Why do we need taxes?

deonb

deonb

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deonb
I don't want this to be a partisan or political discussion - It doesn't matter for the purposes of this discussion whether you think the tax rate should be 1% or 100%.

But from a purely technical perspective, why do we need taxes?

The government has control over the currency - it can just issue itself whatever money it needs for operations. The economic effect of that is of course inflation, but why is that bad?

Inflation is effectively a 'tax on savings', which means:

a) It's progressive.
b) It is infinitely simpler to implement. No IRS needed. No tax forms. No filing.
c) No way to commit tax fraud.
d) It's global.
e) It dilutes existing debt.
f) It stimulates the economy. (The way to reduce your taxes is by spending your money sooner.)

The US's approximate net worth is around $123 trillion, so if the government writes itself a $5 trillion check every year, it will result in around 4% (extra) inflation per year.

Obviously this would require a GDP growth of more than 4% per year, otherwise it devalues the currency, and effectively anything under 4% becomes negative growth. But 4% growth without taxation should be achievable.

What are the (technical) downsides to doing this?
 
Well it's a pretty crappy thing to do to people who have carefully saved their money towards retirement for one thing. For another thing there would be some pretty strong international consequences for us diluting our currency. I'm sure I can think of a few more reasons....
 
Did you really think we want those laws observed?" said Dr. Ferris. "We want them to be broken. You'd better get it straight that it's not a bunch of boy scouts you're up against... We're after power and we mean it... There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What's there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced or objectively interpreted – and you create a nation of law-breakers – and then you cash in on guilt. Now that's the system, Mr. Reardon, that's the game, and once you understand it, you'll be much easier to deal with."

Taken from Atlas Shrugged.
 
This thread is being reopened. As the OP said, he doesn't want this to be a partisan or political discussion. Rather this is an economic question. Let's keep it that way. We did have to go through and delete posts that were heading down the argumentative path.
 
So, where do we go from here?
 
Well, I will start. I think we need to have a broader income tax base than we have. Both sides agree with that by the way. Nobody wants to strangle poor people with unbearable taxes, nor do I, but I think we need to have more people with a vested interest in how our money is spent.
 
The currency devaluation caused by the government printing what it needs would create a death spiral. The central bank will push more notes into circulation. Those notes will be used by people facing artificial inflation. When the government needs more they print more and pay "more", but the more is also devalued and the inflation continues.

As hideous as it sounds, taxing the people may well be the fairest way to generate revenue for the government. <- subject to many constraints of course

And unfortunately there is no government without politics.

Ravioli out!
 
Isn't the growth rate that is aimed for about 2% year over year?

So in the system of the government writing checks to itself, that would be 6% a year inflation. That'd be a little much methinks.
 
Ravioli said:
The currency devaluation caused by the government printing what it needs would create a death spiral. The central bank will push more notes into circulation. Those notes will be used by people facing artificial inflation. When the government needs more they print more and pay "more", but the more is also devalued and the inflation continues.

As hideous as it sounds, taxing the people may well be the fairest way to generate revenue for the government. <- subject to many constraints of course

And unfortunately there is no government without politics.

Ravioli out!
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That's the biggest issue as I see it. The Confederacy basically did that during the Civil War - just printed more money to pay for whatever was needed to fight. The currency got extremely devalued extremely quickly. It's not worked out well historically.

The other issue is that if you can just print money to pay for it, then you have even less incentive to hold back on services, free payments, etc. So I suspect we'd see those expand tremendously, making the death spiral even worse and even faster.

So, I think we do need taxes, even though I don't like paying them.
 
Well, simply printing more money ignores the giant problem of the USA being part of a world economy, and would basically make the currency worthless. If you're going to have a fiat currency, it needs to be backed by something of intrinsic value. If you buy a single loaf of bread for $1 and cut it into 20 slices to resell them, the market value is likely equal to $.05/slice and you end up no better for cutting it up.

