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Why do governments tax?

Hi Cullen. Love your website.

I recently came across MMT and now it has me really confused. They claim that governments don't really need to tax. Or that they tax to give their currency some value instead of revenue. You claim this is wrong, but if the government has a printing press then they don't really need to tax do they? Can you elaborate on this for me? Thanks in advance.



This is one of those topics where MMT seems to play some word games. Here's how I think of it:

1) Anyone can create money. I can create money just by going into a bank and getting a loan. But my credit line is limited because my income is low compared to many other entities in the economy.

2) Governments not only create money, but have the ability or procure money by law (taxes). So when it comes to a government's credit line they are viewed as being ultra high quality.

Now, this doesn't mean the govt doesn't need an income. After all, the govt generates its income from the productive output of its private sector. With no output to tax a govt has no credibility and no one would fund their spending.

So, MMT plays some games here by claiming that inflation constrains govt spending, but govts don't need to fund their spending.

It's better to say that all entities need to fund their spending, but govts operate with an extremely flexible credit line that isn't susceptible to the same constraints as a household.

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche