Clearly Some People DO Believe that State and Society are Identical

by Don Boudreaux on May 25, 2011

in Budget Issues, Myths and Fallacies, Other People's Money

Here’s a letter to USA Today:

Sally Kohn advises Americans to stop worrying about Uncle Sam’s gargantuan debt (“Don’t believe the hype about U.S. debt,” May 25).  But her explanation for why this debt is benign – namely, that successful private businesses often have high debt-to-income ratios – is deeply flawed.

First, while private firms do regularly borrow to finance productivity-enhancing investments, the same isn’t true for government borrowing.  Owners of private firms must repay their debts with their own money.  Private business owners, therefore, have much stronger incentives to borrow and invest wisely than do politicians who repay whatever debts they incur by taxing other people.

Second, Ms. Kohn writes that “The United States generates approximately $14.5 trillion in GDP each year and carries, currently, $14.3 trillion in debt.  That represents a debt-to-income ratio of roughly 1-to-1.”  Wrong.  U.S. GDP is emphatically not Uncle Sam’s income.

U.S. GDP is income earned by, and belonging to, Americans.  To get his income, Uncle Sam annually taxes away some of this privately earned income.  Uncle Sam’s income is this annual tax revenue – now about $2.2 2.4 trillion – and only this tax revenue.

Even if, contrary to fact, Uncle Sam were powerful enough to confiscate all $14.5 trillion of Americans’ incomes, it’s as illegitimate for Ms. Kohn to count Americans’ entire incomes as income belonging to Uncle Sam as it would be for me to count my neighbors’ entire incomes as income belonging to me simply because I might be powerful enough to confiscate those incomes in full.

Donald J. Boudreaux

I didn’t have room to fit the following question into the letter: If every cent of U.S. GDP is Uncle Sam’s income, what does that fact imply about the solvency of state and local governments throughout America?  (There are tons of other such questions to be asked about this absurd proposition of Ms. Kohn.)

(Thanks to Mark Steckbeck for helping to update my information on Uncle Sam’s current annual revenues.)


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