Why does the government need to collect taxes?

[Nodrog]

This isnt a moral question regarding taxation, just a practical one. The process of actually collecting taxes must cost an astronomical amount; for instance the cost of hiring thousands of people to process things, chasing people up, bureaucracy, and everything else. So why does the government actually bother doing it? I mean, its fallacious to say that the money collected by the government through taxes actually 'funds' the programs, given that the government can automatically afford anything it wants to do without needed to actually 'have' the money required to purchase it.

Since our currency isnt actually backed by anything, and as such 'money' doesnt exist in any real sense, the government has access to all the funds it requires, by definition, being the sole entity that controls the printing presses where currency is produced.. Why doesnt it just print off all the money it needs for whatever it wants to do, rather than maintaining the illusion that people are actually paying for its programs through taxation? It makes no sense to say that the government "needs the money to operate", since the government has an infinite amount of fiat currency at its disposal anyway. Obviously this would cause increased inflation and suchlike meaning that people would end up effectively 'losing' money (in real terms) even though they werent paying taxes, but there would surely be massively increased efficiency since the government wouldnt have to spend X billion dollars actually maintaining the system (also it wouldnt be possible for people to 'dodge' taxes any more). Are there any obvious macroeconomic factors that I'm missing? The whole thing seems a bit silly.

[Cynical Oracle]

The point of money at all is?

[queball]

Woah you would have thought someone else would have tried that.

[Proteus]

Nodrog for Chancellor

[Nodrog]

Originally Posted by queball

Woah you would have thought someone else would have tried that.

yeah

[Deciduous]

Surely just printing off however much you needed whenever you want, in the billions of pounds would seriously devalue our currency.

[Nodrog]

Originally Posted by Deciduous

Surely just printing off however much you needed whenever you want, in the billions of pounds would seriously devalue our currency.

Well yeah, in a sense. I'm not saying "lol giv poor people 10 million pounds each so everyone will be rich!!!!"; I'm fully aware that the government printing off an extra X billion a year is going to result in massive inflation. But surely it could be managed so that the 'loss' to the average person via inflation is roughly equivalent to (or ideally less than) the money they currently 'lose' via taxation?

[Deciduous]

You probably could, but I dare say it would be a massive inconvenience to a lot of people that wages/prices would go up (eg) 40% every year, confusing to keep track of...

[queball]

Ok:

Look back to the 1970-1990 kind of period with some really high inflation rates and what happened. Inflation is far far worse than the cost of collecting taxes, because it changes our relationship to currency. Making the entire country adjust prices every day, with horrible transaction costs and general confusion. There is only one correct inflation rate, where the value of a pound stays the same (by some standard): "seignorage". At least income tax is predictable.

It's like suggesting that we ban roofs and walls so that the BBC can see if you've got a TV easily. Inflation is horrible. Its effects are hidden from tyrants, but luckily we're in an enlightened age.

[Nodrog]

Surely controlled inflation is far less damaging then uncontrolled inflation? You could probably make a good prediction in advance what would happen, and adjust things accordingly. And it wouldnt be an 'every day' thing, just the government printing out a few hundred "billion pound notes" every july or whatever.

[wu_trax]

you can run an economy with an inflationrate of 10-20% or even more. we actually tried that here at the end of the 20s, didnt exactly work out. it causes total chaos.
a country needs a more or less stable currency (but without basing it on some stupid gold standard)

[Nodrog]

You cant have a stable currency without some kind of backing, but why does a country need a more or less stable currency anyway? Also, how would this destabilise the currency? The inflation would be planned for in advance; its not like it would take anyone by surprise or anything.

[Deciduous]

We should probably be more worried about what useless schemes it gets spent on, or where it gets tied up in bureaucracy once it's been collected, rather than while it's being collected.

[queball]

Originally Posted by Nodrog

Surely controlled inflation is far less damaging then uncontrolled inflation? You could probably make a good prediction in advance what would happen, and adjust things accordingly. And it wouldnt be an 'every day' thing, just the government printing out a few hundred "billion pound notes" every july or whatever.

Ok, fair enough.
Though think supply/demand: how many people will stop using your currency? If people were allowed to simply stop accepting the government's money, they would. Though the idea might work on a smaller scale (mutualist banking and stuff).

[wu_trax]

Originally Posted by Nodrog

You cant have a stable currency without some kind of backing,

and still most western countries have, well, the economy is its backing. all those reserves they have are laughable comapred to the money in circulation.

but why does a country need a more or less stable currency anyway? Also, how would this destabilise the currency? The inflation would be planned for in advance; its not like it would take anyone by surprise or anything.

you cann't 'plan'. once you are above some level of inflation it becomes worse all the time. higer wages = higer prices, higher prices = higher wages and so on until after a while you need a few billion pound to buy a bread.

