The Government's "Sovereign" Power to Tax and Print Money
Our Federal Government’s Balance Sheet: Putting the Cart Before the Horse
The Financial Report of the U.S. Government for 2020 included a balance sheet with $6 trillion in assets and $33 trillion in liabilities, leaving a negative net position of about $27 trillion. Those reported liabilities exclude tens of trillions of dollars of unfunded obligations in Social Security and Medicare under current law and policy, indicating the $27 trillion in negative net position is far too optimistic.
In other words, the balance sheet paints an alarming picture. Introducing the balance sheet, however, the government’s report offers the following comforting words:
There are, however, other significant resources available to the government that extend beyond the assets presented in these Balance Sheets. Those resources include stewardship PP&E in addition to the government’s sovereign powers to tax and set monetary policy.
So we should rest easier about our government’s financial position because our government can take our money and inflate the value of our dollars away?
That may not be so comforting, but there is a more fundamental issue here.
We are told that the “powers to tax and set monetary policy” are “the government’s sovereign powers,” with a possessive “s” on “government.” Ironically, this assertion arises in a document serving as a vehicle for securing the accountability of government to We the People.
Sovereignty, Accountability, and Federal Government Accounting
The federal government of the United States issues an annual financial report every year. The results in the report are now framed by accounting standards issued by the Federal Accounting Standards Advisory Board (FASAB), an entity created in 1990. FASAB issues two main types of pronouncements – concept statements and accounting standards. Concept statements do not include specific authorities, but lay out guiding principles for the standards and their interpretation.
FASAB issued its first concept statement in 1993, titled “Objectives of Federal Financial Reporting.” The statement identified three main goals, and the first was to “demonstrate accountability to internal and external users of federal financial reports.” A “Background and Rationale” discussion included, first and foremost:
The federal government derives its just powers from the consent of the governed. It therefore has a special responsibility to report on its actions and the results of those actions. … Providing this information to the public, the news media, and elected officials is an essential part of accountability in government.
Chapter two of the first concept statement lists 11 “unique characteristics” of the federal government relating to accounting principles, and the first one discussed is titled simply “Sovereignty.” It begins:
The federal government is unique, when compared with any other entity in the country, because it is the vehicle through which the citizens of the United States exercise their sovereign power.
That statement is footnoted with the following illuminating ideas:
The word “sovereign,” much discussed by legal and political philosophers, is used here in its broad, popular sense to imply (1) internally that the people are the ultimate (if indirect) overseer or authority in the decision-making process of a democratic state and (2) externally that the state is autonomous or independent.
So, according to this fundamental concept statement, the people are the ultimate authority. This suggests that the government should reconsider staking a claim to possessing “sovereign” powers to tax and set monetary policy, especially in a document securing government’s accountability to the real sovereign, the people.
Legal and Accounting Plunder
In articulating his concept of “legal plunder,” Frederic Bastiat wrote in The Law that:
But, unfortunately, law by no means confines itself to its proper functions. … The law has been used to destroy its own objective … The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder.
Similarly, our government’s financial reporting has been used in practice to “destroy its own objective.”
Over time, both Ludwig von Mises and Friedrich Hayek grew leery of placing too much faith in popular sovereignty, given how the exercise of power through the government could undermine higher values. However, as regarding the fundamental relationship of the people to their government, I think both Mises and Hayek would defend popular sovereignty in principle.
In a novel and valuable recent interpretation of the 10th Amendment, Elizabeth Anne Ross concluded:
The Tenth Amendment ought to protect popular sovereignty—as it protects state sovereignty—by serving as a source for robust judicial review of federal and state laws that infringe on popular sovereignty. … By ignoring the people in the Tenth Amendment, American jurisprudence has ignored a vital structural protection against federal and state tyranny and risked government-driven erosion of democracy in America.
When our federal government’s financial report similarly ignores the people in its identification of government’s possession of “sovereign powers to tax and set monetary policy,” American accounting joins jurisprudence in risking government-driven erosion of democracy, greasing the wheels of tyranny.
That’s One Small Step for a Man, One Giant Leap for Mankind
Our government’s assertion that it possesses the sovereign powers to tax and to set monetary policy first appeared in the annual report for 2000, in the following words:
There are, however, other significant resources available to the Government that extend beyond the assets presented in this Financial Statement. Those resources include Stewardship Assets, including natural resources (see Stewardship Information on pages 45-53) and the Government’s sovereign powers to tax, regulate commerce, and set monetary policy.
In other words, back in 2000 the report included the power to regulate commerce among the resources possessed by the government. Beginning in 2007, under the signature of Treasury Secretary Henry Paulson, the Government added the “power to print additional currency” among the sovereign powers it possessed beyond the assets presented in the balance sheets.
In 2012, however, the powers to regulate commerce and to print currency were not to be found:
There are, however, other significant resources available to the Government that extend beyond the assets presented in these balance sheets. Those resources include the Government’s sovereign powers to tax, and set monetary policy.
So it went until the financial report for 2018, when a small but significant change arrived.
Those resources include Stewardship Land and Heritage Assets in addition to the government’s sovereign powers to tax and set monetary policy.
They stopped capitalizing the “G” in “Government!” It’s been a small “g” since 2018.
That’s one small step for a man. But the objectionable sentences remain. The next giant leap could be to eliminate those two sentences completely.