That could change August 2, 2011 if Congress doesn't act!
By Melvin J. Howard
The role of the Treasury Department or Treasurer of any body is to deal with financial issues - to collect income, to disperse expenditures, to maintain the books, see to the investment of surpluses and the borrowing necessary to cover shortfalls. So to with the US Department of Treasury that oversees the management of the biggest account in the world, that of the US Government. The US Treasury Department overseas the main governmental revenue collector, the IRS or Internal Revenue Service, the Bureau of Public Debt that manages government debt issuance, and the US Financial Management Service, who manages "The Books".
It is important to appreciate that the accounts of a government do not look at all like the accounts of any body in the private sector, be it a for-profit or a non-profit organization, or even an individual. Indeed if you viewed the U.S. government balance sheet through a private sector lens you would immediately declare it bankrupt and wonder why U.S. Government Bonds are considered the safest assets in the world!
However the reason a government's balance sheet doesn't tell you what you need to know about the safety of a government obligation is because it doesn't place a value on the right of a sovereign to tax its residents. This right of the sovereign, held only by the sovereign, generally makes obligations of the sovereign a safer investment than any private sector body licensed by, or domiciled in, that same sovereign nation. Then, the higher the national income (or the tax-base) in that country the higher the expected revenue to the sovereign body, and the more likely it will be able to meet its own obligations (provided its debt levels stays within certain bounds). Thus it comes as no surprise that the country with the largest economy and national income also issues the least risky type of debt security and in today's world that is the US Government.
The resulting easy ability for the government to both tax and to borrow facilitates the type of military expenditure and infrastructure spending necessary for America to continue building further economic growth. Economic growth spurs further access to capital for military and infrastructure expansion, and so the cycle continues. So America would then be very concerned about the following two primary threats to this pattern:
Growing expenditures that increasingly take money away from the primary building and maintenance expenditures (military and infrastructure investment). Emerging empires with fast economic growth that could take their place. And so it would be that some of the main concerns of Financial Management today are:
In the first category of competition for empire building funds are two main things:
1. First are terrorist actions that make economic infrastructure more expensive to maintain. The other is the aging of the US population and increasing healthcare costs.
2. In the second category of emerging empires China and India are the most frequently used.
Role of Taxation
Of course one cannot talk about the role of tax without talking about the role of government since tax is what funds everything a government decides to do. Regardless of what kind of society you live in - dictatorship, communist, capitalist, democracy, semi-democracy - a government will spend money on the following in various orders of priority:
ü Militaries for self defense of the home country and possibly for control over other countries,
ü Some type of system of law and order in the home country,
ü Infrastructure for economic development,
ü Human development - education, healthcare, and so forth,
ü Foreign relations with other countries
Redistribution and economic insurance, or "safety net", for individual residents. In the U.S. the main redistribution function and associated safety nets look a bit more like a type of "insurance" against personal economic disasters, whereby the risks of such events are spread across the society as a whole. For example, the risks of no longer having access to money due to retirement or disability which is what Social Security covers are borne by society as a whole, which has a much larger capacity to bear that risk, than do the individuals likely to experience such events. Placing these risks on individuals to bear became intolerable during the Great Depression, leading to the establishment of the Social Security system.
The purpose of any insurance is to pool risks so that each individual in the pool lowers their own risk of some crippling disaster for a small annual fee paid to the pool. Therefore any insurance mechanism is necessarily re-distributive. "Insurance like" federal taxes such as Social Security are more re-distributive than any private sector insurance because those with the highest ability to bear the related risks (those with high incomes) get the lowest expected return on their contributions to the system. In addition what is really happening, is that current workers contributions are always paying for current retirees in the system and there really isn't any "saving for the future" going on, as is so often presented. Such a progressive risk sharing mechanism could not work in the private sector, which is why it was founded as a public system in the first place.
Some argue for less government intervention in the market economy seem to overlook the fact that the government creates the infrastructure for the markets to function in the first place. Without government created legal and judicial infrastructure, even the most basic contract would not be enforceable, except at gunpoint. Since our whole monetary and trade systems are built primarily on contracts of agreement, modern markets would not exist, and economic development could not happen, without significant government intervention.
Those who also argue for an end to government sponsored re-distributive mechanisms either overlook or dismiss the role of periodic redistribution in sustaining economic prosperity. Without government intervention in redistributing wealth in suitable amounts you step on to a spiral of increasing inequality. "Nothing can preserve the integrity of contract between individuals except a discretionary authority in the State to revise what has become intolerable. The powers of uninterrupted usury are too great. If the accretions of vested interest were to grow without mitigation for many generations, half the population would be no better than slaves to the other half. Those who insist that the State is in exactly the same position as the individual, will, if they have their way, render impossible the continuance of an individualist society, which depends for its existence on moderation." (Keynes)
