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.
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.
There’s a 3rd reason: to modify behavior e.g. tobacco duty, carbon tax etc.
Yes I’d agree with that. Taxes can be imposed for social reasons rather than simply economic reasons.
Another point – tax can be for benefits used when there is a government monopoly. For example a Land Value Tax for the right to exclude others from land and fuel duty is effectively rent for public roads – it lets you drive a certain no of miles. Without it we would have twice the number of cars and more pollution, it wouldn’t save any money, despite endless moaning. Another example is selling parts of the frequency spectrum.
Reblogged this on My WordPress blog.