|Thanks all for your comments on my question in Post No. 38138: “Why does a government that can print money (e.g., the U.S.) need to collect income taxes when it can simply print money to pay for its necessary expenditures?” |
Here’s the link to my Post:
And, with Peter's indulgence, here are my responses:
>> IJ (Post No. 38142) astutely recognized that deciding on the amount and composition of “necessary expenditures” would be a stumbling block.
I totally agree. But I see no reason to believe Congress and the president would make less responsible decisions regarding the level and composition of federal expenditures if the government paid for such expenditures by printing money rather than by collecting income taxes. In fact, under a “money printing” system, to reassure faith in the currency there would almost certainly be specific legal constraints on the amount of money that could be printed.
For example, the money supply could be set at a percentage of GDP with growth linked to GDP growth (or perhaps another more accurate measure of economic growth). Exceptions in cases of emergency would require approval by a super majority vote (e.g., two-thirds) of Congress and the president’s signature. Given such constraints, Congress and the president might even make better decisions than they do now regarding expenditures.
As for there being no free lunch under a money printing system, for sure that’s true. But lunch would be less expensive and healthier. Of course, when push comes to shove, there’s no substitute for electing competent and responsible people to run our country.
>> Casaubon (Post No. 38144) points out that “the tax system is the mechanism by which liquidity is drained, to prevent excess money supply from hyper-inflating the value out of goods and services.”
Using taxes to reduce the money supply and drain liquidity is highly inefficient and extremely unfair under the current U.S. loophole-ridden income tax system. There are far better ways to control the money supply and inflation. For example, as indicated above, growth of the money supply could be linked to economic growth, the Fed and Treasury could use their powers to regulate bank lending and encourage savings (e.g., in inflation protected accounts) and there could be stricter limits on commodity speculation.
>> Peter (Post No. 38150) noted that printing money would be equivalent to a tax on “savers” and would increase inflationary expectations, interest rates and instability.
If, as suggested, money supply growth would be linked to economic growth, this would alleviate concern over inflation and instability. Also, inflation linked investments could be used to protect savings. So, as long as the expected rate of inflation would be low and relatively predictable, there’d be no reason to fear hyperinflation. In addition, as noted in my original Post, the elimination of income taxes would likely have a substantial positive impact on productivity. This would limit the inflationary impact of an increase in money supply to pay for federal government expenditures.
To sum up, the current income tax system is complex, inefficient and unfair. Simply printing money to pay necessary government expenditures, with legal constraints on money supply growth, should work a heck of a lot better. But who am I kidding? The odds of this sensible change taking place before my corpse turns into compost are about as low as the odds of my portfolio winning the 2012 Charity Contest. What? Am I really in first place? ;-)
Peace & good health,