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Comment by throwawayboise | Hacker News Reader

I got downvoted last time I said this, but with fiat money there is no reason for anyone to pay income taxes. Obviously there is no correlation between income tax revenue and government spending. They just create the money they need, the never-to-be-paid-off deficit grows, the value of the dollar shrinks, and we move on.

Taxes serve as a means of coercing the behavior of the citizens, in the sense that certain things are rewarded with tax deductions or credits, and other things are punitively taxed. That is the reason they still exist.

We should just do away with taxes. People's work and business activity, conducted in terms of US dollars, creates value. The government takes some of that value by simply creating more dollars. Why do we need a huge, complicated taxing bureaucracy in the middle of it?

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If there was no taxation, there would be no "compelling" reason for anyone to keep using the currency (which would be also losing value directly by the increase in money supply from government spending). In other words, even under MMT taxation is necessary to limit inflation.

Not sure why you’re getting downvoted.

Having to pay taxes in US dollars or go to jail is a strong incentive for people to continue their business operations with US dollars.

Is that 100% true though?

Some estimate maybe only 10% of Chinese individuals pay tax. Individual taxes account only about 8% of China's tax revenues.

Bulk of the tax burden comes from consumption and business.

I'm all for that. If I make a million dollars but I live frugally and invest my money, why should I pay 50%?

Sure the argument for individual taxes are about social wellness but how do you justify that when businesses are avoiding billions of tax legally.

Make no sense.

That's fair enough, I was more referring to overall taxation in the economy creating a stable demand for the currency, it doesn't have to be levied on personal income specifically.

Because you likely made a million dollars using the benefits of the government. I.e. you had an educated workforce who drove on government roads to get to the factory, you were able to protect your ideas via copyright with the threat of government enforcement, etc.

Nobody gets rich by themselves unless they are a pirate.

> Nobody gets rich by themselves unless they are a pirate.

Is your claim that pirates generate economic value even in the absence of other people?

Or is it a claim that pirates lived in anarchical democratic communities whose thriving in the absence of government exemplifies Taleb's idea of anti-fragile?

Sure, how about they can send me a bill for my share of roads and educated workforce (granted, this could be provided much cheaper via selective immigration while the US still has the leverage of being attractive to immigrants)? I'd like to not pay my share of e.g. invading far-away countries, or supporting those not paying taxes, or many other such things.

"If there was no taxation, there would be no "compelling" reason for anyone to keep using the currency ..."

This is correct.

Remember: no matter what you have and no matter how valuable it is - you cannot pay your taxes with anything but your local currency. This is not a coincidence.

You cannot pay your taxes with gold bricks or with diamonds or with the Mona Lisa. You cannot trade highly liquid stocks or valuable real estate. You must sell those things to buy dollars.

It will never be otherwise. The point of the dollars is to have something that you must buy in order to pay your tax dues.

This actually expands further than taxes and expands to all government services. Water bill, inspections, sewer. Those institutions will always only accept dollars, and that backstops the value.

Thought experiment: rampant inflation happens and the dollar inflates 10x. My $1M house is now worth $10M. It's reassessed (because I don't live in California) and now my tax bill is suddenly $100,000 / year instead of $10,000! I need to acquire $100,000 or I go to jail. So I start selling assets into dollars. This deflates the dollar. Everyone does this simultaneously and the dollar goes back to its natural value.

I believe all US debts to private creditors can be settled in dollars. Any debtor can take a creditor to court if the creditor tries to demand payment in other forms.

This is effectively arguing that because the eventual end state is the same, it doesn't matter what path we take to get there. But that's not true, it matters a lot, and there's a universe of externalities to what you suggest.

Deciding we're just not going to collect taxes anymore and that we'll pay off debts by printing out extra dollars would have enormous effects on bond prices, international trade, the US dollar benefiting from being the premiere currency of the world, etc.

Stupid idea.

Taxes remove money from circulation, helping to control the inflation caused by creating new money.

So your thesis is that the government just sits on the tax money, rather than using it to purchase goods and services as fast as it comes in?

No it's not a thesis, it's how modern government (and accounting) works.

Back in the day when money was a hard asset that could not be easily created (copper, silver, gold), you paid your coin dues to the regional king, and in turn he paid for security/services over the land. That was taxation.

We eventually stored our precious metal in banks, and traded paper coupons representing those metals. We formed governments, who decided one day to revoke the ability for people to redeem their paper coupons for their gold. Now we still had to pay taxes with paper money, but it was no longer attached to gold's value.

The government/central bank now had the ability to create money at will, and does not physically need to rely on tax dollars coming in: it can create the money, pay for services, and collect taxes later. If it spends more than it collects, it has a deficit. This deficit can be funded by creating new money (in turn devaluing it, aka inflation), or by borrowing money that already exists (raising money through bonds).

