From accounting point of view, debt always equal to credit. A's debt is B's credit, if both A and B have credit (saving), then there must be some one in larger debt to balance. American government's debt could be balanced by surplus countries' credit.
How do you reconcile this within the Bitcoin economy? Do people with Bitcoin savings owe a 'debt' to some other party?
Or can such savings be viewed as loan with zero interest and no maturity? Which is the definition of money.
So why do we have to pay taxes if the govt can create as much currency as it wants?
Taxes are a tool that help regulate inflation and reallocate financial capital. Hypothetically, yes the government could simply print more money to fund public services, but the amount of money needed would probably cause some sort of dangerous inflation.
Given that States with a sovereign currency don't actually need to tax to fund themselves, then taxation performs some 'other' purpose. Taxation is a much more effective method of handling inflation, than interest rates, because taxes can be tailored to target the inflation causing areas of the economy, this is currently impossible with interest rates. Also since America, and most of the world is experiencing economic difficulties, taxation combined with spending, can reallocate money that is not being spent to areas of the economy that will cause spending. That is, taxing people with large sums of money, and giving it to people who will spend. For each financial exchange between people there is a corresponding 'real' exchange between people, and this exchange is the source of economic growth.
One important part that I think is missing. Currencies also work on trust. We trust bitcoin because it's open source, right?
It's been shown that many economies can operate quite well on very low taxes, but the trust in the currency actually falls when there is less tax.
IIRC Keynes advocated printing up to 20% GDP a year for the 'public good', which could take the form of lower taxes. It's a double edged sword, because printing leads to inflation, but capital injections boost the economy. Yes, you need to be careful not to print too much.
I've been pondering for a while this question about the need for a national debt or not. Still undecided, but there seems to be an element of 'we should do it this way, because that's what we've always done'.
As bitcoin has proven, pre conceived notions can sometimes be turned on their heads!