If you have "no place to go," come here!

MMT in the heartlands: Why we pay taxes

This very lucid explanation of how Federal taxes work comes from Rexburg, Idaho (!):

When the federal government spends, it simply credits business and household bank accounts to pay for goods and services the government needs such as obtaining military hardware, paying troops, caring for national parks, obtaining military hardware or to pay out social security benefits.

Take someone who receives a direct deposit of their monthly social security payment, for example. The federal government simply credits the recipient's bank account so that the balance increases. But in effect, all that really happens is the digits in the account change like the score on a scoreboard so that there is more money in the account.

Did the federal government need to go find the money to make that social security payment? No. They just adjusted the digits at the bank.

When the federal government spends, it creates money that did not previously exist. The side of the federal government that spends (the right hand) operates independently from the side of government that issues debt and collects taxes (the left hand). ....

This brings us to why the federal government collects taxes. It does so in order to reduce the amount of money flowing through the economy. Paying federal income taxes destroys money.

The beauty of the tax system is when the economy is expanding than household and business income increases, which in turn means the amount of tax revenue increases, even as tax rates stay the same. That higher tax revenue reduces the amount of money flowing through the economy that could potentially stoke inflation.

So spending acts as an automatic stabilizer in these ways, as well.

No votes yet