I’ve heard a lot of tax policy debates lately, perhaps due to the 2017 Tax Cuts and Jobs Act or perhaps due to growing concerns about inequality. Of course, debating taxes is something of a national pastime (going back to British tax policies preceding the American Revolution) and I live in California (a state known for high income taxes).
An important foundational concept that is almost always overlooked in these debates is that there are two types of taxing authorities. There are currency issuers and there are currency users.
Countries like the US, the UK, Japan, China, Switzerland, and so on create their own currency. They are currency issuers. They do not need to collect taxes in order to spend or operate.
Cities, US states, and members of currency unions (like Eurozone members) use currency, but do not create their own. They are currency users. They cannot operate without tax revenue (unless they have credit and can borrow).
Failure to distinguish between currency issuers and currency users or speaking about their respective policies synonymously is to misunderstand the nature of taxes.
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