Taxes don’t take dollars out of circulation. The government spends those tax dollars immediately after collecting them.
The only way the monetary base can be decreased is by the central bank unwinding its balance sheet.
Governments don't need to tax in order to spend, they are the issuers of the currency.
The purpose of taxation isn't to fund government operations, its to maintain demand for dollars.
Yes, taxation is one of the ways to create demand for an otherwise worthless fiat currency. So are legal tender laws. This still does not explain your assertion that the government destroys dollars through taxation.
Dollars enter the economy when the Federal Reserve creates reserves out of thin air and trades those new reserves for treasuries or other assets.
Dollars are destroyed when the Federal Reserve sells off assets on its balance sheet.
Taxation plays absolutely no role in this process. The Federal Reserve controls the monetary base. This would be true even if the federal government levied zero taxes.
> Governments don't need to tax in order to spend, they are the issuers of the currency.
Governments can earn revenue entirely from selling bonds or printing money - you're absolutely right that they don't need to tax in order to spend. However, this statement doesn't back up your assertion that governments destroy money through taxation.
To directly compare the two scenarios - taxation and burning money - private entities can no longer use the money and government can still spend as much as it wants subject to self imposed limitations. There is no functional difference.
No it's not. The effect of taxation is the same as theft. The thief gains and the victim loses, but the overall purchasing power of the dollar is unchanged. Destroying money would increase the purchasing power of the dollar.
> On the other side of the transaction, for the government, as you recognize, taxation presents no increase in buying power.
Taxation is one of three ways the government can earn revenue (taxation, selling bonds, or printing money), so yes it does increase buying power.
> To directly compare the two scenarios - taxation and burning money - private entities can no longer use the money and government can still spend as much as it wants subject to self imposed limitations. There is no functional difference.
Those two aren't comparable. Burning money would mean that nobody can spend that money. Money gained through taxation can still be spent (and is spent).
If the government collected taxes but never spent that money, I would concede that the net effect is the same as destroying money. But that clearly doesn't happen. The government DOES spend the money it garners through taxation. So the claim that taxation destroys money doesn't make any sense.
> The government DOES spend the money it garners through taxation
The government can spend the money regardless of how much it raises in taxes. Your taxes do not fund government spending.
Money is fungible. If government taxes $x and then spends $y, it is the same result as if it burns $x and then spends $y of newly printed money. In both cases the money supply changes by $y-$x
But you still haven't provided an argument as to why you believe taxation destroys money. Taxation merely transfers dollars from one entity to another. It doesn't change the amount of base money in existence.