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I think what's going on is that it's politically easier to tax lots of stuff a little than a few things a lot. That's because pretty much everything is subject to diminishing marginal returns, so the forgone activities are more marginal with lower rates on more things.
The purchasing power of the existing money stock is just one of the things they want to tax.
am I thinking about this wrong?
Yes-ish. Two control questions to get you thinking, Socratic style:
- How come the Fed balance sheet has shrunk for four years straight, and a total of 2 trillion? (Minus the last six months little blip) in the same periods that the red bar have been record-large (excepting rona years). That's very odd if money printing is covering
- How can the national debt keep growing like crazy if the large deficit — which is the difference between gov revenue and expenses — is covered by money printing?
also, charts like yours aren't too helpful in understanding what's going on because there's no economic connection between the two: As in deficit is just the negative number that's left over after calculating [gov revenue] minus [gov expenses]
inflation -> bigger cap gains, higher wages, more tax revenue
Yes, that's generally true. How big is that effect? Nobody can (really) tell, so we're back to where we started... I guess I just don't believe that most/a large portion of gov revenues + treasury issuance are due to money printing (explicitly, or roundabout) alone.
I fear that even today I came perilously close to a statement similar to saying "taxes are revenue theater" #1530210 so in order to make sure I'm on firm ground I'm going to try to think this through.
Here is US annual deficit and annual revenue:
Now, neither of these bars represent money printing, but we might say that on the broad scale (which both Bunney and Song seem to get right) the red bar might be financed by money printing. (It might also be the case that the blue bar gets bigger due to money printing: inflation -> bigger cap gains, higher wages, more tax revenue)
In the Covid years, it does start to look like taxation is not as strongly necessary as we thought. The same goes for GFC years, 2009-2010. However, the fact that they don't maintain such a high ratio of deficit to revenue implies that they believe tax revenue is more than theater.
It does seem like, with each crisis deficits are ratcheting up to higher and higher percentages of revenue. How high a percentage of revenue would deficit need to be for you to feel like taxation is somewhat a theater show?
(or am I thinking about this wrong?)