The MMT argument for taxation is that it's necessary to encourage demand for a currency, thus making it more valuable. But there's no fundamental reason that a government which controls its own currency must collect taxes to pay for various services.
Congress could pay state and local governments directly each year.
If you're willing to throw away some property rights, then state and local governments could theoretically lease land as a means of raising revenue without direct taxation. (this is a terrible idea)
I'm no expert on this, but I think that wording suggests that the government's goal is to tax, but it seems to me that a government really wants to spend.
My understanding of MMT is that it removes the direct relationship between the ideas of spending and taxation, instead tying them both to inflation. Spending increases inflation by adding currency into circulation, and taxation decreases inflation by removing it from circulation. Although I'm not sure how that fits into a one-liner :)
Yet if we embrace MMT, one might ask why bother taxing anyone? Debt-financed spending would dwarf revenues to the point that they become an administrative burden and a rounding error on the ledger.
MMT says that taxes exist primarily to create demand for a currency. The government doesn't need you to give it money because it is the source of money.
You'll know the economy is neat 100% because inflation will kick in.
As I understand it taxes in MMT are just destruction of money, it's the essential counterpart of money creation used to balance supply. It's irrelevant to GDP and spending in that model, since in MMT the government doesn't need taxes to spend, it just print what it needs, that's the core idea.
On the one hand, printing money instead of [1] taxing is good because you can get rid of whole government departments (saving real resources) and tax collection no longer has to invade people's privacy by forcing them to give the government extensive records of their economic activity.
On the other hand, taxation is good because it reminds people there are costs to government services when they have to actually pay the tax, and in addition you can use a tax to inject a market signal about costs that would be normally externalized.
[1] Unfortunately, MMT implemented by any government will likely be "in addition to" rather than "instead of" existing tax mechanisms.
"I want higher taxes because the government can do better things with the money"
Note that this thinking only applies to nations which are currency users, not currency issuers.
For a nation with it's own fiat currency (currency issuers) government spending creates money, and the role of taxes is not to fund spending. Taxes fulfill other roles, like controlling inflation and expressing social policy.
The obvious question! Because taxing is used to free up the resources necessary for the state to purchase them. Once you force everyone to pay taxes, they have to get hold of the state currency, which should (in a well managed system) only happen through state purchase of resources, notably people's time.
That is, the ability of a state to provision itself is driven through its currency which in turn is driven through taxation.
On a purely logical level, for sovereign nations issuing their own currency, taxation is completely decoupled from spending. You can increase taxes if there's an economic reason for doing so, but it is not a prior constraint on spending.
The mainstream way of thinking says "the government must tax in order to spend" whereas MMT says "if the government wants to spend it will have to tax".
This is pretty poorly argued and doesn’t even touch on some commonly shared arguments about taxes.
For example, I’m sympathetic to the perspective that federal taxes are really about preventing inflation. I’m not sure it changes anything fundamental, but it suggests that we can be less concerned about deficit spending as long as inflation is low. (But this assumes the government can predict what will cause excessive inflation far enough in advance to avoid it.)
Also, in the presence of inflation, income taxes and wealth taxes are similar since you need to earn a return just to stay even with inflation. In a way, we already have wealth taxes, but they’re mild since inflation is low.
There’s a lot more that could be said. It’s a complicated area.
Ultimately the purpose of taxes is to force citizens to use the currency the government produces, which in turn, makes their currency valuable to citizens.
Except the reason governments tax is to create markets and to provide sticks (or carats) to certain behaviors. Taxes are not for revenue. Read the 'Deficit Myth' by Stephanie Kelton or Debt the First 5000 Years by David Graeber.
It's a view that's created by a very orthodox approach of the economy. If you look at more modern school of thought the government don't really need taxes to do anything.
So for instance according to MMT taxes create an ongoing demand for currency and are a tool to take money out of an economy that is getting overheated. This goes against the conventional idea that taxes are primarily meant to provide the government with money to spend to build infrastructure, fund social welfare programs, etc.
It's a bit the same idea with another modern approach FTPL but in that case with a more cautious and critical look, saying that low taxes allow high inflation and prevents the government from the need to pay its debt.
In any case the real question all those systems try to solve is how to best allocate resources, maximize innovation, growth, employment and limit poverty and inequalities. Be careful that thinking that poor people are stealing your resources with taxes don't become a shortcut for you to accept the tough idea that you have more resources than you need and some people should have less than what they need to support you.
I don't think that's actually true since the 70s with the introduction of modern monetary theory. If I understand that correctly, taxes serve effectively as a means of decreasing wealth disparity, subtracting money out of the economy, and ensuring that a minimal level of work gets done. They are not a means of paying for things, at least at the federal level. At the state level, where they don't control the money supply, I think it might matter more.
I know that MMT is a bit controversial in economic circles, and I am very much not an economist, but that's my understanding.
Modern Monetary Theory argues that income tax (and alll other direct taxes) are unnecessary because the government can riase fund via fist money and its indirect taxation via inflation.
This is effectively a tax on the entire economy and challenges every sector or segment to grow price (including labor wages!) or lose value.
I hope that it is interesting and noteworthy for you to learn that many, many smart and thoughtful economists do not agree with that. In fact, they strongly disagree.
Current thinking in modern economics - specifically in MMT[1] - is that money is created by loans and destroyed by taxes.
Which is to say, the government (provided it is a sovereign issuer of its own debts, like the US or the EU) has no particular use for revenues since they can just create whatever money they need. What is actually happening when money is taxed is that it is, effectively, destroyed.
While you are correct given the government debt levels and printing of money, on principle taxation should only be used to raise money for public purposes. Not to incentivize or punish behavior.
Allowing the government to use taxation for purposes other than public finance has been and will continue to be an avenue for abuse, and authoritarian control ultimately leading to tyranny
The MMT argument for taxation is that it's necessary to encourage demand for a currency, thus making it more valuable. But there's no fundamental reason that a government which controls its own currency must collect taxes to pay for various services.
Congress could pay state and local governments directly each year.
If you're willing to throw away some property rights, then state and local governments could theoretically lease land as a means of raising revenue without direct taxation. (this is a terrible idea)
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