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

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.