If most people are asked why a government imposes taxes within its jurisdiction they will answer that this is done to fund a government's spending. Whilst, for varying reasons, that might be true it is also an incomplete answer. The relationship between tax, a society and its economy is considerably more complex than that answer implies.
It has been suggested[1]that the greatest attraction of tax to many governments is the ability that it provides to shape the society that it wants to create in the jurisdiction for which it is responsible. Precisely because different governments, of different political perspectives, representing different societies with differing values, will want to create differing outcomes using the power that tax has to shape a society there is no such thing as an optimal, or even a singular desirable tax system. To think that tax is, then, solely an issue related to revenue-raising is a mistake. It does fulfil that role, but in doing so its relationship to the overall management of the economy of a society and its impact upon a government's social, economic and fiscal policy is complex. This fact will be referred to many times in Making Tax Work.
What this makes clear is that there can be many more aspects to tax than whether or not it simply raises revenue for a government. In broad terms are at least six reasons why a government charges tax. These are, in no particular order of priority, to:
- Raise revenue, either to fund government spending or, alternatively, to reclaim the money that the government has already spent into the economy;
- Ratify the value of the currency of the jurisdiction;
- Redistribute income and wealth;
- Reprice goods and services;
- Reorganise the economy through what is called fiscal policy.
- Raise democratic representation - people who pay tax vote;
Each of these reasons for tax needs explanation as they must all be understood if the relationship between tax, the society in which it is charged and its economy is to be properly understood.
[1] Murphy, R. 2015. ‘The Joy of Tax'. London: Random House.
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Thank you for attempting to elaborate on this subject here. How can tax be said to be raising revenue for the government can you give a major example?. I feel it important as most people think this the main reason for taxes.
I will post on this today
This is where i get confused – Randall Wray said taxes are not used to fund services, the government does not need taxes to do so. He is correct, he also says once collected taxes are destroyed, ie the money is destroyed and therefore it cannot be used as form revenue collection. You have also said once collected taxes are destroyed. I assume by the above post on your blog you mean some taxes are destroyed and others are kept to fund services, or have i got that wrong as well? If so can you make it clearer to me what taxes are kept and what are not!. I do not want to make a fool of myself by saying to others taxes are destroyed and some bright spark whips the floor with me with regards to taxes. This also has implications for MMT as well as one canot defend the argument that taxes are not used to fund services. I know there is a nuance to the argument. I just keep getting confusing answers on this – maybe economists do not understand it themselves.
Thanks in advance.
All tax revenues received are as effectively destroyed as money If a government has its own central bank, just as loan repayments destroy money.
Spending creates new money.
But we need tax: it controls inflation.
I will be posting in this today.
[…] was discussed in the introduction to this section on Tax and Society within the Tax After Coronavirus (TACs) project, tax has at least six roles to play in any society. […]
[…] was discussed in the introduction to this section on Tax and Society within the Tax After Coronavirus (TACs) project, tax has at least six roles to play in any society. […]
[…] was discussed in the introduction to this section on Tax and Society within the Tax After Coronavirus (TACs) project, tax has at least six roles to play in any society. […]