From Jekyll Island to D.O.G.E.: Rethinking Taxes, Government Spending, and Monetary Systems

Grant Cardone Tweets, 'Why Pay Taxes?' Here's the Answer You Didn’t Expect from Wealth Matters 3.0

Dec 06, 2024

If We Can Print Money, Why Do We Pay Taxes? A Historical and Economic Perspective

In a recent tweet, Grant Cardone posed a provocative question:

While seemingly straightforward, this question strikes at the core of the monetary and economic system’s design, raising questions about the purpose of taxes, the origins of the IRS, and the history of money itself. It also reveals a troubling reality: the overwhelming majority of society—99.9%—has little understanding of these foundational topics, making them susceptible to manipulation through class warfare rhetoric. However, with the incoming Presidential administration introducing the Department of Government Efficiency (D.O.G.E.), there is a renewed opportunity to address these inefficiencies head-on. D.O.G.E. is poised to bring transparency and accountability to government spending, streamlining operations, and ensuring tax dollars are used effectively, a critical step in restoring public trust.

As I reflected on how to respond to this question, I realized it offered a unique moment to not only unpack the layers of complexity but also spark meaningful dialogue about where we’ve been and where we’re headed. To do this, we must examine the purpose of taxation, the mechanics of central banking, and the historical trajectory of U.S. monetary policy, including its pre-1913 decentralized reserves. Understanding the present and the future D.O.G.E. aims to help shape requires us to first revisit the past to see how we arrived at this pivotal moment.

The Functions of Taxes in a Fiat Economy

At its surface, Cardone’s question assumes that money creation—via printing or digital means—renders taxation obsolete. However, taxation serves purposes that go far beyond mere revenue generation and I will address those purposes below but let’s first discuss what it is that we actually “print” because it’s not money, it is debt. This is all done “by decree” (which is the definition of Fiat), and presently only backed (since removing the gold standard peg in 1971) by the people’s belief that their money is real and the fact that we maintain the U.S. Dollar hegemony globally with a $1.4 trillion-dollar annual defense budget.

In short, the U.S. Dollar is a fungible unit of tokenized debt we enforce collecting by having the most guns and by the present rule of law enacted in the Federal Reserve Act of 1913.

When the money printer goes "BRRRRRR," what is (actually) being printed are IOUs in the form of Federal Reserve Notes. These are used to purchase Treasury Bonds (debt units) from the U.S. Treasury through a monopoly contract designed to increase the money supply in the system. More on this later in the post, but this mechanism underpins the current fiat-based monetary system.

The collateral incorporated when the Federal Reserve was created is the citizenry and their future productivity (labor). This is why you have a Social Security Number, which represents your corporate identity within the United States Inc. It's also why that version of your name is spelled in ALL CAPS, while your birth name—representing your sovereign identity as a citizen of the republic—is not.

Yes, you and I have also had our productivity tokenized as an identifiable asset “owned” by the state in exchange for the privileges it provides, to offset the “liability” of the debt we print to create our current global monetary supply that also serves as the world’s reserve currency.

But I digress since this isn’t about inflaming a conspiracy theory, it is about exactly why and how the current system of taxation works and to help illuminate what could be done to reign it into something that delivers on its purpose, yet is more equitable and efficient… Let’s get back to some of the known purposes for taxation historically:

Inflation Control
Printing money indiscriminately leads to inflation, eroding the purchasing power of the currency. Taxes can act as a tool to remove excess money from circulation, mitigating inflationary pressures. This principle underpins modern monetary policy: while central banks like the Federal Reserve can create money, taxes ensure that economic overheating is curtailed. (Source: Swan Bitcoin)
Sustainable Revenue
Taxation provides governments with a predictable and stable revenue stream to fund essential services, such as infrastructure, defense, and healthcare. While money printing can temporarily plug budgetary gaps, it is not a sustainable long-term strategy due to its inflationary impact. (Source: A Wealth of Common Sense)
Behavioral Influence
Taxes are used as instruments to encourage or discourage specific economic behaviors, such as promoting renewable energy investments through tax credits or discouraging smoking via excise taxes. (Source: LinkedIn)
Currency and System Legitimacy
Taxes support public trust in the currency and economic system. A tax-paying population ties the legitimacy of the government to the economic structure, reinforcing its authority and the value of its currency. (Source: News Y Combinator)

