“Taking Money Out Of The Economy”

Several readers are echoing this one:

In the recent "Ask Manzi Anything: Increase Taxes to Fix the Deficit?" Mr. Manzi stated what seems to be one of the right's biggest fallacies concerning the U.S. economy. After lamenting that it takes until some time in May for an American worker to earn enough to pay his taxes, Mr. Manzi says, "(that's) a whole lot of money for the government to be taking out of the economy." The problem with that point of view is that it is 180 degrees from the truth.

Government doesn't take money out of the economy; it redistributes money taken in taxes back into the economy. In fact, since we are borrowing $0.40 of every $1.00 of government spending, the government is putting way more money into the economy than it is taking out in taxes. Now, one can be against redistribution, call it socialism, and demand an end to it, but that's not the same as assuming that money taken in taxes just disappears into some black hole of the Treasury Department.

I think this actually gets to the heart of the American conservative idea of how the economy works and why I find the prospect of turning the keys to the whole thing over to them frightening. In their view, since being made to pay taxes takes money from them, that money is then gone and not available to be used by the "job creators." Since the free market no longer has use of those moneys, they see this as a net loss that can only be resolved by cutting taxes. No credit is given to the government's use of the money. Government jobs don't count. Government workers have no worth to the economy and besides, we all know that government can't create jobs. Don't we?

As I said, Mr. Manzi has it backwards. It's not government that takes money out of the economy; it's private sector investment in foreign companies, outsourcing and just sitting on over $2 trillion in cash that takes money out of circulation.