Understanding Economics

Currently Playing: What is tax for, really?

What is tax really for? Most people assume that governments need to collect tax before they can spend. But for a government like that of the UK, which issues its own currency, that is not how the monetary system works. The UK government creates new money when it spends. Tax then takes money back out of the economy. That means we need to think very differently about why taxation exists. In this video, I explain six reasons why we need tax. Tax gives the pound its value because people need pounds to settle their tax liabilities. Tax helps control inflation by withdrawing spending power from the economy. It can reduce inequality by redistributing income and wealth. It can change prices to discourage harmful activities and encourage socially useful ones. Fair taxation can strengthen democracy by reinforcing the obligations we share as members of society. And tax is one of the government’s most important tools for steering the economy. Understanding this changes the way we think about government spending, deficits, inflation and economic policy. Tax is not simply the government’s piggy bank. It is one of the most powerful economic policy tools we have. This video is part of my Understanding Economics series, explaining economics as it actually operates in the world around us. You can watch the rest of this series here: https://www.youtube.com/playlist?list=PLaSguNBvHIto Take a look at the poll below: https://www.youtube.com/post/UgkxognexgB079p6Gh8g6_FdZalyAGPVZBij TRANSCRIPT A transcript for this video is available at: https://www.taxresearch.org.uk HOW TO SUPPORT US Please consider donating: https://ko-fi.com/taxresearch ABOUT RICHARD MURPHY Richard Murphy is Emeritus Professor of Accounting Practice at Sheffield University Management School. He is director of Tax Research LLP and the author of the Funding the Future blog. His best-known book is ‘The Joy of Tax’. This video was edited by Thomas Murphy. RICHARD MURPHY ON BLUESKY: https://bsky.app/profile/richardjmurphy.bsky.social OR ON MY BLOG: http://www.taxresearch.org.uk/Blog/ HIT SUBSCRIBE & GET NOTIFICATIONS Subscribe and get notified of new videos released. INTRODUCTION: https://www.youtube.com/watch?v=HdHsRPy3060 Take a look at our playlist page to view older videos: https://www.youtube.com/@RichardJMurphy/playlists #richardmurphy #richardjmurphy #economy #economics #accountancy #accounting #tax #uktax #ukeconomy #greennewdeal #uk #money #economy #politics #government #tax #labour #health #life