Question

What item or product does the government sell? How does the government get money to spend? How do taxes fit into fiscal policy and if taxes cannot be raised, what does that mean for the debt level of the US? Are the bonds from the debt sold out of the New York Fed? Who are the bonds sold to?

Answer 1

The federal and state governments sell almost any piece of property you can imagine. Whether you are a new business looking to equip your office or a home buyer looking for an affordable place to live, you will usually be able to find something you are looking for. Each piece of government property is being sold for different reasons. Some property has been seized from or forfeited by criminals, other property was seized for failure to pay taxes, and some property is simply excess. Examples of property usually available through government sales include:

Aircraft

Antiques

Art

Clothing

Commercial equipment

Computers

Houses

Jewelry

Vehicles

The chief way the government gets the money it spends is through taxations, the relative sizes of sources of federal government tax revenues. Forty-five percent of federal tax revenue comes from individuals’ personal income taxes. Another 39 percent comes from Social Security and Medicare withholdings. Since half of Social Security and Medicare taxes come directly out of people’s paychecks, about 65 percent of taxes the federal government collects come from individuals. Thirty-two percent of taxes come to the government from corporations. Estate and gift taxes, sources of significant debate, account for only 1 percent of federal tax revenues

Fiscal policy is a crucial part of American economics. Both the executive and legislative branches of the government determine fiscal policy and use it to influence the economy by adjusting revenue and spending levels.

Business tax policy – Taxes that businesses pay to the government affects profits and the amount of investment. Lowering taxes increases aggregate demand and business investment spending.

Government spending – Aggregate demand is increased by the government's own spending.

Individual taxes – Taxes on individuals, such as income tax, affects their personal income and how much they can spend, injecting more money back into the economy.

The federal government could soon pay more in interest on its debt than it spends on the military, Medicaid or children’s programs.

The run-up in borrowing costs is a one-two punch brought on by the need to finance a fast-growing budget deficit, worsened by tax cuts and steadily rising interest rates that will make the debt more expensive.

With less money coming in and more going toward interest, political leaders will find it harder to address pressing needs like fixing crumbling roads and bridges or to make emergency moves like pulling the economy out of future recessions.

Within a decade, more than $900 billion in interest payments will be due annually, easily outpacing spending on myriad other programs.

Purchases of Treasury securities increase the quantity of reserve balances in the banking system; sales or maturities of Treasury securities reduce those balances. These transactions, which are conducted by the New York Fed's Open Market Trading Desk (the Desk), are executed with primary dealers.