Simple question with a not-so-simple answer: Why does the federal government levy taxes?
The obvious, but incorrect, answer is: To fund services. To pay for stuff that they want done.
While this is true for state and local government, this is not the case for the federal government. The federal government has no need of your tax dollars to pay for services. They can (and do) print as much money as they need to pay for the things they want to pay for.
The next local step is to respond: “Okay, sure, but if they did that, the inflation would be insane” (moreso). Aha! Now we’ve found the first reason why the federal government levies taxes: to control inflation. And for all its faults, the US government is actually the best in the world at this. That’s a scary concept.
Another way to think about it is this: whenever the federal government spends money, on military, education, science, industry subsidies, debt interest, or anything else, new money is created. Every time. Conversely, whenever taxes are collected, money is destroyed. In an ideal situation, those two numbers are equal and we have a “balanced budget”. But that hasn’t happened since the late ‘90s, and is unlikely to ever happen again.
So do not ever whine that “my tax dollars are being spent on (thing I don’t like)!” Or “my tax dollars are being wasted.” No they aren’t. We all hate inflation, and your tax dollars are being spent to control inflation. Instead, complain that money is being PRINTED to fund (thing I don’t like). And/or complain that (people I don’t like) should pay more taxes and I should pay less. Both are probably valid.
There are two more reasons why the federal government levies taxes:
To generate demand for the currency. US taxes can only be paid in US dollars. If you could pay your taxes in Euros, gold, or bitcoin, that would reduce the demand for dollars (moreso) and threaten the foundation of US dollar hegemony. Can’t have that!
Lastly, and less crucial to this conversation: the federal government levies taxes to influence behavior. Tariffs are the perfect example of this. Tariffs are a tax on US businesses, and sometimes individuals, to make it more expensive to import goods internationally. They encourage patronizing US businesses, which is fine if there actually exists competing US businesses in the industries that are being tariffed. If there aren’t, well, that just means higher prices for US consumers.
My main point is this: maybe the federal government shouldn’t have the power to print as much money as they want. Then the obvious answer would actually be the correct answer.
