Everthing About Taxes Might Be a Lie // James Li

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The Myth of Taxpayer Money: What If Everything You Knew About Taxes Was a Lie?

If the U.S. government doesn’t need your tax dollars to function, then what exactly is the purpose of taxes? It’s a provocative question, one that flips decades of conventional economic wisdom on its head. And it’s the central argument in an increasingly influential school of thought known as Modern Monetary Theory (MMT).

According to MMT proponents — and supported by statements from past Federal Reserve chairs like Ben Bernanke and Alan Greenspan — federal taxes in the United States are not used to fund government spending in the way most Americans assume. Instead, they’re part of a much more strategic toolset used to manage inflation, control demand, and maintain social order.

So Where Do Your Taxes Actually Go?

They don’t go anywhere. At least not in the literal sense. Under our current fiat monetary system, when you pay federal taxes, the money is effectively deleted from the economy. The U.S. Treasury doesn’t stash it in a vault or earmark it to fund your neighbor’s Medicare or a new school in Chicago. They erase it from the system to maintain monetary balance. That’s because the federal government is the issuer of the U.S. dollar. It doesn’t need to “collect” money to spend — it creates money digitally with keystrokes.

This is dramatically different from state or local governments, which do rely on collected taxes to operate. But federally? It’s accounting smoke and mirrors. Most Americans have been conditioned to think of the government as a giant household that must “budget” its spending. That metaphor breaks down when you realize that households can’t print money — but governments can.

Modern Monetary Theory: Economics Rewired

Modern Monetary Theory offers a redefinition of government finance. It states that the real constraints on federal spending are not financial, but political and inflationary. Economist Stephanie Kelton, one of MMT’s most prominent voices, argues that the only limit on what a sovereign government like the U.S. can spend is inflation — not solvency.

This theory reframes the entire national debate around social programs. Can we afford Medicare for All? Free college? Universal childcare? Under MMT, the real question becomes: can we do it without creating destructive inflation? If the answer is yes, then the money is there — because it always was.

The Taxpayer Illusion and Class Control

But why maintain the illusion that taxpayer money pays for everything? The answer, critics argue, lies in control. By framing government spending as “your money,” the political class creates a sense of entitlement and hierarchy. Those who pay the most in taxes are positioned as having the most say in how the government operates, while marginalized populations — who may contribute less directly — are stigmatized as “takers.”

This framing has real-world consequences. It’s used to justify underfunding social services, cutting welfare, and demonizing low-income communities. The myth of taxpayer money becomes a tool of class warfare, a rhetorical shield to protect the interests of the wealthy while keeping working-class Americans fighting over scraps.

Why Military Budgets Are Never Questioned

Year after year, the military receives hundreds of billions in federal funding — no one ever asks, “How are we going to pay for it?” That question only arises when the conversation turns to social investments: healthcare, education, housing. These programs are cast as indulgent luxuries rather than essential infrastructure. Under MMT, this selective skepticism is revealed for what it is: a political tactic, not an economic necessity.

But What About Inflation?

Critics of MMT often point to inflation as the natural consequence of “printing money.” And they’re not wrong — unchecked money creation can and does lead to inflation. However, MMT doesn’t deny this. Instead, it emphasizes that taxation and interest rates should be used to manage inflation, not to “pay for” spending.

In other words, taxes are still essential — just not in the way most people think. They’re a brake, not a fuel line.

Conclusion: Time to Rethink Everything

If the ideas behind MMT are accurate — and there’s mounting evidence that they are — then the dominant narratives about taxes, government spending, and economic limits need a complete overhaul. It’s not about how much money the government has; it’s about who holds power over where that money goes. And when political elites use the illusion of scarcity to deny healthcare or education to millions while approving trillion-dollar war budgets without hesitation, that illusion becomes a weapon.

Rethinking taxes isn’t just a financial exercise — it’s a political awakening.

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