What you call "out of circulation" could also just as well be called "savings". By forcing savings to be spent via taxes on them, all you actually do is artificially move spending that would have happened in future into the present day.
This is terrible outcome for two reasons. One is that it results in huge liabilities for future spending - we can see this in the various insolvent pension schemes that are looming on the horizon (e.g. CALPERS which will never catch up to where it needs to be by now).
The second is that the so-called "growth" in the economy that results is in reality merely some arbitrary economic activity: the fact that it took place can be measured, hence growth, but whether it was actually useful or increased societies wealth is harder to measure and often explicitly ignored. If by taxing savings you force people to instead put their money into a housing bubble, that then triggers a construction boom, this appears to central bankers/planners to be successful economic growth whereas in reality it's merely a gross misallocation of resources towards investments that wouldn't normally make any kind of economic sense.