You are about to learn something not one person in a thousand understands. You will find it counterintuitive. You are about to learn the most important effect of taxation.
Why does the federal government levy taxes? What would happen if the government did not levy taxes?
If you ask most people why the government levies taxes, they will tell you, "To pay for goods, services, entitlements and as a solution to the US federal debt and US federal deficits." If you ask most people what would happen if the federal government did not levy taxes, they would answer, "The federal deficit and federal debt would grow and the government would go bankrupt." Are those your answers?
Click the cover to see excerpts from the book
Why Your Taxes Do Nothing for the Federal Government Budget
The belief that federal taxes pay for goods, services, entitlements and government solvency, is behind the powerful "eliminate-the-national-debt" attitude, both in Congress and in the populace. This belief, though widespread, is false. Any belief that is both widespread and false, represents a grave danger.
Federal taxation does not pay for goods, services or entitlements. Federal taxation does not solve a Federal Government Budget "problem" (although as you will see, taxes can solve state and local governments' budget problems.)
Federal taxation has no benefits for our economy, for our government or for us -- no beneficial purpose at all. This pervasive, intrusive, much-hated, easily-abolished activity is worthless. Worse than worthless, it is harmful.
In year 2001, the government will spend $8.72 billion on the IRS. This does not include the many billions that business and individuals spend on preparing and filing tax records. The wasted government spending benefits the economy, but the wasted business hours are a loss.
The federal government creates money when it sells Treasury bonds, notes and bills, and prints currency. Corporations create money when they sell bonds to creditors. You create money when you take out a mortgage and when you deposit money into bank and money market accounts. How is money destroyed? Who does it?
The US Federal debt is Federal Money. The Effect of Taxation Is to Destroy Money
When the federal government borrows, this increases the US federal debt. The federal debt is money.
Money is created and added to our economy. What happens when you pay taxes?
Assume your tax bill is $1 thousand. You send $1 thousand to the government. You become $1 thousand poorer, since you receive nothing in return.
The government uses your money to pay the interest and principal on $1 thousand worth of US federal debt, destroying the debt. When you pay $1 thousand in taxes, the amount of money in our economy is reduced by $1 thousand.
Taxation has two monetary effects: to destroy money or to prevent the creation of money.
(It also has a social purpose. Taxes on liquor and cigarettes are attempts to limit their use. The social purpose is irrelevant to this discussion, though the taxes themselves do hurt our economy.)
When taxes pay for goods and services, the taxes substitute for the creation of the money that otherwise would have been needed to pay for those same goods and services.
The sole effect of federal taxes is to destroy US federal debt (money), and/or to prevent the creation of debt (money).
In general, does a large business need more money than a small business? The answer is obvious. General Motors must have more money to operate than does the corner tavern.
Does a large economy require more money than a small economy? Again the answer is clear. The economy of the United States of America must have much more money to operate than does the economy of California, which in turn, must have more money than the economy of Peoria.
In short, business is healthier in a growing economy, which requires the real supply of money (federal debt) to grow.
Some may argue that while a growing economy requires the real supply of money to grow, this doesn't prove that a growing real supply of money causes the economy to grow.
Increasing federal debt won't always cause immediate growth. Depending on circumstances, a money infusion only may inhibit a decline or collapse. For that situation, a greater infusion of federal debt is needed.
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What Kinds of Taxes Hurt Our Economy?
Some may argue that adding federal debt to our economy causes inflation. Historically, that is untrue. There is no historical relationship between the amount of U.S. national
debt and inflation.
Because all taxes destroy
money, all taxes hurt business and our economy.
Taxes do not, cannot and will not
ever help our economy. All federal taxes always hurt our economy by
federal debt. Always.
Every federal tax levied on business takes money from business and from our economy, which diminishes the ability of business to pay salaries, to conduct research, to produce goods and services and to market them.
Every tax levied on individuals takes money from these individuals and reduces their ability to purchase, which then takes money from business and from our economy.
Politicians try to impose taxes that will encounter a minimum of public outcry. Yet all taxes, whether so-called "harmless" taxes on cigarettes or "heartless" taxes on medicine and baby food, have three identical economic effects:
1) All taxes destroy money.
2) All taxes hurt business.
3) All taxes hurt our economy.
Even the import duties business
often begs for, take money from the private sector and pass it to the
government, which weakens business.
News Flash: For Every Debit
There Is a Credit
For every debit there is a credit.
For every debtor there is a creditor. For every deficit there is a surplus.
When the federal government runs a federal budget deficit (creates money), our economy runs a surplus (receives money). When the government runs a surplus, our economy runs a deficit.
A federal government deficit = an economic surplus;
A federal government surplus = an economic deficit.
Paying federal taxes does not help the federal goverment manage its budget. Money is not scarce to the government, which year after year, continues to prove it can print all the debt/money it needs, without limit.
During the Reagan years, the amount of
U.S. federal debt rose rapidly, and our economy grew. Many people called this "false prosperity," because it relied on growing debt.
Growing U.S. federal
debt is not false prosperity. It is prosperity.