A Conservative Revolutionary Economic Proposal: Funding Government Without Taxes/Public Debt

By Stephen Yearwood
Guest Columnist

In this proposal a democratically distributed income (DDI) would be funded by creating money as needed for that purpose (Part IV). Government—all government, from local to national—could be funded the same way. The Money would come from the same source as the DDI: the administrator of it would also provide the funding for government. 

The amount of money to be supplied for government would be determined by the size of the population of the nation (citizens and other permanent residents). In that way it would be strictly limited (for any given year). It would increase only if the population increased, and only in accordance with that increase in population. 

That would be accomplished by multiplying the population of the nation each year by the per capita rate of total government spending (total government spending divided by the size of the population) when this proposal got adopted. Right now, that is roughly $40,000 (with the amount spent by the federal government and the amount spent by all other government combined being about equal). 

How that would be allotted among the various governments—federal, state, and local—is up for debate. I would send it all, for starters, to the federal government. Whatever wasn’t spent there would be apportioned among the states, based on population. Presumably, the individual states would use that same formula: whatever wasn’t spent at the state level would be apportioned among the local governments in the state, based on population. (All states should get to one level of local government: counties, or whatever they might be labeled in different states). 

The people spending the money at the federal (and state) level would know that the less they spent there, the more there would be to send to the places where the people who voted for them lived. There would be a ‘natural’ tendency (in a democratic republic, anyway) for that money to flow ‘downhill.’

With this approach to funding government there would be no need for taxes/public debt—as long as expenditures by government anywhere did not exceed what was allotted to it. If that did happen, that governmental body would have to use taxes/public debt (with taxes to pay it off), as at present. Previously existing debt would be paid off out of the money provided for government until it was all paid off—with more money available for other things as the amount needed for paying off debt decreased over time. Also, as noted elsewhere in this series, once the proposal was fully in place there would be no need/excuse for welfare programs of any kind. 

Even then, at the federal level there would be a major change. At present the central bank (the Federal Reserve System, the ‘Fed’) is the ‘lender of last resort’ for that level of government. That is, the Fed is legally required to ensure that all of the debt issued by the federal government will be purchased—by it, as a last resort, using printed money, as a very last resort. In practice, that has turned into the federal government spending money without any real limit, leaving the Fed to cope with the financial and economic consequences. The Fed would still exist in this proposal, as the overseer of the financial system (might even be the administrator of the DDI: Part IV), but it would no longer be a lender of last resort for the federal government. 

(As I would apportion it) the federal government would have ‘first dibs’ on the money allotted for government. If it wanted to spend more of that money, it could. The federal government could choose to borrow money instead, but only by selling bonds in the regular market—like states and municipalities do at present (and then pay it off out of the allotted money or institute a tax to pay it off). 

So taxes/public debt could be eliminated with this proposal. They could fall to zero, resetting them at zero, even if they could be reinstituted. In the most conservative form of this proposal, taxes/public debt would be permanently eradicated. 

It could be possible to fund government this way while forgetting about a DDI. I have developed this proposal assuming that both of those possibilities would be included in it. That does create a constant flood of money coming into the economy. For that reason, some mechanism would be needed to withdraw money from the economy, to return it to the administrator of the currency. 

Withdrawing money from the economy in this proposal is the topic of Part VI.