Taxation Is a Public Service (And Why You Should Welcome It)
Why economists have long understood the true purpose of taxes—but rarely say it out loud.
We’re used to thinking of taxes as confiscation. But in a modern monetary economy, taxes function more like infrastructure or insurance: a service that protects the value of money itself. This isn’t a new theory—just a clearer way of stating what’s been understood for decades.
Americans hate paying taxes. That seems natural, even obvious. Taxes feel like the government taking your money—money you earned, money that belongs to you—to fund its operations. If that’s the way you understand taxes, the natural response isn’t to ask how to design them well. It’s to ask how to minimize them, avoid them, or make them go away entirely.
From that starting point, the debate about taxation naturally becomes one of damage control: how much the government should be allowed to take, how to limit it, and who should pay.
But what if that entire framing is wrong?
What if taxation isn’t primarily the government taking something from you at all—but the government providing a service you benefit from, whether you notice it or not?
This isn’t a semantic trick. It follows from some basic facts about how modern money works—facts economists have understood for decades, even if they rarely spell out the implications in plain language.
Why a Currency‑Issuing Government Taxes
The U.S. government issues its own currency. That means it does not need to “get” dollars from taxpayers before it can spend them. It doesn’t need tax revenue to fund its operations. That’s not why our government taxes.
It can be useful to think about the economy as though it were a bathtub. Government spending turns on the faucet, adding dollars to the economy. Taxes act as the drain, pulling dollars back out.
Neither the point nor the analogy are new. In 1943, economist Abba Lerner argued that for a government like ours, the real economic constraint on spending is not revenue but inflation—the risk of pushing total spending beyond what the economy can actually produce. Three years later, Beardsley Ruml, then chair of the New York Fed, put it even more bluntly: under monetary sovereignty, the primary purpose of taxation is “to stabilize the purchasing power of the dollar.” Today, most economists accept the basic operational fact that a government that issues its own currency can always make payments in that currency. What matters is not whether the government can spend, but what happens after it does: specifically, whether its spending will push total demand beyond the economy's capacity and cause inflation.
That distinction matters. It forces us to rethink what federal taxes are for—and to recognize that under a fiat currency system, taxation’s purpose is fundamentally different than it was under the old gold standard. If taxation’s primary function is to control inflation—to prevent your money from losing value—then taxation isn’t about “taking your money,” it is about providing you with a service. It’s protecting the purchasing power of every dollar you hold.
At this point, a reasonable reader might ask: If this is so obvious, why don’t economists say it this way?
Part of the answer is professional habit. Over time, economists have become careful—sometimes overly so—about separating technical analysis from explicit value judgments. They are comfortable saying that taxation serves to help control inflation, because that can be presented as a descriptive, technical claim about macroeconomic stability.
But economists are much more hesitant to take the next, logically equivalent step and say what that implies: that taxation is a service—something we rely on to protect the value of money and the functioning of the economy. Saying it that way sounds normative. It sounds like a statement about what taxation is for, not just what it does. And that is precisely the move today’s economists are trained to avoid making explicit.
What Taxes Really Do
When the government taxes, it reduces private purchasing power—opening the drain and pulling dollars out of the economy before demand spills over into inflation. Households have less purchasing power. Businesses have fewer dollars chasing workers, inputs, and customers. Demand is reduced.
That’s not a side effect of taxation. It’s the point of taxation. It’s the service that taxation provides—and it’s a really important service. It protects the most fundamental economic tool we all rely on: stable money.
Inflation happens when total demand outruns the economy’s real capacity—when too much money is chasing too few goods and services. Taxes help prevent such overruns by pulling purchasing power out of the economy.
Other tools matter too. Interest rates, regulations, supply constraints, and productivity all play a role in inflation. But taxes are a uniquely direct tool. They work by reducing how much we, collectively, are trying to buy.
Seen this way, taxation is not about “funding” the government. It’s about making the economy function without blowing itself apart.
Inflation Is a Tax—a Very Bad Tax
If the government were to keep spending without withdrawing enough purchasing power from the economy, the result would be inflation. Prices would rise. Each dollar would buy less.
When inflation reduces purchasing power, it functions a lot like a tax—really, two taxes at once. One tax falls on wealth, as cash and fixed savings lose value. The other tax falls on income, as wages and salaries fail to keep up with rising prices. If prices rise ten percent, both your savings and your paycheck buy roughly ten percent less.
But unlike an explicit tax, inflation is badly designed.
Inflation hits hardest those least able to protect themselves: people whose wealth is held mostly in cash or who have fixed incomes, workers whose wages lag behind prices, households living paycheck to paycheck. It is invisible, unlegislated, and indifferent to fairness.
