I have a question about taxes

[jwhitesj]

I have a theory about federal taxes and I wanted to see if any economic scholars may be able to point out why my thinking is right or wrong.

1) Federal taxes are not necessary to fund a government that can print it's own money.
I believe this premise has been argued about with modern economic theorist but I believe it to be true.
2) Since taxes are not necessary to fund a government, the only purpose of federal taxes is redistribution of economic resources.
a)This makes talk of a flat tax (which hasn't come up recently) completely stupid because it would be the same as no tax.
b)The only consequence of lowering taxes for the wealthy is to make non-wealthy people more poor in relation to wealthy people.
c)Inflation can be controlled with tax rates because tax is taking money out of the supply keeping inflation down.

I was wondering if anyone can point to any flaws in my thinking. If you think the premise is incorrect or if you think the conclusions are incorrect I would hope I can get a good explanation.

Thanks

[unblock]

1. there are a small number of fringe economists who believe being a fiat economy is forever nirvana

but in practice there's no guarantee that we'll remain a fiat economy (more precisely, there's no guarantee people will continue to have faith in our currency without backing of physical goods like gold).

most economies have their own currency and can print at will, but irresponsible budget policies and excessive printing leads to rampant inflation and a collapse of the currency. epic fail.

a fiat economy (the u.s.) can escape this fate as long as we remain the reserve currency of the world. as long as there's a need for u.s. dollars, the currency won't likely collapse in the same way it would for any other currency.

but that's a highly optimistic and short-sighted view. if america has irresponsible budget policies and excessive printing of u.s. dollars, eventually we will lost our fiat status and global trade will switch to euro or some other currency. at that point, we're like any other economy that overprinted and our currency would fail after uncontrolled inflation.


taxes are necessary to fund any government. the form and distribution of tax burden can vary, but some taxes are necessary.

i agree that redistribution is one of the goals of tax policies. since reagan, the effort has been to shift the burden from the rich to the poor and middle class.

inflation can be controlled through tax policy, spending policy, and interest rate manipulation (monetary policy).

[sandensea]

2. I agree with you in theory (as you noted, ONLY for countries that can print hard currencies)

There is however the question of just how far the Fed can go; how many trillions can they print out of thin air before the currency (God forbid) collapses.

If it does, as you know, then you have an Argentina situation.

Anyone willing to put that to the test (some argue it was back in '08/'09, when the Fed printed $20+ trillion to paper over the wave of derivatives losses), is a braver soul than I.

[A HERETIC I AM]

3. One small point of order;

The Federal Reserve does NOT print money.

That's not their job. The printing of currency is handled by the Bureau of Printing and Engraving which is a division of the US Treasury Department.

The Fed controls how much money is in circulation, but they don't actually make the money.