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