While this is a nice illustration, it is actually a bit misleading to talk about where tax dollars go within a monetarily sovereign government. Conceptually, ta

While this is a nice illustration, it is actually a bit misleading to talk about where tax dollars go within a monetarily sovereign government. Conceptually, tax dollars don't really go anywhere - they simply disappear (are destroyed). Conversely, when the government spends, the dollars do not really come from anywhere - they simply appear (are created). After all, those dollars are really just numbers in the accounts at the Fed, which can be increased and decreased arbitrarily (from a technical perspective). There is an arcane mess of transactions that do happen related to government taxes and spending simply for purposes of controlling the interest rate. Since spending and taxation happen on different schedules, clustered tax payments on one day would drain so much of the banks' reserves from Fed accounts that it would force banks to borrow to maintain required reserves, thus creating a spike in the interest rate. Conversely, clustered spending would add reserves which would cause the interest rate to drop. Simply to prevent such fluctuations, the treasury and Fed operate accounts in private banks where tax money is accumulated, so that it does not cause a drain on banks' reserves. This happens to support monetary policy. However, it would be misleading to think that these operations are required for fiscal policy. When it comes to fiscal policy, conceptually taxes do not pay for anything. Instead, they are the tool by which the government takes spending power away from the private sector so that it may spend itself without causing inflation. There is an entire chapter on those monetary operations in Randall Wray's book "Understanding Modern Money".