Item 1 has always struck me as bogus. Barter mediated by currency would happen even if there were not government. The market would settle on a currency - wampum - and life would go on. If the government then says "you must pay taxes in quatloos," people would still work for wampum, and there would be a quatloo market in which those thigns could be bought to pay taxes. Only if the quatloo was actually a better currency, because there was, for example, a central bank, would the quatloo become the functioning currency.

As it is, most people do not work for dollars. They work for unsecured promises of solvent credit card companies and banks that can be converted to dollars at tax time. Most of the economy runs on bank-made money, which is not issued by the government.

If taxes were reduced to zero, the government could establish its currency as legal tender. After all, to say that the dollar can be used to pay taxes is to say that dollar certificates are legal tender for tax obligations. Private parties are free to establish their own definition of legal tender, but the economy works best if ther is only one, and the government can create that one currency, whether or not it demands taxes.