Economic orthodoxy has a habit of permeating. Whether Left or Right, the political spectrum generally falls around some common first principles regarding how folks perceive public money and its relation to the taxpayer. As conventional wisdom holds it, we taxpayers fund the government, which then goes about its business in a variety of convoluted (and often reckless ways). Dissenters complain about how funds are spent, but they typically fall in line to avoid IRS sanction. The process continues from time immemorial until the state collapses, or otherwise changes shape.
Some would beg to differ, however. A strident example is Stephanie Kelton, author of the fascinating and eminently controversial Deficit Myth book. Kelton prevails as a stalwart promoter of Modern Monetary Theory (MMT), which manages to simultaneously irritate both conservative economists and their compatriots in the Keynesian column. At stake is MMT’s core implication that the state is not in fact reliant on our tax dollars, but rather independent of the stereotypical “family budget” analogy pushed by politicians. In reality, the government simply wills itself into existence by virtue of an inherent capacity to print money.
Now, some might pose an immediate counterpoint: will this not lead to runaway inflation? Well, MMT proponents have a rather clever way of squirreling out of the problem: they make a distinction between weaker economies deprived of reserve currency status and even Euro-utilizing nations tied to the European Central Bank, which prohibits them from deficit spending (borrowing and printing) their way out of the hole using former national currencies. The United States need not worry about this concern, or at least not to the same restrictive degree.
The purpose of citizen revenue is notably separate from the traditional view as well. According to Kelton, the reason why the Uncle Sam collects taxes involves three separate logical angles. First, it provides something of a check on inflation. Money taken out of circulation based upon paycheck confiscation or other state-mandated fees prevents an overabundance of cash in the system and limits the serenade hysteria of those on the Plural Right, or at least appears to do so. As to what level taxes must be, or what point spending may indeed be excessive, the MMT brigade is not terribly specific.
A following dynamic to taxation is its role in giving the dollar more value by creating a sense of scarcity among the citizenry. Consider the implications if people received their entire compensation without any current or future deductions; would there not be a potential motivation to work less, due to the availability of that additional dough? Over the course of a consumer-worker’s lifespan, it’s a lot of lost productivity on the overall market front. Many people would forgo second jobs, overtime hours, and bridging loans to simply enjoy the freedom of being off. True, there is the possibility of them becoming greater consumers with the extra funds, but whether it would make up the difference is questionable. Such conditions would also lend themselves to individuals having more time to educate themselves and question the state, hardly a positive aspect from the standpoint of the watchers.
This brings us to a third factor relating to legitimacy of the state. By collecting taxes under threat of serious penalties for failure to pay, the government puts up a credible stance versus the liberty-minded activist who conjures some idealistic claim that income tax is unconstitutional. Sure, you can hold that opinion, but the courts will see otherwise. This helps explain why even the most ardent libertarians are sure to file away by April 15th, conscious of their futility in resistance to a behemoth of entrenched administrative power.
Naturally following is the reality that tax protests would be unlikely to effect any major change on the government. The HHS and DHS will not cease to exist simply because a few hundred thousand refuse to pay into the IRS what they are expected to surrender. For one, monies are already deducted automatically from a paycheck if you are not self-employed, and even so, the government would just print or borrow more dollars. We already see this in the aftermath of major tax cuts like Trump’s TCJA; the federal state did indeed lose revenue and expand the deficit, but no crushing blow brought the Treasury to its knees. Business merely continued as usual, albeit with grimmer figures on the leader board.
Does this make us all conservative and libertarian coping clowns? Perhaps, unless the collapse becomes realer than your friendly neighborhood podcast suggests.