Central Banking and the U.S. Before 1913

To understand why taxes persist even when central banks exist, we must look back to the U.S. monetary system before the Federal Reserve. Before 1913, the U.S. experimented with two central banks:

The First Bank of the United States (1791-1811):
Chartered by Congress under Alexander Hamilton's guidance, it provided a uniform currency and credit stability but was politically controversial for concentrating financial power.
The Second Bank of the United States (1816-1836):
Re-established after the War of 1812, it similarly sought to stabilize the economy but succumbed to President Andrew Jackson's populist opposition.

Both banks operated in an era of hard money, where gold and silver backed the currency, limiting inflationary risks. Taxes came from tariffs and excise duties, as the income tax was not introduced until 1913. Without fiat currency, the government could not simply print money; thus, taxes and sound fiscal management were essential.

This historical system starkly contrasts with today’s fiat-based economy, where central banks manage the money supply independently of gold or silver reserves. It also may serve as a precursor of what is possible should the U.S. adopt the Lummis Bill for a Strategic Bitcoin Reserve and go back to a hard money era for the U.S. Dollar of the 21st century.

The Federal Reserve and the Shift to Fiat Currency

The creation of the Federal Reserve in 1913 marked a seismic shift. By enabling the government to issue fiat currency (money not backed by a physical commodity), the Federal Reserve introduced flexibility into monetary policy. This system allowed for economic expansion but also required careful management of inflation and debt.

Rather than printing unlimited money, the Fed uses mechanisms like Treasury bonds to lend money to the government. Borrowing through bonds achieves several goals:

Controls Inflation: Borrowing prevents immediate inflation by tying debt to future productivity rather than flooding the economy with newly created money.
Maintains Stability: Loans from central banks create a reciprocal exchange that stabilizes the monetary system compared to unchecked printing.
Economic Influence: Tools like open market operations enable central banks to fine-tune the economy’s liquidity. (Sources: Investopedia, PBS)

A Bitcoin Parallel: Why Deflationary Money Might Eliminate Taxes or Simplify the Tax Code Required

Cardone’s tweet also invites us to consider alternatives to fiat systems. Enter Bitcoin, a decentralized, deflationary currency. Bitcoin’s supply is capped at 21 million coins, eliminating the risk of inflationary money printing. In such a system, taxation could theoretically become unnecessary for several reasons:

Limited Supply: A fixed supply negates the need for inflation control through taxation.
Direct Transactions: Governments could fund themselves through transaction fees or voluntary contributions.
Decentralized Governance: Bitcoin operates outside centralized control, reducing the need for fiscal intervention.

Historically, hard-money systems like those before 1913 functioned similarly: constrained monetary expansion prevented the need for aggressive taxation. Bitcoin, as a digital hard money, revives this paradigm but with modern technology.

Ideological Debates On Taxes—Trust and Stability or Systematic Currency Debasement?

Taxes are often framed as a necessary tool for maintaining societal trust and economic stability. However, critics argue that taxes, in conjunction with fiat monetary systems, serve as a mechanism for centralized power structures to perpetuate a cycle of currency debasement while effectively collateralizing the government’s debts with its citizenry. Let’s explore both perspectives to deepen the debate.

Perspective 1: Taxes as Tools for Trust and Stability

Proponents of modern taxation argue that taxes serve indispensable roles:

Public Services and Governance: Taxes fund essential government functions, including infrastructure, education, and public safety. Without them, governments would struggle to maintain societal order and trust.
Inflation Control: Taxes remove excess money from circulation, mitigating inflationary risks that unchecked money printing would exacerbate. This reinforces economic stability.
Social Equity: Taxation enables redistributive policies that address income inequality and promote social welfare, fostering a sense of fairness in society.
Legitimacy of the Currency: By requiring taxes to be paid in government-issued currency, the state creates demand for its money, reinforcing its legitimacy and value.