As far as why we need taxes . . . Because the government provides some essential services which can't operate without revenue. The government also provides a ton of non-essential services which require tax dollars to fund as well, including the never-ending increase in the size of those services and their budgets. I don't mind paying taxes for a small handful of government services (military, national parks, etc.), but I don't consider government subsidies to private corporations a necessity. Make everyone pay 10% or so, no matter what, and force the Federal government to live on that amount, whatever it may be. Defense spending would be dramatically reduced, which is desperately needed. Tax base grows, everyone pays some amount, no deductions or tax credits like mortgage interest or donations/state taxes.


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We've been devaluing our currency for a while now by maintaining the lowest possible interest rates. This keeps large amounts of cash in the system.

It's forming bubbles again in housing and a number of other things.

That's another side effect of the whole idea. It drives prices up on durable goods.

If you're paying attention and make sure your income is growing at a rate that meets or exceeds inflation you might be able to keep up. Most people don't. They lose purchasing power every year they don't get a raise.
 
Cooter said:
All taxation? Please explain, I'm interested.
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He's going all-in on the premise that you taxes are stolen from the people because compulsory taxes are a violation of personal property rights. I get the idea behind the statement (mostly linked to the non-aggression principle), but there is some level of taxation that is necessary to provide basic services (police, fire, etc.). Most people don't want certain things to become privatized so that there's a decision over whether one has "paid up" before they come put the fire out at your house.
 
This is quasi political (please give me a little latitude)

There is a theory of taxation that the smallest entity (Village, Town, City, County, or State) collects all the tax and pays up the chain accordingly. In this model the Federal government gets enough to do it's constitutional duties and has no control of the the localities spending.

The idea is that if you don't like how your taxes are spent "close to home" you can move.

The antithesis says that people are not as mobile as they would need to be and that would cause some unfairness.

Then there is reality... right now it's tax at the top and rain it down randomly and the unfairness is obvious.
 
SoonerAviator said:
He's going all-in on the premise that you taxes are stolen from the people because compulsory taxes are a violation of personal property rights. I get the idea behind the statement (mostly linked to the non-aggression principle), but there is some level of taxation that is necessary to provide basic services (police, fire, etc.). Most people don't want certain things to become privatized so that there's a decision over whether one has "paid up" before they come put the fire out at your house.
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We used to have private fire insurance and services... folks thought it'd be wiser to cover everything. I'm very fiscally conservative, but those basic services need to exist, and taxes are the only sane way to fund them. Even if we could get all of those services volunteer-based (volunteer fire/ems has worked successfully in some areas, but I don't see Chicago or New York surviving on volunteers alone), there'd still be consumables that need funding... so it's a necessary evil.

Also, our elected leaders do need some kind of paycheck. Where does that money come from? And so on.
 
deonb said:
I don't want this to be a partisan or political discussion - It doesn't matter for the purposes of this discussion whether you think the tax rate should be 1% or 100%.

But from a purely technical perspective, why do we need taxes?

The government has control over the currency - it can just issue itself whatever money it needs for operations. The economic effect of that is of course inflation, but why is that bad?

Inflation is effectively a 'tax on savings', which means:

a) It's progressive.
b) It is infinitely simpler to implement. No IRS needed. No tax forms. No filing.
c) No way to commit tax fraud.
d) It's global.
e) It dilutes existing debt.
f) It stimulates the economy. (The way to reduce your taxes is by spending your money sooner.)

The US's approximate net worth is around $123 trillion, so if the government writes itself a $5 trillion check every year, it will result in around 4% (extra) inflation per year.

Obviously this would require a GDP growth of more than 4% per year, otherwise it devalues the currency, and effectively anything under 4% becomes negative growth. But 4% growth without taxation should be achievable.

What are the (technical) downsides to doing this?
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That will eventually crash and burn like any pyramid scheme. Other terms that come to mind are "high speed wobble" and "pilot induced oscillation."
 
