Taxation by inflation

From Issuepedia

About

Taxation by inflation (aka "taxflation") is the idea of providing all or part of a government's budget by simply printing more money, rather than through traditional tax-collection methods (most of which are coercive, which is widely viewed as an ethical concern).

Some of this money would go directly to the poorest citizens in the form of social supports, while the rest would in theory go to businesses providing useful products and services, thereby benefiting the economy.

Benefits

The corresponding devaluation of currency would have the largest direct effect on the rich; poor people tend not to have monetary savings, and often run up substantial debts (whose value would be gradually eroded over time, making them easier to pay off).

Those with significant amounts of surplus income would be encouraged to invest in physical goods or business ownership, rather than holding cash; this would improve the flow of money in society, reduce cash-hoarding, and increase production.

If this method was used to replace the revenue from income tax:

  • Nobody would have to file an income tax return
  • Nobody could be penalized for failure to properly pay income tax
  • The entire body of income tax regulation (which has been essentially incomprehensible for many years) could be done away with, simplifying and shrinking government.

Costs

  • Over time, employees would suffer -- especially those at the low end of the pay scale -- if wages did not increase steadily to compensate for the steady reduction in spending power. However, there are mechanisms by which such increases could be standardized.
  • Instead of hoarding money, people with large income surpluses might tend to hoard fungible resources, which might cause supply problems and other issues.
  • Instead of investing money, people with large income surpluses might convert their cash to other currencies, from which they could convert back to dollars at need.
    • Market forces in the currency-trade markets should tend to counteract any gains from doing this.
    • This would still have the beneficial effect of freeing up more currency for legitimate uses (i.e. other than hoarding).