How is it a gift to the government? The undamaged dollar isn't a liability of the government. It's a gift to everyone who holds USD by virtue of slightly reducing the money supply, therefore slightly increasing the purchasing power of the dollars that still exist.

A gift in the amount of $1 divided by the total number of dollars.

Outstanding currency is a liability on the balance sheet of the issuer. The trick with issuing fiat currency is that you can redeem that liability with another, just the same.

> How is it a gift to the government?

The parent is wrong that it's a gift of $1 to the Treasury.

It is a gift to the government however, as you note in your own explanation. It just increased the government's USD purchasing power. The US Government is an epic scale spender of USD (millions of employees, $4.x trillion budget).

The government is a large spender of USD.

It also issues a lot of USD-denominated debt; deflating the dollar makes that worse.

If the government's dollar liabilities exceed its dollar assets, the impact of destroying a dollar on the government's financial health is negative.

If $1 is destroyed, that should make everyone who possesses dollars collectively $1 richer, all else being equal.

The government does not possess all wealth.

The government hold the power to print money. They can print a fresh 1$ to replace the torn one.