We do have a major problem with currency circulation in this country. (well, honestly in most countries) Taxes are levied in almost every situation in which money moves from one party to another. So the more currency circulates through the economy the more tax revenue is generated. Individuals and corporate entities who have the means know this. To remove their money from circulation means they will reduce their tax burden. This is why you see so much US currency in offshore structures, often layered in offshore trusts or personal holding companies.

The amount of US currency kept offshore is in the trillions, much of it owned by US parties but due to the structure the assets are not subject to tax (or at least not as much). What results is that people without means who are constantly cycling cash through the system are bearing a larger tax burden per capita than those with means utilizing offshore structures.

Repatriating those funds and making them taxable for both individuals and corporations would go a long way in shoring up revenue gaps in our federal budget.
 
mkosmo said:
We used to have private fire insurance and services... folks thought it'd be wiser to cover everything. I'm very fiscally conservative, but those basic services need to exist, and taxes are the only sane way to fund them. Even if we could get all of those services volunteer-based (volunteer fire/ems has worked successfully in some areas, but I don't see Chicago or New York surviving on volunteers alone), there'd still be consumables that need funding... so it's a necessary evil.

Also, our elected leaders do need some kind of paycheck. Where does that money come from? And so on.
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Not to mention, some of those private fire brigades would purposefully let a property burn if there was some sort of conflict with the property owner.
 
labbadabba said:
Not to mention, some of those private fire brigades would purposefully let a property burn if there was some sort of conflict with the property owner.
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Yep... and what a lovely feeling it'd be to catch your neighbor's house on fire and your brigade let them burn to the ground since they wouldn't (or couldn't at that very moment) pay the fee. Something like that could cause a Hatfield-McCoy scale feud all said and done... if everybody landed back anywhere near their feet.

Back then there were no fire hydrants or universal hydrant access, either, so good luck with any serious fire requiring much water. They could only truck in so much water.
 
labbadabba said:
ATC...
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To be fair, it's been proven pretty well that private ATC is capable of functioning, at least. Canada's system isn't so terrible we would die with it. I do still prefer our system, though... and even with a TC style system, there is some required regulatory oversight that'd require funding, still.
 
labbadabba said:
ATC...
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ATC could be funded through user fees, the bulk of which would be paid for by the air carriers and passed along through ticket prices. The government doesn't need to be in that business, but it does help with having a pretty much universal application of procedures/regulation versus having a dozen private companies running the US ATC system. Same goes for highways/freeways . . . they can convert them to user-fee based like a toll road, so that those who use the roads more, are more burdened by the cost of wear/tear.
 
Ravioli said:
This is quasi political (please give me a little latitude)

There is a theory of taxation that the smallest entity (Village, Town, City, County, or State) collects all the tax and pays up the chain accordingly. In this model the Federal government gets enough to do it's constitutional duties and has no control of the the localities spending.

The idea is that if you don't like how your taxes are spent "close to home" you can move.

The antithesis says that people are not as mobile as they would need to be and that would cause some unfairness.

Then there is reality... right now it's tax at the top and rain it down randomly and the unfairness is obvious.
Click to expand...

We already get it to some degree. We end up having federal, state, and local taxes (at least I have everywhere I've lived). The federal taxes are the highest dollar amount, state 2nd, and local lowest. Local taxes mostly just being property taxes.

The local taxes (and also local nickel-and-diming) where I live are pretty high, but not as high as they could be if we moved a little further away. Since we moved here, we had the option to choose where we lived and accepted the higher taxes here because there were other things we liked (better roads, better atmosphere and personalities, the type of property we could buy, proximity to work, etc.). Each county has the ability to make those changes.

But I agree with the counterpoint that a lot of people aren't as mobile as they would perhaps want to be for various reasons, be it work, family, etc. Now I think most of those come down to personal choices given the number of times I've moved by choice, but there are some real human considerations that come into play. A lot of people won't (or feel they can't) move away from family, for example. This especially becomes the case in divorces where both parents end up tied to a particular geographic location.
 