Centralized fiat systems rely on taxation to balance monetary expansion and ensure that economies can grow without collapsing into hyperinflation. In this view, taxation and fiat currencies are symbiotic: taxes ensure that fiat systems function sustainably while governments retain the flexibility to respond to crises.

Perspective 2: Taxes as Confiscatory Mechanisms for Currency Debasement

Critics of fiat monetary systems, inspired by works like G. Edward Griffin's The Creature from Jekyll Island, argue that taxes and modern central banking systems are tools of economic control that benefit centralized power structures at the expense of ordinary citizens.

The Creature from Jekyll Island: A Second Look at the Federal Reserve: G. Edward Griffin ...

The "Mandrake Mechanism":
Griffin explains how modern central banking creates money "out of thin air" by issuing debt-backed currency. This mechanism allows governments to print money while shifting the inflationary burden onto citizens, who see their purchasing power eroded over time. Taxes are then used not to fund services but to service the interest on this ever-expanding debt.
Systematic Debasement:
Critics point to the historical depreciation of fiat currencies, particularly since the abandonment of the gold standard in 1971. Taxation becomes a tool to extract wealth from citizens, offsetting the erosion of value caused by inflationary policies.
Collateralizing Citizens:
Taxes effectively make the citizenry the collateral for government debt. By requiring taxes to be paid in fiat currency, governments create an enforced demand for their debased money. This ensures the survival of the system while perpetuating wealth concentration among financial elites who benefit from monetary expansion.
Loss of Sovereignty:
Taxes and inflation combine to reduce individual wealth and sovereignty. Critics argue that a deflationary system like Bitcoin, with its fixed supply, offers a way to escape this cycle by eliminating the need for inflationary money creation and coercive taxation.

Bridging the Debate: A Dual Role for Taxes?

Both perspectives hold truths that are difficult to ignore. Taxes undeniably fund essential public services and help stabilize economies in the short term. However, the long-term trajectory of fiat monetary systems suggests that unchecked currency debasement can erode trust in the system itself.

In fiat economies, taxes may indeed reinforce currency legitimacy and stability, but at what cost? The "mandrake mechanism" described by Griffin highlights the hidden inflationary tax imposed on citizens through money creation. When combined with traditional taxation, this dual extraction creates a feedback loop that consolidates power in centralized institutions, often at the expense of economic equity and individual sovereignty.

A Bitcoin Alternative: Ending the Debate?

Bitcoin’s deflationary and decentralized nature challenges both perspectives. By eliminating the ability to create money out of thin air, Bitcoin inherently limits inflation and reduces the need for taxation as a means of control. In a Bitcoin-based system:

Governments would need to fund operations through direct, transparent means, such as user fees or voluntary contributions.
Citizens could retain sovereignty over their wealth, as their purchasing power would no longer be systematically eroded.

Let’s take an even deeper look into what systemic nuances are unlocked by Bitcoin as it continues to mature and emerge. Conclusion: Taxes—Trust and Stability or a Tool for Currency Debasement?

Taxes are often described as essential tools for maintaining societal trust and economic stability. However, critics argue that taxes, combined with fiat monetary systems, serve as mechanisms for centralized power to systematically debase currency while effectively collateralizing government debts with the citizenry. This debate becomes even more compelling in the context of Bitcoin—a unique, deflationary, decentralized asset that challenges the very foundation of fiat economics and taxation.

Bitcoin: A Non-Taxable Treasury Asset?

Unlike fiat currency, Bitcoin is classified in many jurisdictions (including the United States) as both a commodity and property. This classification creates a fundamentally different dynamic, especially in the context of taxation and monetary policy.