So every year, when you wire your tax money to the government, bits of data are simply written to a database, indicating money removed from your account. There is no physical transfer of assets to the government; remember, the money that was paper is now digital. Money is numbers in a database.

Management of money at the macro level is now just balancing accounting inflows and outflows, surplus and deficit. Debt can be infinitely be paid off (create more money) at the consequence of devaluation of course.

> So every year, when you wire your tax money to the government, bits of data are simply written to a database, indicating money removed from your account. There is no physical transfer of assets to the government

But there is.The government uses the tax money (plus extra money that they create out of nothing) to buy goods and services. Lots of them. Physical assets such as roads. F-35 fighters. Aircraft carriers. Schools. Services such as file clerks. Accountants. Public health doctors.

All of those things represent increased demand, which in turn result in net price increases (i.e., inflation). The money goes right back into circulation, rather than being removed from it, as you claim.

Yes, the value replacement is there. And yes, tax dollars help "pay" for services.

What I mean by "physical transfer" is literally that if you mailed a brick of cash to the federal government, they would just burn it.

Taxation = money out of the system

Money printing/spending = money into the system

The difference causes inflation or deflation.

When, in recent memory, has the amount taken out in taxes exceeded the amount spent?

Ever?

You are arguing a hypothetical case where the government takes in more in taxes than it spends, thus creating a trend toward deflation.

But that never happens. Like, ever.

The government could spend less and tax more, but this is politically and socially unpopular, so unlikely to happen.

But its not like its not possible. Some countries have fiscal surpluses. Canada had a surplus in 2018 [1].

I don't see what I'm arguing, and none of it is hypothetical, this is just basic economic theory. It is possible for government spending to be financed by borrowing rather than money creation, resulting in no change in the monetary base. Those mechanics I'm less educated about.

[1] https://www150.statcan.gc.ca/n1/daily-quotidien/201118/dq201...

Under Modern Monetary Theory, it doesn't sit on the tax money, it burns it. The money just disappears into a black hole.

And it can invent money from the same black hole, but they don't have to balance. The money spent and money taken in are completely independent. That's the joy of running your own currency.

The downside of running your own currency is that it will inflate. So you have to take some out of the system. Which you can do in any number of ways, but the most obvious is taxation: you take money and burn it. Not the physical notes, obviously, but rather the line in an account book somewhere.

We've actually been doing something a lot like that for a long time. The US government hasn't had balanced books in forever, and consumer inflation during most of that time has been low. It may be doing messed up stuff to the asset markets and may be reaching its limits, but MMT prescribes a smooth slowing of the market rather than a crash.

Some economists suggest just doing away with the fig leaf and stop trying to balance the budget, but rather just keep an eye on inflation and set policy (both tax and spend) accordingly. That's considered a fringe movement at the moment, but even mainstream economists will say that it's not as far removed from reality as you'd expect from a comparison to a non-currency-making entity like a person or business.

Yeah, I understand how it works. But you yourself admit that the government ALWAYS spends more than it takes in, thus ALWAYS trending toward inflation, not deflation.

Well, conventional monetary theory also calls for small amounts of inflation and avoiding deflation.

But yeah, the US government has invented so much money in the last decade that they're worried about why there isn't more inflation than we've seen.

Taxes are hugely complicated because they are trying to do two different things at the same time: combat inflation and enact policy.

If we just printed dollars to pay for all gov expenses, we would probably have a lot of inflation. Inflation hits all holders of dollars equally (on a percentage basis). Taxes allow us to spread the burden of shared costs (like infrastructure) in a different way.

Additionally, taxes act as a feedback mechanism on behavior. We can incentivize some things by giving tax credits for doing them, and we can disincentivize other things by charging higher taxes on them.

Balancing these two effects of taxes: inflation and policy, is hard. If the gov. wants to encourage everyone to buy an electric vehicle, we could give a big tax incentive to do so, but that reduces overall taxes, which means more inflation. To combat this, we have to print fewer new dollars or increase taxes somewhere else.

This is one of the big challenges for the Federal Reserve, they don't get to pick how much tax is collected, just how many new dollars are printed. If congress doesn't collect enough tax, there's only so much the Fed can do to balance things.

People would move their income streams into non-$ denominations, keep their bank accounts in foreign currencies and so on to avoid the inflationary effect.

Further, it would be a regressive tax, not even flat, in practice: poor people are more reliant on cash and short term income which can't be diverted to a different currency. And even if high income people couldn't switch currency, flat taxes are already regressive on a marginal utility basis. Every extra dollar of income or wealth has less utility, because you no longer need to cover essentials like shelter and food, but are spending on entertainment, higher and higher quality, or Veblen goods, etc.

