On federal tax revenue

NPR says it held a poll of average Americans’ beliefs regarding the U.S. tax code.

The poll failed to distinguish between federal taxes and other taxes.

If I were asked, “Do you think that rich people should pay more taxes?” My initial response would be to ask, “Which taxes? Federal, state, county, or municipal?”

If federal taxes, then my initial (but not final) answer is no, the rich should not pay more taxes, since the U.S. government creates its spending money out of thin air, and has no need for tax revenue. No one, rich or poor, should have to pay federal taxes simply to provide revenue for the U.S. government. The federal government doesn’t need it.

But if it’s state, county, and municipal taxes, then my answer is, “It depends on which wealthy party you’re talking about.” Local governments do not tax big corporations like Wal Mart and Boeing, because local corporations do not want big corporations to move away and take jobs with them. Unfortunately, big corporations often abuse this privilege. Big corporations can pollute the environment, for example, knowing that if the local government tries to penalize them, then big corporations can simply move elsewhere.

However my final answer is, “It depends on what federal taxation is used for.” This is tricky, since it (falsely) suggests that the U.S. government needs tax revenue, and that federal tax revenue can be “used” for things.

In reality, federal tax revenue useless, but federal taxation can be useful. That is, the federal government has no need for revenue, since the federal government creates its spending money out of thin air, simply by crediting bank accounts.

However taxation (not revenue) can be useful in preventing large corporations from abusing workers. For example, corporations could be assessed federal tax penalties for sending their operations overseas, or be granted federal tax exemptions for staying in the USA and creating jobs.

Federal tax revenue cannot be used to reduce the gap between the rich and the rest, since the U.S. government does not get its spending money from tax revenue. We could quadruple federal taxes on rich people, but this alone would not increase government outlays for the poor by even one penny. However tax penalties or exemptions can be used to reduce the gap. What’s useful is not the revenue but the process of taxation.

The NPR poll also asks, “True or False: 75 percent of the federal government’s revenue comes from personal income taxes.”

NPR’s answer is false.

NPR is correct, but the phrase “government’s revenue” falsely implies that the U.S. government needs revenue. The truth is that the U.S. government collects revenue, but it does not need revenue.

The U.S. government collects revenue in order to show who’s boss. No matter how powerful a person or corporation becomes, the federal government can always take them down via tax charges. Gangsters like Al Capone have been taken down for tax reasons, as have senators like Tom Daschle. Celebrities have been nailed too. Movie actor Wesley Snipes did three years in prison for tax evasion. William “Bud” Abbott and Lou Costello split up and went bankrupt when the IRS charged them for so much in back taxes in 1956 that the two had to sell their homes and the rights to their films. Singer Willie Nelson was almost destroyed by a $16.7 million bill for back taxes. Ty Warner, the billionaire creator of Beanie Babies toys, was hit with $53 million in civil penalties, plus $27 million in back taxes.

In none of these cases did the U.S. government need tax revenue. Instead, federal bureaucrats penalized the above parties because the federal bureaucrats were annoyed by these parties in some way. If you can’t get them on anything else, get them on taxes. It’s not sexy, but it has teeth, and it works every time

With the rest of us, the federal government collects taxes to constantly remind us who’s boss.

Adherents to Modern Monetary Theory (MMT) claim that “taxes drive money,” meaning that federal taxation is what keeps people loyal to using the U.S. dollar. This MMT claim is false, since local taxes (state, county, and municipal) perform the same function, as do special laws. Some national governments charge no federal taxes, yet have no trouble making their people use the national government’s currency.

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