WHY IS INFLATION A TAX? — PART 5

Here is the fifth post in this series.

• Part 1: Introduction
• Part 2: How Much Money Do Our Leaders Want To Spend?
• Part 3: What Additional Factors Can Produce Inflation?
• Part 4: What Is Wrong With Price Controls?

In this post we will address the following.

Why Is Inflation A Tax?

Let’s take a side path for a moment, something to do with our last post in this series.

Lobotero begins his post, The Inflation Reduction Act (lobotero.com), with this nonsense.

Recently the Congress and the White House passed and signed a great bill that is suppose to help struggling Americans keep the prices of drugs down….

https://lobotero.com/2022/09/23/the-inflation-reduction-act/

That post ends with this nonsense.

This is typical….the Congress installs loopholes that can be exploited by the donors that pay their representatives to make it easier for them exploit the people of this country.

So bend over my fellow Americans and enjoy the ride….you will get use to it (sarcasm)….

https://lobotero.com/2022/09/23/the-inflation-reduction-act/

What is lobotero complaining about? Is it about the fact that the thoroughly misnamed Inflation Reduction Act (Infrastructure Reduction Act would be more appropriate.) will not reduce inflation? No. lobotero discovered that the thoroughly misnamed Inflation Reduction Act (Infrastructure Reduction Act would be more appropriate.) has provisions in it that are supposed reduce the cost of drugs, and he fears those provisions won’t work because of loopholes.

Effectively, with misnamed Inflation Reduction Act, Democrats have implemented price controls on pharmaceuticals. As we observed in Part 4, price controls don’t work, but that is not lobotero‘s concern. He fears the CEOs in Big Pharma have cronies in Congress, that Big Pharma will probably figure out some way around his precious price controls. lobotero could be partly right. Logic suggests that the primary way foolish law that benefits the Democrats in Congress by forcing Big Pharma to buy them off.

Other than the corruption in Congress, what should concern us consumers is how much incentive Democrats have left pharmaceutical companies to produce new and better medicines. See:

• Inflation Reduction Act breaks the prescription-drug pipeline (washingtontimes.com)
• The Inflation Reduction Act: Death By A Thousand Cuts For The Drug Industry Begins In Earnest (forbes.com)
• Drug Pricing Reform Finally Becomes Law: What the Inflation Reduction Act Means for Pharma (natlawreview.com)

Consider that at 273 pages (see H.R.5376 – Inflation Reduction Act of 2022 (congress.gov)) the misnamed Inflation Reduction Act (see Inflation Reduction Act of 2022 (investopedia.com)) is exceedingly complex. The bill’s name is an outright lie. If the Democrats were proud of the bill’s drug pricing provisions, they would have written a separate bill and taken the time to debate Republicans and try to make them look foolish. Instead, we got this complex mess that was passed with relatively little debate (Amendments: H.R.5376 — 117th Congress (2021-2022) (congress.gov)).

So, why is inflation a tax? Why does Congress spend much more money than the Federal Government takes in in taxes? Spending money empowers politicians. Taxes, however, irk the citizens who pay those taxes, and those citizens vote against Congressmen who raise taxes to pay for things those citizens don’t want. Therefore, when our legislators in Congress want to go on a spending spree, they have to hide the taxes they need to pay for their greedy spending. Printing lots of money, at least for a little while, is one way to do that.

How does inflationary spending work? Our legislators in Congress spend the money they have printed and printed and printed. Unfortunately, once those legislators spend that money and the money supply increases, the relative value of money, when compared to goods and services that money can buy, goes down. That is, prices escalate, and prices escalated because our legislators in Congress printed a bunch of money to buy what they wanted.

To pay for what our legislators in Congress chose to buy by printing money, Congress deliberately reduced our value of our savings and the effective size of our paychecks. That is, our legislators in Congress paid for what they bought by inflating our currency. That is effectively a tax.

Inflation actually results in higher tax rates as well as a reduction in the value of our money. If your employer or the government (Social Security or retirement income) increases the size of the checks you receive to compensate for cost-of-living increases, you could find yourself in a higher tax bracket and paying a high tax rate. At the same time, the relative value of your standard deduction and exemptions will decrease.

Do most people understand the fact that big government spending leads to inflation? Enough people do that that inhibits Congress from excessive spending. Unfortunately, the COVID-19 pandemic provided Democrats the cover they needed to spend like crazy and reward their cronies. So, they did. They frightened the gullible (Most of us are gullible.) and started a spending spree.

Sound difficult to believe? Our leaders would not steal from us, would they? Don’t they care soooooo much for us? When our leaders are already cavalierly spending trillions, how much would it matter to them if they have to waste hundreds of billions in order to steal tens of millions?

Not many members of Congress leave the Capitol poor these days, but how are the people of this country doing?

• Are we as free to worship the God we believe in as we use to be?
• Are our children getting a decent education? Are they learning how to be good citizens? Did you?
• Are our cities and streets safe from crime?
• Are we as well able to feed, cloth, and shelter our families as we use to be?
• Do we have the confidence and trust in our public institutions that our parents once had?

If the people who run our government have gotten too big for their britches (momgenerations.com), maybe we ought to stop giving them so much power over us and so much of our money to spend. Maybe we should start insisting that they adhere to our Constitution. We have no other way to minimize the abuses.

Additional References

• The inflation tax is not only real, it’s massive (thehill.com)
• Why Inflation Is A Hidden Tax (jerryfetta.medium.com
• What Is Inflation? (taxfoundation.org)
• Is Inflation A Tax? (forbes.com)