When government spending is financed by borrowing, instead of financed by increasing taxes? ?

Question

Does it make the idea of higher taxes sound any different?

Answer 1

As long as the cost of government borrowing is less than the economic productivity of resources left in the private sector, it makes more sense to borrow than tax. You're borrowing at ~5 percent and private investment is producing ~7 percent -- which growth you can tax later to repay the borrowing.  

Answer 2

It does, especially because a lot of people don't truly understand how the system work.  But in reality it is all the same,  since borrowed money will have to be repaid with interest and you can only do so by increasing taxes and or/lowering government spending by decreasing government services etc.  

But in essence by borrowing money now to pay for the over spending you are passing the burden of higher taxes and lower standard of living unto your children and your children's children.

Answer 3

As long as the return on investment of the government spending exceeeds the cost of borrowing, then borrowing makes more sense.  This is similar to how you run a profitable business.  You borrow money when the business opportunities that will provide a positive return on investment exceed the supply of cash you have available.  You do this until your level of debt causes the purchasers of your bonds to demand interest rates that would become unaffordable in the context of the available business opportunities that remain.

Government operates in a similar manner.  But you only do this up to the point where the interest you have to pay out on government bonds is reasonable.  

Its all about keeping the marketplace happy enough with your financial status to have everything working smoothly and you able to exploit opportunities.

Answer 4

Government borrows from the same capital market that businesses do so except during recessions they are crowding out private investment in favor  of government spending (or not taxing and consumer spending). It may sound better to the tax payer, but the debt incurred by not  taxing is paid for by future taxes to  pay the interest plus  the debt, and the decrease in the growth rate in the economy because of the investment that did not take place.