Some idiot running for office campaigns and says "I will give you free stuff if you vote for me and I will spend money to make X and Y happen for you". People believe and vote them into office. Then the idiot says to himself, "How much will it cost to do all the stuff I promised?" He realizes it costs $100M but the government only collects $80M in taxes. So the idiot goes to the central bank and says, "Whaddup man". Central bank: "How can I help you?" Idiot says, "I need to borrow $20M" Central bank: "What collateral do you have?" Idiot: "I collect taxes and have the power to raise taxes. So I pledge a portion of those taxes to you as collateral." Central bank: "Cool :). Pleasure doing business with you. Pay me back the $20M plus $0.5M in interest so you pay me back a total of $20.5M" The idiot then spends the money. If he spends wisely, the economy grows so that he keeps the percentage he collects in taxes the same but the total amount collected is higher so he can pay back the central back. But often, he will be an idiot so the economy won't grow that much, asset prices will inflate but the real economy doesn't grow. So eventually, taxes need to be raised or new taxes need to be added on top of old taxes. First, you are taxed on income, then if you unexpectedly die, what you leave behind may be taxed for no other reason than because you died, then did you buy something recently? Sorry you have to pay tax. I see you got a new payroll deposit, I'm here to collect tax (I know I took income tax but this is a different tax called payroll tax that you have to pay). You bought a house? Congratulations! I'll be back for property tax.