1. GDP can either be viewed as the total income or total expenditure of an economy. The government taxes income. 2. The government taxes any money it spends and tax dollars do not increase GDP.

If government spending increases the GDP, then tax dollars indirectly do so. The government cannot spend tax dollars that it does not collect (without borrowing). Dollars that are not spent on taxes are not necessarily destined to be spent right away (vs. putting them in the bank / under the mattress).

You're missing the point: You wrote that "The government does not tax GDP." It does.

Also, anything that the gov't spends then counts as income for the other party = more income for the gov't.

It is why debt-to-GDP is a very important ratio. It is also why the PIIGS were obvious candidates for financial meltdowns.