There are four purposes to taxation.
1:
Destroy money. The government doesn’t need to tax to spend money. It
just has to write the check. However, money it spends adds to the money
supply, and this would cause inflation if an equal amount of money
wasn’t taken out of circulation or destroyed. If money is taken out of
circulation but not destroyed, as when the government borrows to spend,
(which it rarely has any need to,) and this money is accumulated by the
financial sector, the potential for inflation remains, and increases as
the amount of money in the financial sector increases.
2:
Discourage certain behaviors, or, through negative taxes, ie subsidy,
(a word for particular forms of spending,) encourage certain (other)
behaviors. All spending, of course, encourages the production of what it
is being spent on. (Allowing for profits, of course.)
3:
Redistribute demand, and therefore wealth. More or less egalitarian
societies, such as democracies, cannot survive an excess of economic
inequality. Money represents economic rights. That is, economic rights
are proportional to wealth and income. Economic rights cannot be
completely separated from political rights. An unequal distribution of
economic rights results in an unequal distribution of political rights.
This phraseology, however, is sort of a contradiction, since political
rights may implicitly be regarded as those rights held, and that wealth
shared, equally by all citizens in a society. Precisely: The only difference between economic rights and political rights is the method of allocation, and their resulting distribution.
A more proper phrasing, then, would be that increasing economic
inequality results in an increasing conversion of political rights to
economic rights. A sufficiently progressive tax system can prevent this
from arising, and so help to maintain a system of political rights. An
egalitarian government, therefore, will tax economic rights, so limiting
the scope and degree of inequality, and subsidize political rights, so
enlarging the scope and degree of equality. The dynamics and stability
of this process is itself interesting, but beyond the scope of this
question. However, the first goal of every proto- oligarchy is the
reduction of the progressivity of taxation to a level insufficient to
prevent the increasing of economic inequality.
4:
Validate its currency. By requiring that taxes be paid in its unit of
money, the use of that money is (very strongly) encouraged in that
economy. Since using a single unit of money increases economic
efficiency, this increases the quantity of free resources in that
economy. This increases both the rate of sustainable consumption, and
the rate of wealth accumulation in that economy.
