Taxes vs subsidies, flows net and gross — Steve Randy Waldman

This discussion is obscured by the widespread belief that a government has to obtain funding elsewhere even though it is sovereign in the currency of issue  and that taxes are used to pay for expenditure. A government has the ability to fund itself that is limited only by the availability of real resources, which impacts the general price level and individual markets. 

Fiscal policy is not only one of the factors affecting inflation (and employment) but also is a factor affecting the exchange rate. However, there are many factors affecting both, so there is no one-to-one correspondence, as some erroneously assume.

Taxes are unnecessary for funding but rather serve as an instrument for creating demand for the currency among users it obliges to pay taxes and other levies, as well as to control for inflation. There are other functions that taxation can perform related to incentivizing behavior in the public interest and disincentivizing behavior that are against the public interest.

It is not a matter of whether a government "should" do this, since this is bound up in fiscal policy. Rather, it is a matter of how to optimize this for public purpose. Such choices are necessarily involved and disregarding them is also a choice. Such choices are a matter for political debate informed by financial and economic realities rather than imagined ones, such as reliance on ideological bias. 

Interfluidity
Taxes vs subsidies, flows net and gross
Steve Randy Waldman