The bottom line is we need them because the Federal Government needs to remain in power. If it were not a strong power, our country would fall prey to invasion by another power. That's the long and short of it. In theory government can be funded by voluntary donations. but voluntary donations are directly associated with how much esteem the donor holds for the entity, and by nature people tend to hold government in low esteem because it is the only entity legally allowed to use violence against them.
 
Several years ago there was a story that made the news because the local fire department let a property burn to the ground because they had failed to pay their fire surcharge.

The area voted for lower taxes and a per property surcharge. The fire department responded and made sure the neighbor's homes were protected since they had paid up and watched the one that hadn't paid burn.

If I recall correctly, the township decided reinstating the tax was a better way to go after that.

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ircphoenix said:
Several years ago there was a story that made the news because the local fire department let a property burn to the ground because they had failed to pay their fire surcharge.

The area voted for lower taxes and a per property surcharge. The fire department responded and made sure the neighbor's homes were protected since they had paid up and watched the one that hadn't paid burn.

If I recall correctly, the township decided reinstating the tax was a better way to go after that.

Sent from my SM-G935T using Tapatalk
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https://usnews.newsvine.com/_news/2011/12/07/9272989-firefighters-let-home-burn-over-75-fee-again
 
deonb said:
But from a purely technical perspective, why do we need taxes? The government has control over the currency - it can just issue itself whatever money it needs for operations. The economic effect of that is of course inflation, but why is that bad?
Click to expand...

Currency only has intrinsic value. It requires a combination of real wealth (productivity or GDP) and faith to function properly. Just printing money with no productivity or faith to back it up produces a currency collapse. The best example is Germany after WWI. They tried to print money to pay war debt and it created hyper inflation that collapsed the country and led to Hitler's rise to power.

Taxation is a siphoning off of the private sector's productivity to pay for public sector services. The rub is how much siphoning and how much should government cost (how big and what do we want government doing).
 
I used to live in the county and was served by a volunteer fire dept with subscription service. It was $120/yr.
 
SoonerAviator said:
ATC could be funded through user fees, the bulk of which would be paid for by the air carriers and passed along through ticket prices. The government doesn't need to be in that business, but it does help with having a pretty much universal application of procedures/regulation versus having a dozen private companies running the US ATC system. Same goes for highways/freeways . . . they can convert them to user-fee based like a toll road, so that those who use the roads more, are more burdened by the cost of wear/tear.
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In actuality the ATC system is pretty Balkanized.
 
Ted DuPuis said:
That's the biggest issue as I see it. The Confederacy basically did that during the Civil War - just printed more money to pay for whatever was needed to fight. The currency got extremely devalued extremely quickly. It's not worked out well historically.

The other issue is that if you can just print money to pay for it, then you have even less incentive to hold back on services, free payments, etc. So I suspect we'd see those expand tremendously, making the death spiral even worse and even faster.
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I agree that is a problem if you over-devalue. Obviously I'm not advocating a Zimbabwe / Mugabe scenario here.

But if your devaluation keeps at GDP only, then it shouldn't be a problem. That would be currency equivalent of a 'balanced budget amendment'.
 
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denverpilot said:
We've been devaluing our currency for a while now by maintaining the lowest possible interest rates. This keeps large amounts of cash in the system.

It's forming bubbles again in housing and a number of other things.
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Yes, agree - that's not a good thing.

denverpilot said:
That's another side effect of the whole idea. It drives prices up on durable goods.

