Taxes are unnecessary

As I reflect upon our country’s fiscal policy, it has become increasingly clear to me that there is no good reason for the federal government to collect taxes.  In fact, it seems to me that taxes are completely unnecessary.

This wasn’t always true of course.  For the vast majority of civilization’s history, gold and silver were its money.  Gold was particularly well suited for the job, given it’s scarcity.  In order for governments to function, they needed money.  And gold was money.  To get the gold they needed, governments taxed their citizens.

Governments could, of course, issue paper money–but the paper money was merely a receipt for gold on deposit.  The holder of the paper had the right to exchange it for gold.

Now all of that is just history, of course.  The “money” we circulate in this country is mere paper, denominated “Federal Reserve Notes.”  It is still just an IOU (a “note”), but it is no longer supported by gold or silver.  Because the issuance of these Federal Reserve Notes isn’t limited by the amount of gold the government has, or by anything else for that matter, their supply is unlimited and the government can print as many of them as it desires.

The proof of this is seen in the way the federal government has operated over the last ten years or so.  Consider this year:  the federal government will bring in about $2.29 trillion in tax revenue.

chart_federal_tax_2.gif

But the federal government will spend at least $3.66 trillion.

chart_govt_spending_2.gif

In truth, these estimates are both generous.  It is highly unlikely government revenues will be that high, or government spending that low.  But even with these optimistic numbers the government will come up nearly $2 trillion short.  So how will it make up the shortfall?  By creating more money.  It does this technically by first creating new debt, but the end result is an increase in the amount of “money”.  That is the magic of fiat money, and why spendthrift governments love it so much–they can print up an unlimited amount of it.

Which brings me back to my point about taxes.  If our government can print up 2 trillion extra dollars this year, does it really need to take a trillion from us in income taxes?  Why not just print up 3 trillion and let us keep our incomes?  After all, we’re just giving them back the same intrinsically worthless paper that they are printing at will.

The answer is that in a scheme like this, there really is no reason to tax the citizens.  Because our government no longer chooses to pretend that US dollars are scarce and limited in amount, there is no reason to continue to shuffle them around between the citizens and the tax collectors.

Of course there are some good reasons why the federal government will want to keep taxing incomes.  Tax policy is government’s favorite mechanism for social engineering.  If the social engineers want to encourage or promote something, they create a “tax incentive” for it.  If they want to discourage something, they tax it.  (Of course it’s stupid to make revenue dependent upon activities that we’re hoping to discourage, but that rant is for another day.)  Tax policy also permits the political party in power to reward its consitituents, and punish its opponents, by shifting marginal rates around.  This little game of wealth redistribution is a political patronage plum that is too attractive to resist. Finally, the principal way fiat money retains any value is because the government can require that taxes be paid with it.

But they don’t really need our money.  As their actions make plain, they can print all they need, whether they take any from us or not.  And at the rate they’re going, what’s another trillion going to matter?

But alas, by April 15 we’ll all pony up a substantial chunk of the fruits of last year’s labor, to a government that will waste three times that amount before our next payment is due.

But this game won’t last much longer.

 

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4 comments on “Taxes are unnecessary

  1. Rachel says:

    Well said, Bill! Thanks for the good information. I’m so glad God doesn’t operate like our screwed-up human governments. Their greed and lust for power and control is so transparent.

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  2. Ralph says:

    Bill – good points on the political uses of taxation, the social engineering and political power aspect of which certainly explain why we never got the flat tax that makes much more sense. Can’t concur on your (hyperbolic) recommendation to print what’s needed instead of collecting taxes – the result would be what we will see from this current drill: rampant inflation. I hesitate to comment upon economics, as it is a weak subject for me. But one thing that comes across loud and clear: increase the money supply, inflation follows. Gonna get ugly when that new money gets traction… Cheers – Ralph

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  3. Joeywahoo says:

    Amen Rachel. I prefer the upside down world!

    Hey Ralph. The post is satire of course. As a deficit hawk, I certainly don’t recommend increasing the deficit by another trillion bucks. The point is that if deficits don’t matter, then neither do taxes. Given the way our government and the Fed is functioning, there is absolutely no reason to go through the charade of federal taxation. The pointlessness and stupidity of it is almost beyond belief. You are correct about inflation. The seeds for the destruction of our currency have been sown. And inflation is the most regressive of taxes, hitting the poor, the prudent and those on fixed incomes the hardest. These policies are unconcionable. And by the way, nearly everyone would agree that collecting no income tax this year (without a corresponding decrease in federal spending) would put a trillion extra dollars into the economy, with devastating inflationary effects. Well that is the amount Mr. Bernanke created out of thin air last week through his quantitative easing. Why not just let us keep our incomes instead? Either way $1 trillion worth of inflation was just unloaded on the public. I think putting it in those terms makes the absurdity of it all more apparent. Thanks for reading and commenting my old friend.

    peace
    Bill

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  4. Tom Gaitens says:

    Perfectly perfect!

    I love this analysis1

    Like

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