Taxes are really important, even if they don’t really ‘finance’ monetarily sovereign Governments at all. From a macro perspective, it’s basically as if taxation destroys money and new money appears when they spend (unlike private bank accounts, where money transferred between them still stays in the economy). Of course, it looks like taxes fund spending because of the accounting involved (because it actually did in gold standard days, and things are mostly recorded in the same way just because that’s what people have always done) and various policy, etc.
That’s why the idea of a ‘soft default’ doesn’t really exist in the modern economy.
Basically, taxes are the main anti-inflationary mechanism that the economy has. The Government needs to spend money (and the private sector really needs them to spend, because in the modern economy we can’t create new money without creating debt - only the Government can do that), but if they spent without taxing aggregate demand would be way too high and you’d get inflation.
The Government doesn’t need your money at all, but they do need the private sector to not have it and spend it. Some economists looking at these kind of monetary issues call that ‘fiscal space’.
Secondly, you need taxation to have a stable currency, because it creates a baseline demand. Without a population of people required to pay taxes in a currency, it may become more attractive to the private sector to switch to a different currency.
Third, taxes are useful for encouraging (by tax breaks) or discouraging certain activities (by taxing them more). And finally, taxes can serve a redistributive purpose if you have a progressive system, reducing the financial assets of the wealthy somewhat while balancing it out a bit with spending.
By the way, you still haven’t understood what I mean about the EU...
That’s why the idea of a ‘soft default’ doesn’t really exist in the modern economy.
Basically, taxes are the main anti-inflationary mechanism that the economy has. The Government needs to spend money (and the private sector really needs them to spend, because in the modern economy we can’t create new money without creating debt - only the Government can do that), but if they spent without taxing aggregate demand would be way too high and you’d get inflation.
The Government doesn’t need your money at all, but they do need the private sector to not have it and spend it. Some economists looking at these kind of monetary issues call that ‘fiscal space’.
Secondly, you need taxation to have a stable currency, because it creates a baseline demand. Without a population of people required to pay taxes in a currency, it may become more attractive to the private sector to switch to a different currency.
Third, taxes are useful for encouraging (by tax breaks) or discouraging certain activities (by taxing them more). And finally, taxes can serve a redistributive purpose if you have a progressive system, reducing the financial assets of the wealthy somewhat while balancing it out a bit with spending.
By the way, you still haven’t understood what I mean about the EU...