If you're paying attention and make sure your income is growing at a rate that meets or exceeds inflation you might be able to keep up. Most people don't. They lose purchasing power every year they don't get a raise.
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I grew up in a country (South Africa) that had a 10% inflation for decades. It's just something you learn to live with. e.g.

a) Everybody expects a 10% 'inflationary increase' per year, and for the most part, everybody gets that. More than that is a 'merrit' increase. If you get less than 10% you're effectively getting a salary cut. And people will leave very quickly if that happens.
b) Interest rate on savings (even short term) is close to 10%. Heck I had a credit card once that would pay me 11% to carry a debit balance on the card.
c) On the flip side, Mortgage & car interest is around 13% to 20%. Credit cards can get up to 30%.
d) Property value increase at just over 10% per year.

When the inflation rate is high enough everybody just kind'a compensates for it. It's part of life and very visible. 10% per year means every ~9 years everything doubles in nominal value (or halves in the case of debt). As long as you don't stuff money under your mattress, it's fine.

On the other hand, our kind-a-but-not-really 2% inflation is largely ignored by the public, which DOES mean a decrease in spending power year after year.
 
What about a flat 18% sales tax across the board. Eliminate state sales taxes. This way the wealthy are paying their fair share on their high ticket purchases, and the less fortunate are paying less on taxes.. right now we are double and triple dipped on taxes. Fed Income tax, state income tax(if you live somewhere that has it), sales/use tax, and property taxes
 
Rushie said:
The bottom line is we need them because the Federal Government needs to remain in power. If it were not a strong power, our country would fall prey to invasion by another power. That's the long and short of it. In theory government can be funded by voluntary donations. but voluntary donations are directly associated with how much esteem the donor holds for the entity, and by nature people tend to hold government in low esteem because it is the only entity legally allowed to use violence against them.
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Not arguing against funding the government here at all. I was questioning why it needs to be funded by taxes instead of using a combination of inflation and growth as the instrument for generating funds.

It will still cost the citizens the same amount of money - some more, some less of course. And it will still generate to the government the same amount of funds (yes, literally everybody disagrees on what exactly that number should be, but that's irrelevant here).

But inflation is significantly simpler to implement than taxes.
 
Communist countries have no taxes. The government owns everything and people get paid all the same. Everyone is equal. Everyone is poor.

All but two of the many communist countries abandoned communism and adopted western style capitalism with some government safety net welfare system. It isnt just the economics. Its the idea of freedom. Freedom to choose. Freedom of expression.

The US is the wealthiest country in the world along with Western Europe and Japan. Its working. All these countries that are wealthy have taxes. All free countries have taxes. That is reality. Of course you have to have taxes to pay for the things government does. Things like build airports.

We tried a system of feudal enterprise where every road was a toll road and you had to pay to have your kids educated. Didnt work well. Kings and Popes, went away with the Renaissance. Separation of Church and State arrived. Everyone wants what the western countries have, except a few that are on the extreme right or extreme left. Best place is in the middle, a mix of capitalism and government. As much freedom as possible. Thats what works!

We can elect leaders that move the needle to right or left, but we keep the capitalist system we have and lets face it, we need to provide for those that cant take care of themselves too, don't we?
 
It's been interesting to watch the state supreme court vs state executive vs state legislative branch fight here in KS over school spending and local school district funding.

KS has 105 counties, and almost all of them are rural...almost. And, of the ones that are not, the one where I live is more wealthy than the the others.

The state constitution says the state must fund school districts well enough for students to meet various assessment tests: that is the baseline. Local districts are allowed to raise local money to supplement their schools, so the schools in my county will have the latest and greatest widgets and the schools in the neighboring county will not.

Lawsuits have been going on for years, and the state supreme court keeps getting involved. The court has ruled several times that the state has created a situation where the state funding is not adequate and the state is pushing the funding responsibility on to the local districts to raise their own money. So the court has ordered the state to spend more on schools - districts are still free to raise extra cash. What the court hasn't done is say how much the state needs to spend, other than "more". So it keeps going back to court. The counties that are able to raise extra cash are worried that the state will short-change them now, because they have the ability to make up for the shortfall.

It's been a big mess.
 
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