Taxation

The following table depicts the major components of the fiat financial system from the Indian point-of-view. For the most part, it is similar to the table for the US case. The key differences are noted at the bottom. COMPONENTS OF THE INDIAN BANKING SYSTEM ENTITIES LIABILITIES ASSETS EXAMPLES Individuals Mortgages, Loans, Taxes Deposits, Banknotes, Government Securities (G-Secs), Stocks, Bonds, Fund Units, SDLs, Benefit Payments High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals Businesses and Non-Profits Loans, Bonds, Equity, Commercial Paper, Taxes Deposits, Banknotes, Subsidies Tata Group, Reliance Industries, Infosys, Indian Red Cross Society, Small and Medium Enterprises Financial Institutions Deposits, Fund Units, Securities Issued, Taxes Loans, Mortgages, G-Secs, SDLs, Stocks, Bonds, Commercial Paper, Bank Reserves, Deposits, Banknotes, Bailouts State Bank of India, HDFC Bank, ICICI Bank, SBI Mutual Fund, Life Insurance Corporation of India Foreign Sector Deposits, Stocks, Bonds, Loans, Taxes G-Secs, Stocks, Bonds, Loans, Fund Units, Deposits, Banknotes Reserve Bank of Japan, Norges Bank Investment Management, Foreign Portfolio Investors (FPIs), Global Corporations Public Authorities, Government Trust Funds, State Governments Bonds, SDLs, Benefit Payments Government Securities, (State) Taxes Employees’ Provident Fund Organisation (EPFO), National Pension System (NPS Trust), State PSUs like NTPC, Indian Railways, Government of Maharashtra Reserve Bank of India (RBI) Banknotes, Bank Reserves Government Securities, Foreign Exchange Reserves, SDLs Reserve Bank of India (Mumbai, Regional Offices) Government of India Government Securities, Subsidies, Bailouts Taxes — NOTES ...

This is a simplified depiction of the fiat banking system. Here, we will focus on the US system. Note how each liability of an entity corresponds to an asset of another entity and vice versa. COMPONENTS OF THE US BANKING SYSTEM ENTITIES LIABILITIES ASSETS EXAMPLES Individuals Mortgages, Loans, Taxes Deposits, Banknotes, Treasuries, Stocks, Bonds, MBS, Fund Shares, Benefit Payments High Net-Worth Individuals, Retail Investors, Family Offices, Other Individuals Businesses and Non-Profits Loans, Bonds, Stocks, Commercial Paper, Taxes Deposits, Banknotes, Subsidies Walmart, Caterpillar, American Red Cross, Powell’s Sweet Shoppe Financial Institutions Deposits, Fund Shares, MBS, Taxes Mortgages, Loans, Treasuries, Stocks, Bonds, MBS, Commercial Paper, Reserves, Deposits, Banknotes, Bailouts Bank of America, Vanguard, Fidelity Investments, Fannie Mae MBS Trusts, CalPERS Foreign Sector Deposits, Stocks, Bonds, Loans, Taxes Treasuries, Stocks, Bonds, Loans, MBS, Fund Shares, Deposits, Banknotes Bank of Japan, Norway Government Pension Fund Global, Foreign Corporations and Individuals Public Authorities and Government Trust Funds Bonds, Benefit Payments Treasuries Social Security Trust Fund, Medicare Hospital Insurance Trust Fund, Tennessee Valley Authority, Port Authority of New York and New Jersey Federal Reserve Banknotes, Reserves Treasuries, MBS Federal Reserve Bank of New York, Federal Reserve Bank of Chicago, Federal Reserve Bank of San Francisco US Federal Government Treasuries, Subsidies, Bailouts Taxes — NOTES ...

Private individuals and businesses must either sell something of value to acquire money or expend time and resources to mine it directly (think of gold mining in the case of a gold standard). Governments, in contrast, do not obtain payment for goods or services they produce; they generate revenues through the seizure of assets. In the past, they might have sent their agents to seize grains, cattle, coins, etc. from people. But in a monetary economy, they simply seize monetary assets, which is a lot easier to do. ...