National debt with regards to taxes Essay Example | Topics and Well Written Essays - 1250 words

National debt with regards to taxes - Essay Example Therefore, whenever the national debt is high, there is a likelihood that the citizenry will be affected, since the available national resources could not be sufficient to cover for all the government payments in form of the interest rates that it must pay periodically to the creditors (Boccia, 2013). The consequence is that; the taxes that are collected from the citizenry must then be increased, so that there is enough money to cover for the payment of the interest in the debts that the government owes different creditors. Therefore, while there could be less awareness in relation to the impacts of the national debts on the citizenry to the public, the truth is that the effect of the national debt must be felt by all. Thus, the effects of National debt include: The National debt affects the tax rates that are charged on the common citizens, as well as the private sector through the licensing and other legal requirements that business are required to have. Whenever the National debt is high, the government has to seek for a way to increase the available revenue so that it can be able to meet the debt obligations in form of interest payments that must be made every single financial period (Faulhaber, 2010). Consequently, when the government is unable to meet the interest obligations from the already collected tax revenues, the government turns to the public for more money through raising the tax rates that the public must pay on various essential products and services. The increased taxation on the other hand becomes a financial burden for the common citizens, considering that they are now getting less value for their money. When the rate of taxation has increased, the prices of goods and services that the common citizens consume goes high, which in turn means that the value for their money has now significantly reduced (Boccia, 2013). The increased taxation does not only affect the common citizens, but also businesses, considering that their profitability will be reduced, while the costs of operations will keep increasing. The consequence is that, National debt increases the tax burden on both citizens and businesses, making it hard for businesses to grow, while reducing the purchasing power of the public (Agonist Learning Center, 2009). The net effect is that, investments will not perform well in the situation where the national debt is high. Further, National debt affects the interest in the sense that, the national banks continuously keeps track of the national debt as they are continuously served with such information from the central bank. The relationship between the central bank and the other commercial banks is that; the central bank is the key determinant of the interest rates that the commercial banks will charge on loans and mortgages issued to the banks’ customers (Faulhaber, 2010). Therefore, when the national debt increases, there is a need for more money that is used to cover for the increased interest rates that the government must pay to the creditors. Consequently, the central bank raises the interest rates, which are then increased by the commercial banks in similar proportions (Boccia, 2013). Therefore, the increased national debt serves to increase the