Thursday, April 22, 2010

The purpose of taxation...a continuing series...

As Keynes said, many of us are slaves to some defunct economist.

(This is not to say I am a Keynsian as I am strictly agnostic regarding the silly polemical devices economists fabricate in order to increase the amount of internicine argument for the express purpose of increasing controversy, leading to increased student interest, leading to increased professor appointments, leading to increased prestige, influence, and, of course, Power.)

I , as the below remarks illustrate am apparently no exception. I have written here many times regarding the misconception that sovereign currency issuers need to "borrow" in order to "finance" deficits.

From an article entitled "Taxes for Revenue are Obsolete" by Fed Chair Ruml in 1946:

The United States is a national state which has a central banking system, the Federal Reserve System, and whose currency, for domestic purposes, is not convertible into any commodity. It follows that our Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes. In general, it may be said that since all taxes have consequences of a social and economic character, the government should look to these consequences in formulating its tax policy. All federal taxes must meet the test of public policy and practical effect. The public purpose which is served should never be obscured in a tax program under the mask of raising revenue.

What Taxes Are Really For

Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

3. To express public policy in subsidizing or in penalizing various industries and economic groups;

4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

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