow to start with?!), how much worse are you with half your money gone to do absolutely nothing of value?
That's what many of our governments are doing.
In times of economic boom, some frugal governments pay off debt. They reduce that figure. But here's the kicker...
When times are bad, typically interest rates go up. So not only are you paying more as a government for those interest only payments, you have less tax revenue in a recession.
Frankly, I think it should be illegal for governments to borrow money. It's too tempting to gain votes. Politicians often don't care about 20 years from now, they care about the next election, and will tell themselves wild stories about how it will all be OK.
you don't have to convince me that governments are doing dumb shit, but it's not because of debt. it makes sense to borrow when it's cheap. especially for a state. (because when it's cheap it means inflation is low anyway. and arguably when it's too cheap it's imperative for the state to stimulate the economy.)
a lot of things should be "illegal", but since voters don't care legislatures don't either. :/
the obvious problem is the ROI on that debt. (hence the usual opposition to financing rich folks' tax cuts with debt, or subsidizing projects that are not sustainable financially, giving money to wasteful municipalities, etc.)
> Was there a problem that the city spent 1/2 of tax income on just servicing the debt?
Actually, yes.
Let's say I went to the Casino, put all my money on black and won. Great. Was there a problem that I risked all my money in the casino? There surely was.
The thing is, financing investments via bonds means that only parts of the citizens are actually financing it with their private money (and also enjoy the benefits like interest). But the city could also just make a contract over the 35 years with recurring payments instead of paying all upfront. And then it could simply raise the tax (if necessary) to pay the additional payments. The difference is that now all citizens pay for it rather than just a small share.
