When money was limited by the amount of precious materials in existence governments had to tax citizens to fund the programs they wanted to pay for.
The standard reason for why they don’t do this is because it would cause hyperinflation, which is true, but not for the reason normally given. The main reason it would cause hyperinflation is that it would collapse the demand for, and value of, the government currency. Government currency used to be backed by gold, now it is backed by being the monopoly currency of taxation.
Everyone has to pay taxes in government currency and that guarantees its demand, utility and value. If taxes did not exist or could be paid in any currency then people would be free to choose which currency they wanted to hold and do business in. They would choose the currency with the best attributes and characteristics such as
- Predictable limited supply
- Difficult to counterfeit
- Network effect
There would be competition to create the best possible currency and money like the US dollar as it is today, would not be used or valued.
If there were no taxes that had to be paid in US dollars there would be no guarantee of demand for US dollars and their value would free fall. This would leave the Federal Reserve, Treasury, banks and the government making valueless US dollars for themselves.
These valueless US dollars could not be used to pay for government programs or wars or the extravagances of the ruling elites. The government’s whole house of cards would collapse.
Governments implement taxation systems with loopholes allowing large corporations and the very wealthy not to pay taxes. This severely affects the government’s ability to pay for programs. They could not allow this if paying for programs was the main reason for taxation. They allow it because it does not change the fact that the vast majority of the population need government currency to pay taxes which guarantees its value.
This gives the government and banks something valuable to make and give themselves. That is the main and hidden purpose of taxation today.