A lot has been written recently about the percentage of Americans that pay taxes to the Federal Government.  These articles, however, are all nearly worthless, as they only examine direct taxation.  The truth of the matter is that, even if the Federal income tax were completely abolished, it would do little, in and of itself, to change the size of government.

A government that has direct currency control has no need for any explicit taxation.  The government can simply print enough money to pay for itself.  The government effectively goes from a direct tax to an indirect one by taxing through deflation of the currency.  This course of action is, in fact, recommended by extreme monetarists.

While I think that this type of extreme monetarism is a terrible idea for a lot of reasons, one must be aware that it is, to a certain extent, actually occurring in today's world.  While the US Government doesn't have direct currency control, as the Fed is 'independent' (cough, bullshit, cough), we have a lot of indirect taxation through Federal debt, which is subsidized by the Fed's balance sheet.  In short, we have the worst of both worlds, as we have direct taxation and indirect taxation, both of which hit producers and savers the hardest.

If I were to try to examine the effects of extreme monetarism, it would take a very long (and terribly boring to most people) series of blog posts.  The purpose of this post is to simply point out that the issue of direct taxation, and the percentage of society that pays direct taxes, is only part of the picture.  I'll leave the consideration of the effects of indirect taxation as an exercise for the reader (all zero of you).

Posted by: Hermit Dave at 10:09 AM | Comments (2) | Add Comment
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