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> So I recently had a realization that the money the US government spends has absolutely no relation to the money the government receives You're correct. As a

> So I recently had a realization that the money the US government spends has absolutely no relation to the money the government receives You're correct. As a matter of fact, it has gotten to the point where I believe the US could do away with taxes entirely and borrow the entire budget ... it wouldn't make much of a difference.

tzs 5y ago
I remember that came up in my income tax class in law school. I don't remember if the professor suggested it as an interesting thing to consider, or if it was in some of the optional supplementary reading he recommended (if so, most likely Chirelstein's book on federal income taxation [1]). Suppose under a conventional tax system there is some total W available and the government takes 10% of that in taxes. Then you end up with the government has 0.1 W and everyone else has 0.9 W. The government ends up with 1/10th of the money, and people's purchasing power is reduced by 10%. If instead of taking 10% of W, the government prints new money equal to 11.11...% of W, increasing the total money to 1.111... W, you end with the government has 0.111... W and everyone else has W. As with the conventional taxation case, the government ends up with 1/10th of the money, and people's purchasing power is reduced by 10%. It is just that the 10% reduction in purchasing power comes from prices rising instead of money being directly taken, but at the end of the day it means pretty much the same thing as far as how much you can now buy goes. The big plus for this approach is that it is ridiculously simple. No need for filings or dealing with collections and handling tax evaders. A big minus is that constant significant inflation is pretty damned annoying. Merchants have to keep updating prices, employers have to keep raising wages, and you have to keep dealing with larger and larger amounts. It also probably wouldn't reduce bureaucracy as much as you might hope. Many of the things governments currently encourage or discourage through tax deductions, tax credits, and tax penalties they would still want to do. They'd just have to change to grants and fees/fines. Still, it is an interesting idea to think about. [1] https://www.amazon.com/Federal-Income-Taxation-Concepts-Insights-dp-1640208240/dp/1640208240 https://www.amazon.com/Federal-Income-Taxation-Concepts-Insi...
betwixthewires 5y ago
It would make a huge difference in certain areas. First it would function as a flat tax, not a progressive one, assuming everyone holds dollars. But they don't, disproportionately wealthy people hedge against dollars with other assets and poor people don't, so practically it would function as a regressive tax. Unless poor people catch on and stop holding dollars. This would lead to a demand crisis with the currency. Remember, the only way a government can effectively dictate the currency of an economy is to create artificial demand for it by requiring taxes be paid in it. Without that, and with a highly inflationary currency, people will dodge "taxes" by simply not holding dollars. The relationship between government revenue and spending has a broken relationship, yes, but the conclusion is that at this point the government taxes to keep demand for the currency and to massage certain numbers, in particular the inflation rate, deficit and employment numbers, to maintain faith in the economic system. It doesn't actually need the money, but it does need to take the money.

tzs 5y ago

I remember that came up in my income tax class in law school. I don't remember if the professor suggested it as an interesting thing to consider, or if it was in some of the optional supplementary reading he recommended (if so, most likely Chirelstein's book on federal income taxation [1]). Suppose under a conventional tax system there is some total W available and the government takes 10% of that in taxes. Then you end up with the government has 0.1 W and everyone else has 0.9 W. The government ends up with 1/10th of the money, and people's purchasing power is reduced by 10%. If instead of taking 10% of W, the government prints new money equal to 11.11...% of W, increasing the total money to 1.111... W, you end with the government has 0.111... W and everyone else has W. As with the conventional taxation case, the government ends up with 1/10th of the money, and people's purchasing power is reduced by 10%. It is just that the 10% reduction in purchasing power comes from prices rising instead of money being directly taken, but at the end of the day it means pretty much the same thing as far as how much you can now buy goes. The big plus for this approach is that it is ridiculously simple. No need for filings or dealing with collections and handling tax evaders. A big minus is that constant significant inflation is pretty damned annoying. Merchants have to keep updating prices, employers have to keep raising wages, and you have to keep dealing with larger and larger amounts. It also probably wouldn't reduce bureaucracy as much as you might hope. Many of the things governments currently encourage or discourage through tax deductions, tax credits, and tax penalties they would still want to do. They'd just have to change to grants and fees/fines. Still, it is an interesting idea to think about. [1] https://www.amazon.com/Federal-Income-Taxation-Concepts-Insights-dp-1640208240/dp/1640208240 https://www.amazon.com/Federal-Income-Taxation-Concepts-Insi...

betwixthewires 5y ago

It would make a huge difference in certain areas. First it would function as a flat tax, not a progressive one, assuming everyone holds dollars. But they don't, disproportionately wealthy people hedge against dollars with other assets and poor people don't, so practically it would function as a regressive tax. Unless poor people catch on and stop holding dollars. This would lead to a demand crisis with the currency. Remember, the only way a government can effectively dictate the currency of an economy is to create artificial demand for it by requiring taxes be paid in it. Without that, and with a highly inflationary currency, people will dodge "taxes" by simply not holding dollars. The relationship between government revenue and spending has a broken relationship, yes, but the conclusion is that at this point the government taxes to keep demand for the currency and to massage certain numbers, in particular the inflation rate, deficit and employment numbers, to maintain faith in the economic system. It doesn't actually need the money, but it does need to take the money.