The treasury has an account at the FED called TGA[0] which is funded by tax payments and proceeds from new Treasuries issuance

https://en.wikipedia.org/wiki/Treasury_General_Account

> The total number of dollars that exist in circulation is reduced.

Not accurate. Dollars are a liabilities on the books of the Federal Reserve. Tax payments to the federal government only cause a liability shift from commercial banks’ reserves at the FED to the TGA, it doesn’t really change the net amount of dollars in circulation.

The most you could argue is that it momentarily reduces the net commercial banks’ liabilities (which economists call M*) until the Treasury distributes those dollars again to the broad economy