The use of government bonds for any purpose, no matter how important or necessary, is essentially a transfer of wealth from working taxpayers to the already wealthy.
“What are government bonds?”
Government bonds are essentially loans taken out to pay for things we need right now but don’t have enough money to buy. The bonds are issued by state and local governments and purchased by investors who are paid back over time. Government bonds pay a low rate of return, i.e. a low interest rate. This is done to make it appear that we will not be paying a lot of interest as the bonds are paid off. But investors want a high rate of return, so in order to make the bonds more appealing to investors, the interest the investors get is tax-free. The only group that can benefit from these tax-free, low-interest-rate payments is the very wealthy. The tax-free income they receive from these bonds more than makes up for the low rate of return. It lowers their tax payments.
“But if we citizens can borrow money from the wealthy at low interest rates, why not?”
Paying for what we need by issuing bonds is a bad deal for working taxpayers because we are really paying for something three times.
First, we have to pay back the loan (the principal). This is reasonable and to be expected.
Second, we must pay the interest on the loan. This can be almost as much as the loan itself, even at the low interest rates of government bonds.
Finally – and this is the really bad part – we are not getting tax payments on the income that the rich investors receive when we pay them interest. All interest income they receive is untaxed, meaning that there is a lot of potential tax money the government is not receiving. This results in a budget deficit for the government, and that means either higher taxes for the rest of the taxpayers (you and me) or cutbacks in government services: one reason why we can’t fully fund schools, patch potholes, or fix river levees.
PFP believes this is the wrong way to pay for needed public programs
Current needs should be funded by a more fair tax structure with higher taxes on the wealthy (the top 1-2%) and by closing tax loopholes used by large corporation to avoid paying their fair share. If we need to borrow money for capital improvements (schools, parks, etc.), we should do it in a way that does not benefit the already rich at the expense of working taxpayers.
