Daily Archives: March 19, 2014

What the Government don’t want you to know about taxes! But it’s easy enough to work out anyway.

Taxation is simply the process of governments collecting back some of their own IOUs , what we call money. They have earlier  created and spent them into the economy. If they hadn’t done that no-one would have ever been able to pay any taxes, at least  using government IOUs, for the simple reason that there would  never have been any to pay taxes with.

So why do governments tax? After all it would be much easier to just write out new IOUs as needed. They generally just tear up their old IOUs when they receive them back, just like you or I would.

Two reasons:

1) Taxation creates a demand for government IOUs. That gives them a value. It makes the $ and the £ worth something.

2) Taxation reduces our spending power. This is unfortunately necessary to prevent inflation.

Taxation is nothing to do with raising funds for government spending in a country which issues its own currency. If governments tell you they need to have a high level of taxation, when there is no inflationary problem, they aren’t being truthful.

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