In one of my tax classes in law school, the professor recommended an optional book that when more into the theory behind tax. That book brought up an interesting idea to discuss concerning printing money.
Suppose you have a society with a total economy of say 10^9 dollars, and you need to allocate 10% of the to the government for it to operate.
The conventional approach is various taxes. Income taxes, sales taxes, VAT, property taxes, the list goes on and on.
The question the book asked is why not just have the government print the money it needs?
Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy.
So why not replace taxes with printing money to fund the government?
It has a couple of clear advantages. First, no more need for everyone to file tax returns, employers to withhold tax payments, and all that jazz, and no need for the government to have a giant tax collecting apparatus or a giant tax code. Second, it makes tax evasion a lot harder.
There are some downsides too. First, it would take away a large part of the usefulness of taxation as a way to change behavior. Deductions, credits, progressive rate structure--all gone. Deductions and credits could be replaced with government subsidies, but if you aren't careful you will end up recreating much of the complexity and bureaucracy that the old tax system had.
Second, the inflation would be significant enough that it wouldn't take many years before even small things involve large numbers of dollars. This could probably be addressed by going to an almost all electronic money system so you could just periodically re-scale the whole thing.
Third, inflation from printing money doesn't affect all assets equally, so this would encourage people to try to hold more of the wealth in assets that are less affected. People lean toward that anyway to deal with normal inflation, but with the current system if there is too much off that the government can use tax incentives to nudge things in the other direction.
I remember this leading to some interesting discussion in class. Even if it is not practical, thinking about it is interesting. It can get you to really think about what money really is.
I admit to not taking my own idea here too seriously but still want to add a couple of points.
There would only be inflation if the amount of money printed exceeded the production of new goods and services. Could congress control how much they spend? Not too likely but it's not very likely now and at least this way everyone including the poor would have a reason to resist excessive spending. Would the production of new goods and services increase? I think so.
There would be other benefits as well, including:
1. Eliminating the costs of compliance with tax law.
2. Eliminating the costs of collecting the tax.
3. Severely cutting back the power of congress to control through tax policy.
Only if money were to be printed out of thin air for the program, isn't it? If the money comes from a defined budget, I don't see why that would lead to inflation.
On the other hand, governments get to print money if they want to, and they have reason to. This might work, but I suspect mostly it would be a complex way of doing nothing, thanks to the literal-money-printing option.
The thing is, inflation caused by printing money AND distributing it directly and every to all people is fine… it’s just the most efficient / progressive wealth tax!
Even if (printing and then) giving everybody $40K/yr caused, say, 40% inflation, anybody making under $100K/year would be better off. You actually wouldn’t need any taxes if the government just printed all money it needed, hopefully most of which is in the form of direct checks to all residents/citizens.
The reason printing money causes inflation is because people spend the extra money. It increases demand for things, and suppliers raise prices in response to that.
Giving everyone money, regardless of whether it’s a tax refund or printed out of thin air, will have the same effect.
> print a universal stimulus check, tax it, and spend the tax
why go thru the trouble of printing money to give to people, only to tax it back by a bit? The money is created out of thin air in this case - the size of the pie hasn't changed yet, so it is a cause for inflation if it isn't met by a corresponding increase in productivity.
If they managed to pay their debts by printing money, and it causes the wealth of all individuals to decrease by 25% due to inflation, that’s sort of the same result as if they’d been able to collect the taxes instead.
Only if the money comes from the printing press, as opposed to from taxing the rich.
Also, without the fed printing money, we'd be feeling deflationary pressures, because we are in, you know, a recession. Some printing doesn't actually cause abnormal inflation in that situation.
It's not going to help directly. But if the inflation was a) produced by printing money that b) disproportionately ended up in the pockets of a subset of the population, one way or another, then it amounts to a wealth transfer.
The price of everything would rise proportionally to the amount of consumption added to the economy - for example, if you funded this entirely by printing money, you'd get a combination of inflation and an equal amount of money going to everyone, causing a redistribution effect on its own. e.g. if you gave everyone $10,000 of newly-printed money, inflation would be very high, but unless it's 100% or more (doubtful) a poor person making $10,000 or less before the change would still have a higher standard of living - it's a redistributionary effect.
If you actually fund this by taxes, like most proposals say, you'd probably still have an inflationary effect (since the lower your income is, the likelier you are to spend each marginal dollar), but likely not enough to outweigh the extra money.
"You can control inflation with taxes, and it's a more fiscally responsible way to do it."
There is an interesting and compelling theory that you can control inflation with taxes (broadly, MMT[1]) but the cautious and (in my opinion) warranted skepticism that you voice, upthread, about prevailing economic theories should be extended to MMT as well.
We don't really know if money supply creation via "printing" and the corresponding destruction via taxation will work just as MMT suggests it will.
Now if it came out of thin air, right from the printing presses, a whole lotta hurt of inflation
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