A little diversion here, but necessary in this day and age of goverment and administrative centralization. There are three ways that the federal government can obtain the funds it desires for its expenditures. It utilizes all three, but most do not realize the consequences of each.
1) It can directly tax. This takes money from the citizens or corporations (and thus from their stockholders) to use for expenditures. This means the funds in the overall economy shift from the private to public sector. No increase in expenditures happen, they are just shifted from individuals (who would spend the money on their desires/wants) to the federal government.
2) It can borrow money. The government can issue bonds that investors can purchase to obtain their principal + interest. This has the effect of driving up interest rates in the economy (all else being equal) since government bonds are competiting with private bond or stock offerings. Higher interest rates affect individual borrowers as they must pay a higher rate to finance their purchases.
3) It can 'print' money. The government can sell their bonds to the central bank, in essence printing money. This has the effect of lowering interest rates and is the way that the federal reserve keeps their interest rate targets. Printing money leads to a larger money supply and eventually price inflation which makes the prices we pay for goods increase. All are worse off (long-run) when this happens.
Hope that provides a little primer for you on how the government gets its money.
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