[Entium]

You seem to forget that in most capitalist countries the Fed is working completely independent of the government. The government has absolutely no influence on the monetary policy.

Further, hyperinflation is probably the worst thing an economy can be afflicted with. Read about the hyperinflation in Germany (1922), Bolivia (1985) or Peru. People wouldn't be working anymore because money depreciates faster than they can draw it ('shoeleather costs'). There are other costs involved, e.g. 'menu costs', where firms have to change prices so often that normal business practices become impossible. At last, the reallocation between debtors and creditors is huge.

[Dante Hicks]

High inflation would be horrible for anyone on anything approach a flat income, plus you're basically encouraging social unrest because people need constant collective bargaining to keep up with inflation.

More historically, governments can control who pays taxes (to a degree). In ye olde times supporters of the King probably got off more lightly on taxes than his enemies. In the the original Poll Tax (centuries ago) Catholics had to pay double (I think). Social-democrat governments target taxes at the better off for political popularity. And so on. Your inflation policy (which I presume would break down internationally anyway) would kind of hit everyone at random rates, depending on how dependent they were on sources of fixed income (unless the price of borrowing was really high).

edit : Plus inflation begets more inflation. Obviously.

[JammyJim]

"distribution of wealth" is also a serious concern amongst most.

[Nodrog]

Originally Posted by Dante Hicks

More historically, governments can control who pays taxes (to a degree). In ye olde times supporters of the King probably got off more lightly on taxes than his enemies. In the the original Poll Tax (centuries ago) Catholics had to pay double (I think). Social-democrat governments target taxes at the better off for political popularity. And so on. Your inflation policy (which I presume would break down internationally anyway) would kind of hit everyone at random rates, depending on how dependent they were on sources of fixed income (unless the price of borrowing was really high).

Isnt this a good thing?

[wu_trax]

and i forgot: it doesnt make sence to save money anymore, because it will be worth nothing tomorrow.
(or it would require VERY high intrest rates. im not even sure that would work with your inflation completly at random)

[Nodrog]

The inflation wouldnt be completely random, why do you keep saying that? It would be controlled.; thats the whole point.

[Zar]

interesting theory nodrog.

for it to work the entire world would have to use the same base rate, and increase inflation at the same rate, otherwise

1 day

$1 = 1£

the next day

$1 = £50 and you have a bit of a problem....

Zar

[Cmdr_Cyrax]

Its a very desirable system but it's a description for the best case scenario. People will want more than their fare share, politicians will be corrupt etc.

I know it's already pretty much like that but a currencyless economy would be so much more fragile. I believe the Federation in star trek uses such a scheme, which is evidence in enough for its unlikelyness.

[wu_trax]

Originally Posted by Nodrog

The inflation wouldnt be completely random, why do you keep saying that? It would be controlled.; thats the whole point.

and you think the goverment could plan its expenses over a longer periode of time, like 5-10 years?
lets say i borrow money from you for a few years. next year there is some big terrorist attack in london and the goverment suddenly needs lots of money to fight the evil. the inflation increases and i can pay you back because i now earn a lot more money. you got your money back, but its not worth anything anymore.

[Nodrog]

What do you mean a currencyless economy? It wouldnt be any more currencyless than the one we currently have; there would still be an 'official' currency and suchlike.

[Nodrog]

Originally Posted by wu_trax

and you think the goverment could plan its expenses over a longer periode of time, like 5-10 years?
lets say i borrow money from you for a few years. next year there is some big terrorist attack in london and the goverment suddenly needs lots of money to fight the evil. the inflation increases and i can pay you back because i now earn a lot more money. you got your money back, but its not worth anything anymore.

How is this essentially different from deficit spending

[wu_trax]

Originally Posted by Nodrog

How is this essentially different from deficit spending

you usually have some independent central bank that tries to fight inflation?

[Dante Hicks]

Originally Posted by Nodrog

Isnt this a good thing?

I don't know, I don't like taxation, it seems rubbish and inefficient.

[Nodrog]

Originally Posted by wu_trax

you usually have some independent central bank that tries to fight inflation?

I dont think you can call a company operating within a protected monopoly 'independent' in any meaningful sense of the word. However theres no reason why you still couldnt have a central bank managing things like inflation and interest rates; they'd just have another factor to take into account.

[Entium]

Originally Posted by Nodrog

What do you mean a currencyless economy? It wouldnt be any more currencyless than the one we currently have; there would still be an 'official' currency and suchlike.