Non-Taxable Reserve Potential
As a commodity, Bitcoin can serve as a reserve asset that is free from the immediate tax implications associated with fiat money creation. Governments and corporations holding Bitcoin as treasury assets gain exposure to an asset with high volatility but also historically high annualized returns (ARR). This dynamic offers a hedge against inflation while providing asymmetric upside, especially over long time horizons.
No Issuer, No Counterparty Risk
One of Bitcoin’s most revolutionary attributes is its decentralized nature. Unlike fiat currencies, which are issued and controlled by central banks, Bitcoin has no issuer and, therefore, no counterparty risk. This means that holders of Bitcoin are not exposed to the solvency or policy decisions of a central authority, offering unparalleled financial sovereignty.
Decoupling from the Fiat Tax Structure
Because Bitcoin operates outside traditional monetary systems, its role as a treasury asset or reserve currency raises important questions:
- If Bitcoin becomes widely adopted as a reserve asset, how would governments fund themselves without the ability to tax or inflate the currency?
- Would governments instead rely on user fees, voluntary contributions, or other non-coercive funding mechanisms?
- Could Bitcoin holders, insulated from inflationary debasement, opt out of fiat taxation systems entirely?
High Volatility Meets Store of Value
Bitcoin’s high volatility has historically been a barrier to its adoption as a stable reserve asset, but I will use a personal example that reframes and refutes this “volatility” and shows that when it comes to actual utility from asset purchases, Bitcoin has proven to be the hardest money/currency you can use to preserve your desired utility and purchasing power. Bitcoin’s long-term trajectory as a store of value, with a capped supply of 21 million coins, positions it as an inflation-resistant alternative to fiat currencies and gold.

The Unique Bitcoin Debate: Is It Truly Non-Taxable?

Bitcoin’s status as both a commodity and property introduces a unique challenge to traditional taxation systems. While fiat-based economies enforce taxes through centralized control over the currency, Bitcoin's decentralized nature and scarcity limit this enforcement in several ways:

Permissionless Transactions:
Bitcoin’s peer-to-peer design makes it difficult for governments to track and tax transactions unless they occur on regulated platforms.
Self-Custody and Sovereignty:
Bitcoin’s self-custody options allow individuals and organizations to maintain complete control over their assets, further complicating tax enforcement.
Capital Gains vs. Currency Use:
For now, Bitcoin is taxed as property, meaning gains from its sale are subject to capital gains taxes. However, if Bitcoin were to gain broader acceptance as a currency, governments might face pressure to reclassify it—potentially making it less taxable or even non-taxable in daily use.

A Future Without Issuers or Counterparty Risk?

Bitcoin’s lack of an issuer distinguishes it from all fiat currencies and even commodities like gold, which require physical custody and are subject to geopolitical risk. This "issuance-free" nature means that:

Bitcoin does not carry the inflationary risk inherent in fiat systems, where central banks and governments can issue unlimited currency.
Bitcoin’s global, decentralized network is immune to the collapse of any single economy, government, or institution.

This absence of counterparty risk, combined with its fixed supply and censorship-resistant properties, positions Bitcoin as a revolutionary alternative to fiat monetary systems. As a result, Bitcoin presents a significant challenge to the current taxation model, which relies heavily on the centralized control of money.

Trust, Stability, and the New Paradigm

Proponents of fiat systems argue that taxes are essential for trust and stability. Critics contend that taxes and fiat currency debasement represent a cycle of wealth extraction that disproportionately benefits centralized power structures. Bitcoin adds a new layer to this debate, offering a system without issuers, counterparty risk, or inflation.

Bitcoin’s dual classification as property and commodity raises profound questions:

If Bitcoin becomes a widely adopted treasury asset, will it erode governments' ability to fund themselves through traditional taxation?
Could Bitcoin holders, with no issuer or counterparty risk, opt out of the fiat tax system altogether?
What role, if any, does taxation play in a decentralized financial future?

The answers lie in how societies choose to balance centralized authority with decentralized freedom. As Bitcoin continues to grow, its implications for taxation, monetary policy, and sovereignty will only become more pronounced.

For now, taxes remain integral to fiat economies, but Bitcoin offers a glimpse into a future where trust and stability are built on decentralized, non-inflationary principles—perhaps rendering traditional taxation as obsolete as the fiat systems it challenges.

A Parallel Option: A Simplified Flat Tax Proposal Reducing Complexity and Enhancing Fairness

The U.S. tax system, with its sprawling 75,000 pages of code, regulations, and guidelines, has become overwhelmingly complex, costly to comply with, and rife with loopholes that benefit a select few. A flat tax system offers a transformative alternative: a simple, fair, and transparent approach to taxation for individuals and corporations. Here’s how it could work:

1. One Rate for All

Under a flat tax system, all income—whether individual or corporate—would be taxed at a single, uniform rate. For example, a 15% flat tax rate on earned income above a standard exemption threshold could replace the multi-tiered marginal tax brackets that currently exist. This structure ensures that everyone contributes proportionally while protecting low-income earners by excluding income below the exemption amount.

