You seem to understand taxes - those ongoing mandatory payments to the government.
A bond is a way for the government to borrow money. It’s an IOU that’s paid with interest.
When you vote for a bond you are saying that you agree for the government to accrue debt. They will use tax money to pay that debt off
Great explanation, and also …
For example, it’s really expensive to build a new bridge and whatever level of government can’t afford to pay for that. It’s not like you can just demand an extra $1B in taxes.
But whatever level of government can issue a bond to borrow money, with a promise to pay back in x number of years, and can make that regular payment through money coming in by taxes
I’m sure if this question is complete nonsense, out of I’m too dumb to understand it.
What kind of bonds are you talking about?
For example the local jail wants to expand. and says 500k is enough. But the council city puts it as a tax which keeps getting chared afted that 500k we keep giving money instead of taking it off the books.
I find this clarifying.
In some municipalities, I think they have a different word for temporary tax increases (though I don’t think I’ve heard it as Bond anywhere yet?). Bond usually means a government selling ‘IOU’ slips to people, and the government has to pay them back with interest. (Only paying back with more bonds would be a ponzi scheme. Hard to maintain.)
But for taxes, plenty of changes and institutions are going to cost money for the foreseeable future. So a permanent tax is used to fund, say, schools.
Also, passing a permanent tax gives you the opportunity to use the future tax revenue without having another law passed. You can also get the predicted amount wrong.
Another benefit, someday you can cancel the tax and look productive/important.
Tax: ongoing payment to offset recurring operating expenses (OpEx) like staffing and maintenance in schools, courts, recreational sites and infrastructure, in a defined region of resource consolidation (village, town, city, county, riding, province, country) and recurring payments to service and reduce debt from bonds and loans. If it needs cleaning, trimming, painting, replenishing, or ongoing care, it’ll be paid-for through ongoing taxation as a recurring payment for a recurring cost.
Bond: a loan from the citizenry to fund capital expenses (CapEx) and projects; like infrastructure replacement or expansion, area clean-up and remediation/restoration. These are paid back with interest, using tax proceeds. If it’s adding or replacing something with a set lifespan, and its scope is large enough to warrant a project or cost large enough not to be absorbed in regular maintenance, then its lump cost will be offset with bonds.
It becomes easier to see how, for instance, building out rail transit or growing a charging network with gasoline taxes instead of bonds, is weird. It’s easier to spot when recurring costs get bonded out instead of offset by taxes. It’s obvious when a regional government sells an asset and rents it back that it’s going to be a bad idea.
It depends on the context of both of those terms, they mean somewhat different things in different settings.
A tax is generally like, a sales tax, a property tax, an income tax, an import tax (tariff).
Taxes are typically charged either when some kind of goods change hands, or at regular, timed intervals.
A bond, on the other hand, is… well, very basically, its an investment asset.
The government issues a bond, sells it to you for $100 dollars, says that in … one year, one month, 10 years, whatever the duration is…
It will pay you back $100 + interest, so if the interest rate is 5%, you get $105 dollars, after whatever the duration time is.
Why do people gripe about taxes when they can have bonds?
Because basically everyone mandatorily has to pay taxes, but not everybody automatically gets bonds purchased for them.
Buying bonds is also fairly complicated and expensive, and time consuming, compared to paying most taxes, which are, in cases other than the income tax, at least in the US… they’re basically just automatically charged to you.
Note:
I think the US is pretty much the only country in the world where… the US gov basically knows what you owe them in income taxes, but it doesn’t tell you, and instead requires you to try and figure it out on your own, where if you mess up, you may have just committed tax fraud…
… or, you pay someone else to figure out what taxes you owe, even though the US gov already knows, they just won’t tell you.
Adding to this, the money to repay bonds has to come from somewhere – usually taxes. So, if a government issues a bond it is committing to collecting the amount of money for the bond-plus-interest from the populace. It’s the government taking out a loan, essentially, on the basis that it can use long term tax revenue for repayment.
Why not just use taxes directly then? Sometimes you need a lot of money for a specific project and it would take too long to collect that money through taxes at a rate that is reasonably payable by the populace over a short enough time frame.
Suppose you need a million dollars to cover the cost of replacing some infrastructure – like a critical pipeline for your town’s drinking water – but you only have 100 people in your small town. That’s $10,000 per person if the cost is split evenly. The people in town may not have that much money to pay all at once, but getting the pipe fixed so they have water to drink is really important. So, the government gets a loan (i.e. issues a bond) and pays out the amount plus interest over a long period of time. Adding 5% interest and breaking the payments up over a 30 year term would require everyone in that hypothetical town to need to pay about $30/mo more in taxes to cover the cost. That’s probably a lot more politically feasible to actually collect than trying to get everyone to pitch in $10k right now.
Yeah a good example of responsible use of bonds is the Seattle metropolitan area issued bonds to build a light rail system then to expand it multiple times. This enables denser housing, less spending on highways, and just generally increases the area’s financial viability. They’ve bet that that money will either be worth it in the long run of slowly paying it all off or that it’ll produce enough taxable revenue to pay it off.
More cities should follow their lead here.
Adding further to that:
If its the Federal Government that is issuing the Bonds… well, the Federal Reserve can actually just print the money out of nothing, into existence, by fiat, when they ‘buy’ some of the Bonds from the Federal Government, if other market actors don’t want to pay for the Bonds with already existing money.
This is called the ‘Primary Dealer Takedown’ in fancy pants monetary/finance speak.
This more or less directly is monetary inflation.
But it can get very confusing, very fast, when you have some people arguing that the best way to define inflation is… actual price levels consumers pay, prices manufacturers/retailers pay for input materials, and others arguing that better definitions of inflation relate to the actual amount of dollars that exist, that exist in various kinds of accounts, etc.
Without going fully into trying to explain monetary theory and international Bond markets…
… this, and things like it, when the Federal Reserve just poofs money into existence, to exchange for… a Fed Gov Bond, or Mortgage Backed Securities, or what have you… this is where the ‘money printing’ most literally, directly happens.
And then the effects of that, well again, very contentious as to precisely how and to what extent, but this is where you get theories saying that money printing acts as an effective tax on the entire economy.
Basically those closest to the actual money printing suffer the least (or actually benefit), but those further away, down the line, they see price levels generally rise, to match the new number of total dollars in the system.
Word is bond.
