What are Taxes for?

"Taxation is to regulate the value of the dollar"

Fed Chairman Got it Right in 1946
http://neweconomicperspectives.blogspot.com/2010/04/fed-chairman-ruml-got-it-right-in-1946.html

'April 15th has come and gone, but the issue of taxation remains the
course de jour. I was recently forwarded an article entitled Taxes
For Revenue Are Obsolete, written in 1946 by Beardsley Ruml,
the former Chairman of the Federal Reserve Bank of New York and
published in a periodical named American Affairs. While Ruml was writing
about the merits of corporate taxes, it is his discussion about how the
function of taxes changed after the nation exited the gold standard
that make this a must read. As Ruml's stated, with an "...inconvertible
currency, a sovereign national government is finally free of money
worries and need no longer levy taxes for the purpose of providing
itself with revenue... It follows that our Federal Government has final
freedom from the money market in meeting its financial requirements...
All federal taxes must meet the test of public policy and practical
effect. The public purpose which is served should never be obscured in a
tax program under the mask of raising revenue."

He goes on to
explain how, with Federal spending not revenue constrained, the first
function of taxation is to regulate the value of the dollar, which we
know as regulating inflation. The notion of the Federal government
'running out of money' and 'dependence on foreign borrowing' as well as
'sustainability' is categorically inapplicable. The operative CBO
'scoring' is the inflationary effect, rather than simply a revenue
forecast. And while Social Security and Medicare may turn out to be
inflationary, they are not 'bankrupting the nation' as most believe,
including a Democratic Congress that cut Medicare spending with the
recent health care bill and has all entitlements 'on the table.'

The entire article can be found at Huff Post
(wonder why they are posting this now and are delivering this to a "left audience?)
http://www.huffingtonpost.com/warren-mosler/taxes-for-revenue-are-obs_b_542134.html

So, taxation is essentially a mechanism for social control, which is what Ruml told Congress while he was FED Chairman. I've seen that video clip, but don't know if I can find it again. But this article now provides support for that notion, that taxes are mechanism of social control, not revenue generating mechanisms. Without taxes, the working classes would have too much money to spend and would send prices skyrocketing (ie price inflation), so spending must be curtailed.

As Hudson says, this entire system is totally counter-intuitive as compared to how normal people think about money and economics.

From Ruml's speech...

What Taxes Are Really For

Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;
   
2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;
   
3. To express public policy in subsidizing or in penalizing various industries and economic groups;
   
4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.
   

Among the policy questions with which we have to deal are these:

• Do we want a dollar with reasonably stable purchasing power over the years?
  
• Do we want greater equality of wealth and of income than would result from economic forces working alone?
  
• Do we want to subsidize certain industries and certain economic groups?
  
• Do we want the beneficiaries of certain federal activities to be aware of what they cost?

Unfortunately the neo-classical economists who dominate academia and the media are stuck in a gold standard mindset. There is a school in economics called Modern Monetary Theory or Neo-Chartalism (which Mosler is part of) that treats fiat currencies as they should be. Broadly speaking all money is debt including notes and coins. Even though the debt on notes and coins cannot be repaid, their creation can be viewed in the same way other debts are created.

Since even high powered money (a MMT term for bank reserves and notes and coins) is debt, then what is the purpose of bonds to run a deficit? Taxes have a legitimate purpose in limiting aggregate demand as you said, but bonds serve no purpose. Why issue interest bearing bonds when a sovereign government can issue zero interest money? Only bankers benefit from the issue of bonds (yet they complain when the poor live off government handouts!)

I highly recommend reading Seven Deadly Frauds of Economic Policy by Warren Mosler http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/ It explains MMT quite well.

Some people believe it, but I think the number of jobs created is not high enough to justify the government loss of revenue. Despite what some claim here, the tax cuts in the past may have stimulated the economy somewhat but absolutely resulted in less tax income for the government and thus added to budget deficits. I challenge anyone to prove otherwise.

hermandez wrote:

Some people believe it, but I think the number of jobs created is not high enough to justify the government loss of revenue. Despite what some claim here, the tax cuts in the past may have stimulated the economy somewhat but absolutely resulted in less tax income for the government and thus added to budget deficits. I challenge anyone to prove otherwise.

Too many vectors for me to compute and respond.

C1 wrote:

hermandez wrote:

Some people believe it, but I think the number of jobs created is not high enough to justify the government loss of revenue. Despite what some claim here, the tax cuts in the past may have stimulated the economy somewhat but absolutely resulted in less tax income for the government and thus added to budget deficits. I challenge anyone to prove otherwise.

Too many vectors for me to compute and respond.

haha