Improper aggregation. Neither consumption nor taxes nor government spending is amorphous and evenly distributed. Different mechanisms have very different effects in WHO is able to consume more or less, over what timeframes.
Note that most government spending is eventually paid to workers and contractors, who use it for consumption, so it's not clear that in aggregate it matters at all. It's definitely clear in detail that it changes who consumes and when the consumption happens.
A good thought experiment is to compare/contrast debt reduction via inflation (just print enough money to pay it off) vs via income tax increase (non-targeted; just double the values that hold today) vs via land sales (the US government has a LOT of valuable property that could be privatized). Your analysis of and reaction to the impacts of these things will tell you a lot about your biases/priors about how wealth works in modern economies.
edit: another way of thinking about this (but reinforcing that money only matters when it's not evenly distributed) is to realize that debt is a BALANCED timeshift. For every seller, there is a buyer. Government (and it's beneficiaries, employees, contractors, etc.) get a bit more consumption now, with a pretty nebulous reduction in consumption later (for a different subset), and lenders (buyers of bonds) get reduced consumption now, with a well-defined additional consumption later.
That disconnect in the otherwise-balanced equation (lenders know when and how they get paid, borrowers don't like to think about it and mostly believe other subsets will get taxed more than they) is absolutely core to the belief that government solves problems.
"Could this work?" and "Could we get there from here?" seem like separate questions in this case.
Could it work in general, starting from a clean slate? Probably. In a tight feedback loop between personal taxation and government spending, voter demand would probably tune government spending so taxes stayed at a tolerable level to allow an adequately satisfying amount of personal consumption.
Set the goal as "do not increase the current deficit", and the link between how much the government spends and how much the individual pays could be concrete enough to be comprehensible to even the below-average half of taxpayers and voters, with a good enough publicity campaign. Hypothetically, a tax return could say exactly how many dollars of your payment went to which initiatives in this system, and with sufficiently legible returns correlated to electoral platforms and feedback on elected politician voting/performance, voters and taxpayers could experience the sensation that they have some say in where their money goes.
Could we get rid of the existing deficit this way? I doubt it. American cultural values say it's bad to punish someone for the actions of others, even if the others are related to them in some way. That value is why almost all personal debts stop at the estate, and aren't inherited by the heirs. Demanding that current taxpayers foot the multi-billion bill for money spent by their ancestors directly violates that value. Although you can ease the populace into tolerating all sorts of horrible things in a frog-boiling sort of way (look at the expense of filing one's taxes at all, perpetuated by tax preparation lobbyists), sudden widespread changes tend to be much easier for the populace to comprehend and resist.
I think this answer is missing the point of the question. The deficit gets paid either way, it's just a question of whether it's paid via money printing or taxes. Ignoring money for a moment, any time the government uses resources to do stuff, someone else has to not use those resources. Money is system for allocating those resources, but changes in the money supply can't (directly) change the amount of resources available, and in a frictionless, spherical economy, there's no difference between taxes and inflation.
Eventually the economy would reach a new equilibrium (which presumably would contain the same amount of private consumption as the old equilibrium).
I expect less consumption in the new equilibrium.
The Fed has limited power to affect real demand. Fed stimulus is only helpful if there's unemployment due to something like deflation.
I predict step 3 causes a lot of unemployment.
We also seem to have different opinions about whether the ZLB is a real thing. Even at the ZLB I think the Fed can still stimulate demand with QE.
The Fed can stimulate nominal demand at the ZLB. But (outside of times when it's correcting the results of overly tight monetary conditions) that means mostly more inflation, and has strongly diminishing returns on increased real consumption.
I'm not clear on your step (1). The new taxes would decrease the amount of money people have to spend, but this would be exactly balanced by an increase in money available to spend due to people no longer using their money to buy government bonds. The people with more money to spend may not be the same as the people with less money to spend, so there could be second-order effects if this shifts which goods or services money gets spent on, but how seems hard to predict. There is also the issue that some government bonds are bought by foreigners - but then, foreigners can buy exported goods too...
The new taxes would decrease the amount of money people have to spend, but this would be exactly balanced by an increase in money available to spend due to people no longer using their money to buy government bonds.
This is exactly my point. The only difference (ideally) between the current world and 4. is the on-paper accounting.
If the supply of government bonds is reduced, most of the money that would've gone into gov bonds will go into other investments (because if you want to, e.g., save for retirement, the unavailability of gov bonds is not going to stop you from finding some way to save for retirement). Investment has a different effect on the economy than consumption (e.g., choosing to have a kid) does, and your policy proposal replaces consumption with (private) investment.
Because the economy seems to have the property that when you change a bunch of things at once it takes a while to reach a new equilibrium.
As you've noted, the people reducing their consumption (due to higher taxes) and different from the people increasing their consumption (due to buying fewer bonds). I expect the people lowering their consumption will react more quickly due to loss aversion leading to a short-term drop in aggregate demand.
The question is, can we find a mechanism to produce this adjustment instantly and painlessly.
As an example of the sort of thing, I'm thinking off: normally deflation causes unemployment in an economy due to phillips-curve effects. But if a country simply "crosses off zeros" from their currency, this has basically no effect on the real economy despite technically causing massive deflation.
The question is, might there be a "crosses off zeros" equivalent for lowering the national deficit.
Economically, all government spending takes the form of forgone private consumption. This implies that all deficit spending is in fact a sort of tax.
Suppose we were to raise taxes to make this implicit tax explicit. For the purpose of this hypothetical, let's image the US imposes a VAT exactly equal to the government deficit. It seems like the following would happen:
As a mini example of this, consider the recent Japanese VAT hike.
The question is, could we skip straight from step 2. to step 4. without all of the intervening suffering (usually a recession causes unemployment, lowered consumption, etc.)? What would be the most effective way to do so?