bilby
Fair dinkum thinkum
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They spend on the credit people extend to them based on the faith that their currency will maintain its value.
But tax liabilities are critical because without them there's no particular need for anyone to use the currency. Requiring taxes drives demand for the currency, which gives it value. That's one of its purposes.
Money is more convenient than gold or barter. Paying taxes is a one way it's useful.
Taxes also ensure that the govt can provision itself, by removing purchasing power, or creating "fiscal space".
I don't have the financial acumen to know, but it really seems to be over complicating the function of money and the need for government revenue to fund its operations.
Moody's Analytics provides monthly estimates of the fiscal space of many countries. They define it as the difference between an estimated upper limit of public debt (beyond which action would have to be taken to avoid default) and actual public debt, expressed as a percentage of GDP or equivalently as the difference between the debt-limit-to-GDP percentage and the actual-debt-to-GDP percentage.
Purchasing power and "fiscal space" is a matter of savings and/or cash flow.
So, to say "taxes don't fund anything" is an oversimplification, but it's not entirely untrue.
So its not entirely true either. Not to get nasty but it sounds like when Trump claims he's going to build a wall. There's less to it then it's made to seem.
The point is that you MUST pay taxes; and you may ONLY pay them in US Dollars. So everyone needs US Dollars.
If everybody decided to move to using gold instead, they would not be able to pay their taxes without buying US Dollars for that purpose. Which would render US Dollars valuable. Which would make using gold unnecessary.