Friday, September 17, 2021

Change how you think about taxes.

 Here's the conventional way to think about taxes: the government takes money from the individual or corporation and adds it to a balance sheet that they keep, and then they spend the money on that balance sheet, plus some extra, to do things. 

I think that this view of taxation is actually flawed in a way I will explain in this article. I will put forth my new way of viewing taxes here.

The government has the ability to print money whenever they want, as much as they want, but the consequences of that action (namely, inflation) keep the government from doing as such. So they take money from individuals and corporations in order to pay for their expenditures.

Except, this isn't how it works if you flip it on its head. In math, your reference point matters as much or more than the transformations you do to it. The government isn't taking your money in order to pay their expenses; it's taking your money to remove money from the monetary pool, thus allowing them to add money back to the pool with minimal inflation. 

To clarify, the government doesn't take money. It deletes it, and then creates it again when it injects it back into the economy through expenditures. The government isn't managing a budget like a normal household is; that is, money in, money out. They are managing a money supply; that is, money out, money in. Any tax revenue is actually money deleted from the money supply. Any expenditures is money added back into the money supply. 

I like to think of the book Ender's Game, where a critical plot point hinges on the players believeing that their enemy's gate is down instead of to the side, thus allowing them to better act using spatial kinesthetic senses. When you consider taxes to be deletions from the money supply instead of the government actually gaining money on some account book, it allows you to more easily imagine exactly what that money is doing to the government and the economy. 

And I just think that it's an interesting thought experiment. I believe this flip of perspective could be helpful in pointing out critical flaws in government and other people's ideas of what government is for. In the end, I think this way of viewing taxation and spending is a useful tool, though I don't yet know what it could be used for. 

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