If we care about equity—and policymakers constantly say they do—relying on inflation to do the work that taxes could do more openly, intentionally, and equitably is hard to defend.
Taxes as Insurance or Dental Hygiene
A useful way to think about taxation is as a kind of insurance premium. You don’t buy insurance because you expect your house to burn down tomorrow. You buy it because the risk, if it materializes, is catastrophic—and because paying a predictable premium is far cheaper than facing catastrophic loss.
Taxes work the same way. By giving up some purchasing power in advance, we insure ourselves against runaway inflation later. We pay a visible, structured price to avoid a hidden, chaotic one.
Inflation is what happens when we try to go uninsured.
There’s another way to think about it. Paying taxes is also a bit like going to the dentist. You don’t only go because something has already gone terribly wrong. You go for regular cleanings to prevent problems, to preserve the usefulness of your teeth, and to avoid far more painful and expensive interventions later.
Taxes work the same way. They are routine maintenance for the monetary system—visible, ongoing costs paid to keep money functioning as a reliable tool and store of value, rather than waiting for instability to force far more disruptive corrections.
The Real Question (And Why We’re Not Asking It)
This reframing reveals something important: most of our political debate about taxation is focused on the wrong question.
Turn on cable news or listen to any budget debate in Congress. The question everyone argues about is: “Should taxes be higher or lower?”
Conservatives argue for lower taxes, treating any increase as an encroachment on freedom and a drag on growth. Progressives argue for higher taxes, treating them as necessary to fund vital programs and reduce inequality. Both sides treat the aggregate level of taxation as a fundamental ideological battleground—as if the total amount we tax is primarily a question about political values and the proper role of government.
But once you understand what taxation actually does, this framing starts to look confused. The aggregate level of taxation is not primarily an ideological question; it is a technical one, determined by the macroeconomic conditions we face.
Tax too little, and inflation erodes everyone’s purchasing power—the wealthy and the working poor alike. Tax too much, and you suppress economic activity unnecessarily, creating unemployment. The right amount to tax is simply whatever amount is needed to prevent inflation while maintaining full employment, given current government spending and the economy’s productive capacity.
This doesn’t mean politics disappears. It just means we are arguing over the wrong thing.
The real question is not “How much revenue does the government need?” A currency‑issuing government doesn’t have a revenue requirement in the same way households do. Once the technical level of taxation is determined by the needs of the economy, the genuine political and moral choices begin:
From whom should that purchasing power be withdrawn?
How can the “drain” be designed to ensure fairness?
Whose claims on real resources should give way when the economy is under strain?
These are moral and political questions, and they are deeply contested. They are about power, equity, and the kind of society we want to build. They are also where the technical and moral meet.
A tax on those already struggling to buy groceries is a technically efficient way to reduce total demand, but it is a moral catastrophe. By contrast, because billionaires usually spend a much smaller fraction of their income, a tax on them is a ‘slower’ drain on demand. If the goal of the service is to cool the economy without causing hardship, technical realities suggest that we should tax the top at much higher rates—not as punishment or because of envy, but as sound design. Tax policy isn’t just about deciding how much to tax—it’s about designing a fair mechanism for distributing the cost.
By obsessing over ‘high vs. low’ in the abstract, we avoid these uncomfortable, unavoidable questions about distribution. We treat as an ideological choice what is actually a technical requirement, and in doing so, we fail to have an honest conversation about the service that taxation actually provides.
Taxation Is a Public Service
Seen clearly, taxation isn’t confiscation. It’s the cost of a service we depend on.
By deliberately withdrawing purchasing power from the economy, taxes make it possible to sustain high employment and stable prices at the same time. They prevent inflation from becoming the default, unlegislated tax that quietly erodes wealth from the bottom up.
The real choice is not between “high taxes” and “low taxes.” It’s between explicit, intentionally designed taxation—and implicit, regressive inflation.
If something must be paid to preserve price stability—and it must—the only real question is how, and by whom.
That is not an argument against taxes. It’s an argument for finally being honest about what they do.
None of this is a new discovery.
The descriptive foundations have been around for decades. Abba Lerner laid them out in the 1940s. Beardsley Ruml said the quiet part out loud shortly after. More recently, scholars associated with Modern Monetary Theory have spelled out the mechanics in detail.
What’s new isn’t the analysis. What’s new is simply stating the obvious implication that usually goes unstated: if taxation performs a real and valuable service—if it helps protect the value of money and keep the economy usable for everyone—then it isn’t just a necessary evil.
It’s a service.
And like other services we rely on, it’s something we should evaluate seriously, design carefully, and—when it does its job well—recognize as beneficial rather than resent as confiscation. Taxation is a public service. The sooner we treat it as one, the sooner we can have honest and useful debates about how to design and distribute it fairly.