Eventually, the costs of hyperinflation become intolerable. Over time, money loses its role as a store of value, an unit of account and a medium of exchange. Barter becomes more common. And more stable unofficial monies (eg. cigarettes) start to replace the official money.
Money 'is not worth a continental', as the american would say, given that they actually used your theory already two centuries ago...

[Entium]

Originally Posted by Nodrog

I dont think you can call a company operating within a protected monopoly 'independent' in any meaningful sense of the word.

Ok, tell me one 'western' country with a central bank that isn't autonomous (from government).

[Dante Hicks]

Originally Posted by Entium

Ok, tell me one 'western' country with a central bank that isn't autonomous.

Depends what you mean by autonomous. The Bank of England can be thought of as independent, but they are largely trying to achieve government set targets, using mechanisms designed by the government, eventually answerable to government, with key staff appointed (indirectly) by government. What they decide in Situation X or Y may be autonomous, but does that define the quality of the whole operation?

[Nodrog]

Originally Posted by Entium

Ok, tell me one 'western' country with a central bank that isn't autonomous.

I wouldnt call any of them autonomous, for the reason I just mentioned. None of them are subject to market forces in any way; they exist by sole virtue of the government's actions and are only kept alive through the government's wishes, and through the government forcing the public to use their services. I'd class them as being part of the state in an abstract sense - who actually manages them doesnt seem important. Its the same reason I wouldnt class the BBC as being autonomous for instance. This is pretty offtopic though.

[wu_trax]

Originally Posted by Nodrog

I wouldnt call any of them autonomous, for the reason I just mentioned. None of them are subject to market forces in any way; they exist by sole virtue of the government's actions and are only kept alive through the government's wishes, and through the government forcing the public to use their services. I'd class them as being part of the state in an abstract sense - who actually manages them doesnt seem important. Its the same reason I wouldnt class the BBC as being autonomous for instance. This is pretty offtopic though.

what do market forces have to do with this?
so your courts arent autonomous, because everything you just said is also true for them?
besides, what do you think a central bank actually can do if the goverment has the power about the printing press?

[Nodrog]

Originally Posted by wu_trax

what do market forces have to do with this?
so your courts arent autonomous, because everything you just said is also true for them?
besides, what do you think a central bank actually can do if the goverment has the power about the printing press?

Of course the courts arent autonomous, their function is to apply the law set down by the state.

The current trade methods used by banks do not constitute a viable business model. They would not survive in their current state were it not for the governments continual intervention to keep them afloat. Therefore, I would not use the word autonomous to describe them.

[Tactitus]

The problem is that a government can't force you to use or hold it's money. People do use/hold the government's money if/when it's relatively stable because currency transactions aren't free.

A system you describe might work for relatively low levels of inflation/taxation--basically in the range of 1-2 percent (cost of inflation < cost of currency transactions). As the level of inflation/taxation increased, however, so too would the incentive not to use the currency. People would quickly convert their government currency to other, more stable currencies. Eventually, people would pay wages etc. in other currencies to avoid the conversion altogether. The 'cost' of the taxation would then be born by those who (foolishly) held onto the government's money. It would bascially be an opt-out taxation system and as taxes (inflation) went up, more and more people would opt out. Eventually the government would be printing more and more money that no one would take/keep--hyperinflation.

[Nodrog]

Originally Posted by Tactitus

The problem is that a government can't force you to use or hold it's money. People do use/hold the government's money if/when it's relatively stable because currency transactions aren't free.
.

Huh? Isnt it illegal for private institutions to issue unlimited currency in most Western countries without explicity government permission? Of course youre forced to use/hold state currency.

[Entium]

Originally Posted by Nodrog

I wouldnt call any of them autonomous, for the reason I just mentioned. None of them are subject to market forces in any way; they exist by sole virtue of the government's actions and are only kept alive through the government's wishes, and through the government forcing the public to use their services. I'd class them as being part of the state in an abstract sense - who actually manages them doesnt seem important.

This isn't really true. The Swiss National Bank eg. is autonomous of the Swiss government. It sets its own inflation target (an interest rate range) and is actually working like a real company (make huge benefit). There is empirical evidence, that the more independent central banks are, the more continous inflation is.
And this isn't actually off-topic, because as long a country has by constitution an 'independent' central bank, it cannot print money for seignorage purposes.

[Nodrog]

The Swiss National Bank isnt exactly representative of the banking systems in most Western countries. And Constitutions are just bits of paper; they can be changed/ignored. Take America for instance.

[Entium]

Originally Posted by Nodrog

The current trade methods used by banks do not constitute a viable business model. They would not survive in their current state were it not for the governments continual intervention to keep them afloat. Therefore, I would not use the word autonomous to describe them.

