… is from pages 446-47 of Jim Buchanan’s 2000 collection Debt and Taxes, which is Vol. 14 of the The Collected Works of James M. Buchanan; specifically, it’s from Jim’s 1986 Economia delle scelte pubbliche article “The Economic Consequences of the Deficit” (original emphasis):
In its simplest terms, the economic consequences of debt-financed budgetary deficit are equivalent to the economic consequences of a debt-financed deficit in the account of any economic-financial unit, whether this be a person, a family, a corporation, a club, a church, or a labor union. When current revenues fall short of current outlays or expenditures, a deficit emerges, and if revenues are not increased or outlays decreased, the deficit or shortfall must be financed by borrowing [or, in the case of national governments, by creating money – a possibility that Buchanan here explicitly puts to the side in order to focus on borrowing]….
For both the borrower and the lender, the sale and purchase of debt instruments involve a temporal displacement in the availability of funds. The borrowers is enabled to spend more than revenue or income in the initial budgetary period, but is obligated to spend less than revenue or income in some future period. The lenders spends less than revenue or income in periods during which the debt is amortized. And, as I have argued for decades, the government is not different in these respects from any other borrower….
[T]he primary economic consequence of debt-financed spending by government is the guaranteed necessity that we must, as citizens-taxpayers-program beneficiaries, give up some part of our incomes in future periods in order to meet interest and amortization charges on debt. A share of our future incomes is obligated to meet the legitimate claims held by creditors of the government. And it makes no difference whatsoever whether these creditors are themselves citizens or foreigners.
Only by illegitimately assuming that that group of people who have their passports issued by the same agency are a relevant and unitary economic entity – an illegitimate assumption encouraged not only by run-of-the-mill nationalism but also by modern macroeconomic aggregates – is the “we owe it to ourselves” error able to grab a toehold in people’s minds.
If we regard all humanity as One, then U.S. government debt held by people in China and Finland is, no less than is such debt held by people in California and Florida, debt that “we owe to ourselves.” That portion of U.S.-government debt that even scholars such as Paul Krugman concede is a genuine net burden (say, U.S.-government debt held by the Chinese) is instantly transformed into a non-burden simply by expanding the aggregate to include “all humanity” rather than merely “all Americans.” We humans owe it too ourselves, so there’s no need to fret about the size of government debt because the net burden of the debt is zero!
It won’t do here, by the way, to object to the previous paragraph by pointing out that Chinese citizens (unlike American citizens) aren’t on the hook to pay the taxes necessary to pay interest or principal on U.S.-government debt. A central point of Jim Buchanan’s debt-burden case is that even within national boundaries, the individuals whose taxes are raised today to pay interest or principal on a government bond are distinct from the bond holders who receive those payments. The payer is not the payee, and that the latter might share national citizenship with the former is an economically irrelevant happenstance that cannot possibly make a government-debt burden disappear.
That American Mr. Smith’s taxes are raised to pay to retire a bond held by American Ms. Jones does not mean that this “internally held” debt isn’t burdensome. Mr. Smith bears the burden – a burden that is not offset simply because the individual, Ms. Jones, who receives the proceeds of the taxes paid by Mr. Smith happens also to be an American. The burden of this public debt for Mr. Smith would be changed not one iota if, a moment before he is taxed to pay off this bond, Ms. Jones were to switch her citizenship from American to Armenian.