The feds could be funded by inflation as you describe, in fact they already are to a large extent. State and local govs that do not print money should be funded by land value tax, as it is the least bad option.

https://en.wikipedia.org/wiki/Land_value_tax

>> with fiat money there is no reason for anyone to pay income taxes

Well you immediately give one reason people pay income taxes, so government can control behavior. Another is that the current income tax regulations provide the government with a justification for massive invasions of your privacy. These are both compelling features of an income tax.

Printing the money would create uncertainty - how much will the government print? How much will inflation be? How will the dollar fluctuate against currencies of trading partners? Uncertainty kills business and this plan would hurt every aspect of trade and manufacturing.

How is that hypothetical different from what exists now?

The Fed has a 2% inflation target (used to be their only stated target, now they balance unemployment in their target numbers as well). This allows companies to plan ahead knowing with a fair degree of accuracy the expected change in purchasing power year to year.

That sounds like the answer to your own question, no?

The root comment proposes that "They just create the money they need, the never-to-be-paid-off deficit grows, the value of the dollar shrinks, and we move on." How is that incompatible with an inflation target that "allows companies to plan ahead?"

No, not at all. How much will they print? 23% of GDP? 18% of GDP? That’s $1T difference in cash. How will that affect inflation? Who knows, no one can predict that. A shrinking dollar is bad for imports and America has a huge trade deficit right now, it would cripple international trade.

Tough luck that until some months ago, USA was a net energy exporter. Definitely do not want to ask why energy exports flipped to energy imports. Recall that a few days ago Joe asked Saudis to help out by pumping more oil.

I guess it is all academic since inflation acts as a tax on savings. Going to get taxed one way or another.

Congress created the private contactor known as Federal Reserve with mandate for employment and stable prices. 2% inflation, which violates the mandate and Congress does not care, compounded every year is why purchasing power since 1913 is aiming for the dirt.

You just need to account for jurisdictional apportionment. Only the fed can print money. How does that get allocated? Sales tax and property taxes, which presumably would continue to exist in under this scheme, would do some I suppose. Would there still be jurisdictional income taxes?

Taxes create civilization and they power most of the things we love about society... roads, infrastructure, retirement, keeping the environment protected, keeping food safe, keeping restaurants from giving us all rat poop, etc etc... the list is very long. I never understood people who don't like taxes. I totally get not liking how much they are or where the spending is going, but they literally are civilization.

To your 2nd point, money is psychological, that model might happen one day but right now that is not something lenders can get behind. Although you could argue MMT and the current system is headed that way. Taxes are also psychological to help you feel like you are part of the system, and not outside of it.

This is reversing cause and effect. The population creates a civilization that creates wealth for the government to tax.

I would argue you are reversing it.

The people create government which creates a platform that creates greater wealth, which the government gets a percentage of through taxes to further improve the platform... repeat.. repeat...

> Taxes create civilization and they power most of the things we love about society... roads, infrastructure, retirement, keeping the environment protected, keeping food safe, keeping restaurants from giving us all rat poop, etc etc...

If those things are important, citizens would fund these with or without government coercion through violence. Keeping food and restaurants safe is a function of a free market -- nobody would buy from a business that routinely tries to poison their patrons. These arguments are old and they don't hold up.

Hah nah, that just isn't true, look at history at any point. By enforcing regulations to ensure clean restaurants and food, that market has grown so much bigger because people trust eating out by default.Don't overestimate the power of trust in growing a platform. If AirBNB poisoned you every 6th stay, how long would you use them?

Sometimes I am stunned with how libertarian some of these comments are. Government is just us, and it is a amazing because it isn't free market. The free market only works when given strong bumer rails to stay between, otherwise it starts taking advantage of the system and causing environmental damage, damage to labor, etc...

The free market can't do a lot of things. It can't provide high quality health care, it can't provide economic protections, it doesn't provide protections for labor, so many things.

I don't think you read his post very closely. His first point was that the government has the ability to print money to pay for what it needs which is effectively "taxing" everyone equally across the board (which we feel as inflation).

I read it very closely :)

The government doesn't just print money to pay for what it needs. It also takes money from it's citizens so that we all pay for what it provides us with.

Inflation isn't controlled by the government anyway, it is also psychological with consumers. There is no group in the government who can set inflation to x, there is a fed that tries to move it the right direction based on what smart people think.

Do you mean removing income tax or also sales tax, property tax, etc?

I would argue that wealth distribution is also a good reason to have taxes.

Then why isn't it working right now?

If you look backwards to when the income tax was first started it is working

How do you fund the framework that secures your rights?

> How do you fund

From the GP...

> The government takes some of that value by simply creating more dollars.

which have no value, because the value they have derives largely from the ability to pay taxes with them.

