1

I'm wondering for a long time if people complain about taxes, why they let the government collecting it while it has the authority on supply of money through monetary policy? This looks for me like duplicated authority which only increases state's operating cost and complicates life of all citizens.

closed as off-topic by bytebuster, user1530, Avi, Bobson, SoylentGray Mar 31 '16 at 20:30

This question appears to be off-topic. The users who voted to close gave this specific reason:

  • "This question does not appear to be about governments, policies and political processes within the scope defined in the help center." – Avi, SoylentGray
If this question can be reworded to fit the rules in the help center, please edit the question.

5

Printing money causes inflation, which is an implicit tax. Worse, inflation is self-reinforcing. So if you print $3.8 trillion one year (USA federal spending), you have to print $7.5 trillion next year. That's the original $3.8 trillion plus an estimated $3.7 trillion for inflation caused by the extra money. That's assuming that you have a $3.9 trillion money supply (USA).

The effect of this would be to levy a 97% tax on all savings in the first year. And reduce effective wages by 51% (3.9/7.5). And while the effect on savings will be felt most strongly by the rich, the effect on wages will apply proportionally to everyone, even those working part-time at the legal minimum wage. For that matter, by the end of the year, government benefits would be worth less. That's why next year, it's more expensive.

Government taxes and borrowing don't have the same inflationary effect. Rather than prompting new spending, they just move existing spending. And they do so at a lower rate. That 51% tax levied by inflation is only a 25% tax as an actual tax. And the 97% tax on savings becomes just a 25% tax on the interest rate. So would you rather pay a 97% tax on the whole thing or a 25% tax on a fraction? Would you rather pay a 51% implicit tax or a 25% explicit tax?

Someone else could write a similar analysis for another country, but the USA is what I know. Numbers are oversimplified. Real inflation is more complicated than that. But all evidence is that it would be worse than this simplistic analysis. Inflation reinforces itself more than I show here, not less. Countries that have tried it have caused hyperinflation.

Not the answer you're looking for? Browse other questions tagged or ask your own question.