The national debt is deferred taxation: According to this oft-repeated fallacy, governments can raise money by issuing bonds, but, because bonds are loans, they will eventually have to be repaid, which can be done only by raising taxes. And, because taxpayers expect this, they will save now to pay their future tax bills. The more the government borrows to pay for its spending today, the more the public saves to pay future taxes, cancelling out any stimulatory effect of the extra borrowing.
The problem with this argument is that governments are rarely faced with having to “pay off” their debts. They might choose to do so, but mostly they just roll them over by issuing new bonds. The longer the bonds’ maturities, the less frequently governments have to come to the market for new loans.
It doesn’t matter whether the government pays off the debt or not. It’s still deferred taxation. Because the government has to pay interest on what it borrows. The net present value of that interest being, of course, exactly equal to the capital value of the bond.
So, whether it pays off the capital of the bond or rolls it over indefinitely (or perpetually) the amount that the taxpayer must pay in interest must, by definition, be equal to the amount that has been borrowed in NPV terms.
It is deferred taxation.
Nice of Skidelsky to define as a fallacy something that is true, isn’t it?