While you and I can create our own forms of money, we will still need US dollars to pay taxes. Failing to do so will result in legal penalties, including jail time. Because everyone must pay taxes, everyone has a demand for US dollars (Kelton, 2020). You can choose to hold your assets in bitcoin, emeralds, or property, but every year, you need to convert at least some of that to pay the federal government. Typically, everyone assumes the government issues taxes to finance public expenditure; that is, they rely on our funds to pay for defense spending, education, social welfare, and everything else in their purview. Again, this is misleading, and the way taxes work reveals why.
Many people assume the government operates like a household or business. Essentially, they believe that the government drafts a budget, decides on discretionary spending for the year, builds a tax plan around that spending, collects the taxes, and then redistributes the money into the chosen programs. This sounds logical. After all, if you or I were to start up a business, this is approximately the model we would follow; we would figure out what resources we need, and then use our capital to acquire them. However, for the government, this process is inverted.
The government does not collect taxes and then redistribute them, but rather, they spend money and then collect it back in taxes. The government does not draft its budget and then sit on Capitol Hill waiting for the money truck to arrive and place it in their chosen programs; they spend first, and then collect the difference from the people. Often the government runs deficits, meaning it spends more than it collects from taxes. Americans are then filled with anxiety that a day will come where those deficits have to be paid back, and their children and grandchildren will be forced through brutal austerity measures, drained of every dollar they have, leaving our country doomed. According to MMT, this is hyperbolic.