Eli5 Why can’t the government just set aside money instead of deducting it from paychecks?


I was wondering why the government has to deduct taxes from us. Why can’t they set aside what they need to begin with? I think I don’t have an idea of how money truly moves…

In: 0

The main reason everyone wants and accepts money, which is otherwise a meaningless government issued token, is because tax liabilities can only be settled with the governments currency.

If you don’t settle your tax liability, you go to jail.

In order to settle that liability you need money.

Therefore people are willing to work for in exchange for a meaningless token.

Therefore the government can hire people to be police, judges, teachers, etc by spending their tokens.

Can you word your question differently? What do you mean by setting aside?

The government needs money to operate and to offer services. They get money by taxing people. There are lots of taxes, but income is probably the most important one.

The government doesn’t have infinite money, it needs to make money somehow just like everyone else (simplified).
The way it makes money is through taxes which people in the country pay.

They don’t have to take them out of the paycheck directly. In fact most taxes, like sales or property tax, are collected differently.
Paycheck deductions just prevent constantly having to go after people who didn’t set aside money for income tax and are broke when taxes are due.

If you mean, why don’t they print money and set it aside for themselves when it comes time to pay for things, then:

Hyperinflation. The more money in the system, the less each dollar is worth, the more businesses will charge for product and services. When people realize what’s happening, they hoard, driving prices further up. This vicious cycle is why governments, central banks specifically, keep a right control on how much of it’s currencies are in circulation

That’s exactly what they are doing – taking it from your paycheck and setting it aside to cover your tax liabilities.

Otherwise you’d have to do it yourself, and frankly most people would fail badly at that. The average person is just not very good with money, especially with maintaining long-term savings when they have immediate needs and wants.

The government deducting it up front makes our lives easier. Since we never even get it in the first place, there’s no way we could misappropriate it, either on purpose or accidentally or in a moment of weakness or desperation.

And also we don’t feel as bad when the tax bill comes due in the spring, because we’ve already paid most of it, or even overpaid and get a refund, which feels like getting free money, even though its ours.

Rather then explain with taxs and inflation and other complex terms. im going to do it with bananas and coconuts.

If there was 1 banana and 1 coconut u can say 1 banana = 1 coconut. But let’s say there were suddenly 2 coconuts. Then the value of the coconut is now 0.5 of a banana. The value has lowered for the coconut compared to the banana. While the banana has increase as compared to the coconut.

Now if coconuts were the money supply in the economy and the banana were the goods and services u purchase. Then u can see how the more u print coconuts (money) the value lowers with each coconut (money) that is being made. This is called inflation and will be important later so keep this in mind.

Now back to why the gov can’t keep the money it prints and spend it.

If the goverment kept printing coconuts then u have inflation where the price of a banana goes up but the value of the banana stays the same so u end up paying more coconuts.

Now picture the goverment as a person. If they keep spending they will run out of money. But they can print coconuts to solve the issue right? Well no because if they do it just increases the price of bananas and u run out of money again and u repeat. The reason taxs are used is because it is like income for the government. It pays for things without having to make more coconuts and thus increasing the cost of bananas.

According to how I see it, money (currency) has no value. When the government prints money, if it just keeps how much it needs, that money is of no value. If the government spends that money, all it’s going to do is give people more money to buy the same amount of things that is available in the country (market).

Because that oney was just printed and not earned, no wealth was created with that money. So there is nothing new in the market because of that money. Essentially, the total worth of things in the market remains same but the government just introduced more money by spending “printed money”.

Now, there’s more money to buy the same amount of goods, which means each of those goods now costs more money. So inflation!

The value to the money comes from what it can buy and also based on what was exchanged for it. In the case of income taxes, the government is taking a part of your money. But actually it is taking a share of your work.

It is your work that was exchanged for that money. Your work is what gives the money it’s value. So when the government takes its share, it’s actually taking your work, just not literally.