In 2003, the Swiss National Bank made a benefit of 4.0 billion Swiss Francs (maybe 1.7 billion pounds). The government (and the states...) will get some of this money, not the other way round.

[Nodrog]

As I said, I dont think Switzerland is a good example to use when discussing the banking methods of the 'average' Western country.

[Tactitus]

Originally Posted by Nodrog

Huh? Isnt it illegal for private institutions to issue unlimited currency in most Western countries without explicity government permission? Of course youre forced to use/hold state currency.

I'm not sure what you mean by unlimited, but private currencies are legal in the US except that no one is required to accept them. Almost no one bothers with them although private precious metal-backed currencies had a small resurgence during the high-inflation period of the late '70s/early '80s.

As a practical matter, if I offer you a non-government currency in exchange for your goods or services and you're willing to accept it, how exactly is the government going to prohibit it?

[BeeKiller]

Originally Posted by Nodrog

Since our currency isnt actually backed by anything, and as such 'money' doesnt exist in any real sense, the government has access to all the funds it requires, by definition, being the sole entity that controls the printing presses where currency is produced.. Why doesnt it just print off all the money it needs for whatever it wants to do........
Are there any obvious macroeconomic factors that I'm missing? The whole thing seems a bit silly.

erm actually the pound is on the Gold Standard (since 1821), meaning that it is based on something (the amount of gold the government (to be more precise, the bank of england) has. So if they were to print whatever money they wanted, the value of each note as such would go down as it is related to the ratio between number of notes and total gold possessed by the bank of england O_o

[queball]

Originally Posted by BeeKiller

erm actually the pound is on the Gold Standard (since 1821), meaning that it is based on something (the amount of gold the government (to be more precise, the bank of england) has. So if they were to print whatever money they wanted, the value of each note as such would go down as it is related to the ratio between number of notes and total gold possessed by the bank of england O_o

hahahahahaha
http://en.wikipedia.org/wiki/Pound_Sterling

[BeeKiller]

Originally Posted by queball

hahahahahaha
http://en.wikipedia.org/wiki/Pound_Sterling

my bad
i haven't really red up on it since doing A level history, but that site is wrong in saying it was "unofficially" adopted in 1821, it was definately "official" and introduced by Sir Robert Peel

[Dead_Meat]

Isn't what you describe essentially an easy way for a country that was based on capitalism to bring itself toward a communist ideal?

[Radical Edward]

wouldn't loads of people just buy foreign currency and change back as needed then? It would be completely impractical to save any money with that level of inflation.

[Nodrog]

Originally Posted by Dead_Meat

Isn't what you describe essentially an easy way for a country that was based on capitalism to bring itself toward a communist ideal?

No more than an unbacked currency itself

Originally Posted by BeeKiller

my bad
i haven't really red up on it since doing A level history, but that site is wrong in saying it was "unofficially" adopted in 1821, it was definately "official" and introduced by Sir Robert Peel

From that site

Sterling unofficially moved to the gold standard from silver in 1717 thanks to Sir Isaac Newton, who was Master of the Royal Mint, and the use of silver declined until the official adoption of the gold standard following the end of the Napoleonic Wars, in 1821. This lasted until Britain, in common with many other countries, abandoned the standard during World War I, in 1919. During this period, the pound was generally valued at around 4.9 US dollars.

[ChubbyChecker]

I would agree that high inflation (which is a direct result of this nice little theory) would be very impractical. The government at the moment spends roughly 40% of GDP each year. That is a lot of extra money supply and it would stand to reason that the annual rate of inflation would be higher than 40%. That is about 20 times higher than it is now.
Saving money wouldn't be a problem because the central bank's rate of interest would be set slightly above or slightly below (depending on whether the bank wants you to spend money or not) the inflation rate.
The real problem as already mentioned would be constant price rises. Shops, restaurants, all profit making businesses in fact, would have to reprice their goods on pretty much a monthly basis when previously they would do it yearly. Also your country's rate of inflation would have to be pretty similar to any other country's rate if you wanted to trade with them. Either that or use a currency that does not have this money policy, which brings its own problems.

Though of course our current system has its own problems and inefficiences. Plus it would mean those bloody plumbers and electricians wouldn't have an unfair advantage!

It would be interesting to see a proper study on this. There must be one somewhere

[wu_trax]

Originally Posted by Nodrog

Of course the courts arent autonomous, their function is to apply the law set down by the state.

they are autonomous, at least they are somewhat independent of the goverment, which is all that im talking about.

The current trade methods used by banks do not constitute a viable business model. They would not survive in their current state were it not for the governments continual intervention to keep them afloat. Therefore, I would not use the word autonomous to describe them.

what banks and do you want everyone to print their own money?