Inflation is the economic term for when prices are rising faster than goods and services can be bought. This may sound like a good thing, but it’s actually bad because it means that your spending power is getting diluted. It could also mean higher taxes in the future if there isn’t enough inflation to cover all expenses.
Inflation is the increase in the general price level of goods and services. Higher taxes cause inflation because they raise prices. Taxes are a form of government spending, which causes an increase in the money supply. When more money enters circulation, it pushes up prices.
Daniel J. Smith and William F. Ford
6:14 p.m. ET on March 29, 2022
Mark Lennihan/Associated Press photo
President Biden vowed not to increase taxes on everyone earning less than $400,000 per year when he originally advocated raising government expenditure by billions. However, the Federal Reserve’s tolerance of his wasteful policies has resulted in inflation levies that are affecting average Americans’ wallets. Inflation not only robs Americans of their salaries and savings, but it also magnifies a slew of additional levies.
Many Americans’ actual incomes are being eroded by inflation. Many Americans are taxed on the degree to which their incomes do not keep up with inflation as the purchase power of the currency declines. However, even those Americans who are fortunate enough to have their earnings and salaries stay pace with inflation may find themselves paying more federal, state, and local taxes when their nominal incomes rise.
Inflation has an impact on other taxes as well. Take, for example, housing: While homeowners will likely be pleased to see their property values rise, they will be less so when their property taxes rise at their next assessment. They might also anticipate increased insurance costs as a result of their rising house prices. Utilities are becoming more expensive. Renters aren’t immune to inflationary pressures since landlords pass on inflation-related expenses to tenants.
Taxation on the products and services that regular Americans use are another way that inflation raises taxes on them. Groceries and eating out are becoming more expensive. Larger grocery and restaurant expenditures result in higher state and local sales-tax revenues, which go mostly undetected since sales taxes are charged as a proportion of what customers spend.
Americans who live off their savings are not immune to the effects of inflation taxes. It will cut down the actual rates of return on savings accounts, certificates of deposit, and fixed-income instruments swiftly. After adjusted for inflation, Americans with such savings are earning negative returns. Because taxes are imposed on nominal income rather than inflation-adjusted income, even individuals who realize larger nominal returns will be taxed.
Retirees on pensions with little or no cost-of-living adjustments will see their quality of living decline as well. Even Social Security recipients are affected to some extent when their adjustments lag behind inflation, which is now the case.
Lower-income Americans do not have the luxury of hiring professionals to protect their income and assets against inflation. They also spend a bigger percentage of their income on necessities like food and rent. The poorest Americans bear the brunt of Mr. Biden’s inflation tax.
From 1980 to 1983, Mr. Ford served as president of the Federal Reserve Bank of Atlanta. Mr. Smith is a professor of economics at Middle Tennessee State University’s Jones College of Business and the head of the Political Economy Research Institute.
Main Street (November 15th and 21st): “Inflation is like alcoholism,” stated Milton Friedman, an economist. “In both circumstances, the positive impacts arrive first, while the negative consequences follow later.” Is there a lesson for Joe Biden here? Bettmann Archive/Getty Images images Mark Kelly’s composite
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The print issue of the March 30, 2022, was published.
The “federal tax increase 2021” is the result of inflation. When there is a rise in inflation, the government has to raise taxes to make up for it.
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