OP's comment makes no sense.

Why does the value of a currency derive largely from the existence of income taxes?

Because they induce a demand that might otherwise be satisfied by a different currency.

The low inflation in the US before income taxes were introduced falsifies the argument, no? No other currency was widespread in the US prior to income taxes. I still don't actually understand the argument, to be frank.

The US used to exchange gold for dollars which gave them inherent value.

That is no longer the policy and other currently existing currencies do posses the potential to compete with USD. Why would I choose to settle my debts in a rapidly-inflating currency that is backed by nothing?

Well, I agree that the combination of printing money with no taxation isn't going to work due to inflation.

I just didn't understand the statement that a currency's value "derives largely from the ability to pay [income] taxes with them". That statement by itself is historically false, as the gold-backed currency shows. It still makes no sense to me even without gold-backing. As long as the money supply is kept relatively stable, all you need is for a few government services to operate exclusively in USD (e.g. welfare, where funds are raised via land tax or carbon tax for example), and for a reasonable amount of trust in the government, and to perhaps kickstart the group delusion of trust with initial gold-backing, and you're all set. I can make sense of the statement strictly in the context of money printing, where you need the offsetting deflationary impact from taxation (not necessarily income taxation), but that meaning wasn't so clear from the original statement that I was responding to.

It's true that it's not strictly necessary that the "backing taxation" for this scheme be specifically on income, but due to historical circumstance this the largest pillar currently supporting the US system. Theoretically income should be related to productivity so it is a reasonable backing to balance against inflation. The onus is on those who'd like to replace the system to justify a better alternative.

Government debt; so long as that exists then the value of the currency will be derived from the ability to fund that debt through raising revenue - i.e. taxation. Without governement debt, different story.

For what it's worth, the US income tax system as we know it was created in 1913.

The US managed to fund a military, roads, bridges, schools, hospitals, and other good stuff before that year, right?

Indeed, yet it holds these concepts hostage whenever someone suggests we eliminate entire classes of taxes.

The truth is the tax system has two primary objectives:

1) to prevent upper middle class from the type of long term wealth accumulation that allows the plebs to enter (and challenge) the elite

2) To fund a hyper scale bureaucracy that constantly seeks the lower bound on the efficiency curve

To be clear, a large component of the "hyper scale bureaucracy" is nominally privatized within the military industrial complex.

> to prevent upper middle class from the type of long term wealth accumulation that allows the plebs to enter (and challenge) the elite

The capitalist middle class (the petit bourgeoisie, the thing thar Americans tend to call the upper middle class because Americans refer to a very large segment of the working classc , including the whole of the proletarian intelligentsia, as “middle class”) aren't plebs, they are, more like the equites.

Back then we had a LOT more tariffs. Free trade is a new thing. Tariffs are taxes too, just way more regressive since they raise the prices of almost everything.

> The US managed to fund a military, roads, bridges, schools, hospitals, and other good stuff before that year, right?

Mostly, no, the United States did not. The states did some (less than they alone, ignoring the feds, do now), the US did a little (far less than now, and funded by extensive use of simultaneously regressive and contractionary tariffs and excise taxes) at normal times and when it scaled up imposed special taxes for the purpose (including, starting in the Civil War, income taxes.) For the military part specifically, prior to WWI (and, to—IIRC—a lesser extent between WWI and WWII), the US had (especially aside from the Navy) very little standing military, relying on expanding out from a small cadre via conscription and rushed training in crises.

How are those concepts related? Currently I fund, under threat of armed men coming to my house to arrest me, a framework that largely aims to undermine, regulate, and eliminate my rights.

The states unconditional right to your labor has no mechanism to encourage preservation of rights.

Tax is the moral basis on which democracy is predicated https://www.youtube.com/watch?v=8Qsl6QUlWVc

To be slightly pedantic, the US system of government is a federal republic[1] that includes some democratic concepts. An example of those concepts is the democratic election of representatives at a state and federal level.

[1] https://en.wikipedia.org/wiki/Federal_government_of_the_Unit...

That makes perfect sense because taxation is theft and immoral.

It is therefore consistent that the moral basis for our unjust society is itself unjust.

Prior to the mid 20th century, a poll tax was implemented in some U.S. state and local jurisdictions and paying it was a requirement before one could exercise one's right to vote. After this right was extended to all races by the Fifteenth Amendment to the Constitution, many Southern states enacted poll taxes as a means of excluding African-American voters, most of whom were poor and unable to pay a tax.

https://en.wikipedia.org/wiki/Poll_tax

The point of income tax isn't revenue - that comes from printing money, or from corporate taxes.

Income tax is basically a surveillance tool - it forces you to declare all your income sources, and a large part of spending (if you want to claim some tax breaks).

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