This is what the MMT people say. Taxes don’t fund spending. When I first came across it in 2010 it sounded right. I worked through the accounting and it actually makes sense in a certain context. For instance, when the Tsy spends money they are spending from their reserve account. If you combine the Fed and the Tsy as both govt entities then the govt is obtaining its own liability when it taxes. This can’t “fund” spending. It MUST, by definition, destroy the money because you can’t be repaid in your own liability since that would result in a debiting of your own liability. So, if you start the circuit of spending from this consolidated Fed/Tsy account then taxes destroy money and spending creates new money. It’s basically like a new loan. New loans creates new deposits and repaying loans destroys deposits.
The big problem with MMT is that the reserve system only exists to facilitate interbank payments. The circuit doesn’t really start or end with the govt. It starts with the banking system. So reserves only exist to ensure that banks can smoothly transfer deposits. And deposits are definitely not govt liabilities. As a simple example, you can think of the US system as a one bank system. In this case there is no need for reserves since there aren’t multiple banks needing interbank settlement. So this one bank would be the money issuer for the whole economy. The Tsy would have an account and it would tax and spend from this account. You would never call that bank’s liabilities govt liabilities. You’d call them private bank liabilities. In this case it becomes obvious that the govt does not really issue the money or spend its own money. It is taxing private bank money and spending private bank money. When you add the reserve system back into the equation the same thing is true. In the case of the USA the central bank is acting as a facilitator between private banks.
You can further prove this point by considering the case of a private individual who has endless credit at a bank. This is essentially the case with a Central Bank who finances govt spending. In the case of an individual you could say that the person does not need income because they can spend in perpetuity. If you can just borrow new money then you are essentially a money issuer. But that’s silly. Who would accept your money if they knew it was a bottomless pit backed by nothing? They wouldn’t accept it. The thing that gives you credit is your assets and income primarily. The same is true of a govt. Govt’s need to finance their spending to prove to the private sector that they have credit. The fact that a Central Bank can issue money in perpetuity does not mean they don’t need income sources to finance their spending. That’s like saying the Bank of Zimbabwe has credit even though it’s causing hyperinflation. That’s just not true. The reason they have hyperinflation is because they have no credibility. No one trusts the govt liabilities so they sell them or don’t want them. The fact that they didn’t run out of money doesn’t mean they never needed a revenue source….
MMT plays a lot of games with the accounting and tortures the terminology to make the theory fit reality. It doesn't work and I think they do Post-Keynesian economics a great disservice by being so adamant that their theory is right. They intentionally confuse things and confuse people reading their work. Hell, they confused me for over a year when I first came across it. It's too bad because there's some good stuff in MMT, but this sort of thinking on the financing stuff is just flat out wrong.