2. Simplified Tax Forms

Individuals would no longer need to navigate a labyrinth of itemized deductions, alternative minimum tax rules, and capital gains provisions. Instead, they would submit a single, postcard-sized form listing their income, subtracting a standard exemption (e.g., $25,000 per individual or $50,000 per household), and calculating their tax liability at the flat rate. Similarly, corporations would submit a simple monthly form detailing revenues and expenses, remitting taxes based on net profits.

3. Eliminating Loopholes and Special Provisions

A flat tax system would eliminate complex tax deductions, credits, and loopholes, ensuring that all income is treated equally under the law. This includes removing the estate tax, capital gains tax, and international tax provisions, which currently require extensive compliance measures and favor certain economic behaviors. The resulting system would encourage economic efficiency and reduce tax avoidance.

4. Simplified Administration

By drastically reducing the length and complexity of the tax code, a flat tax system would shrink the need for expansive IRS enforcement and guidance. Compliance costs for taxpayers and businesses would drop significantly, while the IRS could focus on straightforward audits and enforcement. Proposals such as the Armey-Shelby flat tax suggest the code could be reduced to just a few hundred pages, replacing 480 forms with two simple ones.

5. Ensuring Revenue Neutrality

To maintain current government revenue levels, a flat tax system would require careful calibration of the tax rate and exemption thresholds. Studies of flat tax proposals indicate that a rate between 15% and 20% would generate sufficient revenue while encouraging economic growth through lower compliance costs and greater efficiency. Moreover, the transparency of a flat tax could bolster public trust in the system, ensuring higher voluntary compliance rates.

The Promise of Simplicity

A flat tax system would reduce the tax code from tens of thousands of pages to a streamlined framework, empowering taxpayers with clarity and fairness. It offers a modern solution to an outdated and convoluted system, making taxation simpler for individuals and corporations alike while fostering economic growth and reducing government bureaucracy. The result? A tax system that works for everyone, not just those who can afford teams of accountants and lawyers.

The Productivity Impact of Simplification

One of the most significant potential benefits of transitioning to a flat tax system is the reallocation of resources currently tied to the administration and compliance of the sprawling U.S. tax code. For example, the recent proposal to add 87,000 new IRS agents to enforce and administer the current tax system would become unnecessary under a simplified framework. Instead of allocating resources to audit and compliance, this workforce could be redirected toward industries that drive innovation, productivity, and economic growth.

Similarly, the tax preparation industry, which employs between 81,650 people (Bureau of Labor Statistics, May 2023) and over 315,000 individuals depending on the estimate, would undergo a transformative shift. With the need for complex tax filings eliminated, much of this workforce could be repurposed into other industries, including financial advising, education, or emerging technology sectors. The simplification of tax preparation processes could save Americans billions in compliance costs annually, freeing both financial and human capital for more productive uses. (Sources: Bureau of Labor Statistics, Statista)

By reducing the administrative burden on both taxpayers and the government, a flat tax system would not only simplify compliance but also unlock a wave of economic productivity, as professionals in tax-related fields transition to sectors with higher value-added potential. The result is a more dynamic economy where resources are channeled into innovation and growth rather than bureaucracy and compliance.

Final Thoughts

Is taxation a tool for trust and stability or a mechanism for systemic control and currency debasement? The answer likely depends on one’s perspective on the role of government and central banks. For those who value stability and governance, taxes are indispensable. For those who prioritize individual sovereignty and decentralized systems, taxes are an outdated relic of a system designed to perpetuate centralized power.

As Grant Cardone’s question suggests, the debate isn’t just about why we pay taxes but about the broader structures of monetary systems and the alternatives we might pursue.

Perhaps the real question is: What monetary system do we trust to build a fairer, more stable future that drives productivity and rewards it properly?

Sources:

Recommended Reading: G. Edward Griffin, The Creature from Jekyll Island