100 Words On: Why Inflation Is Taxation without Representation

Inflation is a tax that doesn’t require legislative approval. Here’s why: Assume your saving account earns 3% interest. (I know; but play along.) Whether that interest is taxed at 100% in a zero-inflationary environment, or earned tax-free with 3% inflation, the end result is identical. Considering the US is mired in over $100 trillion of debt and unfunded obligations, that’s especially convenient.

The bottom line: Legislators know that imposing onerous taxes on the public is political suicide — so they’ll keep encouraging the Fed to print money, thereby devaluing our currency and letting inflation do the dirty work for them.

Photo Credit: kevindooley

Comments

  1. 3

    says

    Not to mention that taxes aren’t dependent on inflation levels.

    So if inflation runs at 20%, and your investment account generates $2,000 in yields on $10,000, you pay tax on that $2,000.

    If inflation runs at 2% and your investment account generates $200 in yields on your $10,000, you pay tax on that $200.

    Mmmm…taxes for no net change in purchasing power. Bad deal, Howie.

  2. 4

    Candy says

    So true! We’ve had relatively minor inflation with us now for so long that I think most younger people don’t realize what living in such an environment would be like!

  3. 5

    Olivia says

    An aside. If inflation really is increasing (as it is) and the government denies it just to maintain their offical COLA numbers (as they did this last year) our older Social Security dependant folks are getting it in spades.

    Makes living in a mountain shack off the land kind of appealing.

  4. 7

    says

    What gets me further is that the government creates incentives to take on more debt by offering tax credits (think Mortgage Interest Deduction, Student Loan Interest Deduction, etc.), but punishes savers and investors through taxes (Capital Gains tax, Tax on dividends, interest, etc).

  5. 9

    says

    @MrCC: I agree; inflation is like a yoke around our financial necks.
    @Derek: I think more people are slowly becoming aware. We need to keep spreading the word though…
    @JT: Hey, those are some great points there. I wish I had thought of that!
    @Candy: Sadly, I suspect a lot of middle-aged folk don’t remember either. They take relatively tame inflation for granted.
    @Olivia: You know, we may have no choice if hyperinflation destroys our currency!
    @Jenna: Aww, thank you. So you really think I have a career in text-book writing? ;-)
    @Robert: Great observation! Funny how that works. Wait, no it’s not.
    @Centavos: That it is. That it is.

  6. 10

    says

    I know you were practicing your 100 word self-immolation, but since I am not:

    What about the fact that the dollar is buying less secondary to being printed at a higher rate.

    So our currency is devalued.

    Oil is valued in Dollars.

    All food commodities are valued in dollars.

    So we pay more for our oil imports, which means we pay more for gas.

    We pay more for commodities so our food is more expensive.

    Food and energy are not counted in the Feds inflation numbers….

    Bernanke testified yesterday before congress- his data shows no sign of inflation!

    Cool huh! COL!(Crying Out Loud)

  7. 11

    says

    Wait, I thought there was no inflation and helicopter Ben is printing money because of concerns over Deflation…hahaha. It’s more of the same, kick the can down the road. Someday we’ll have a crisis and be forced into major austerity, worse than what the EU is enacting now. But discipline doesn’t get you elected in a democracy, promises do. In a perverse way, even though it’s the only way to live, all democracies are doomed to financial collapse.

    • 14

      says

      Yeah, Instead of taking his $400/week paycheck ($10/hr. x 40 hours) in silver dollars from the bank worth about FRN 20 each to exchange at the Coin Shop* for 400 x 20 = FRN 4000/week, “they” skip the middleman* and “pay” him FRN 4000 x 52 = FRN 208,000.

  8. 15

    says

    There’s just two problems with your thought–

    First, taxes are collected to pay for the expenses of government (whether you agree with those expenses is another discussion). Inflation is simple a devaluation of currency. It means your money doesn’t go as far but it doesn’t translate into value for someone else or money to pay for other services.

    Secondly, resenting taxes when Americans are paying the lowest income tax rates since the 1950s is getting silly. No one likes paying taxes. But let’s be productive and discuss a simpler, and more transparent tax system. Or a tax system that is more equitable and fair.

    • 16

      says

      No, no, no. Actually, Pamela, your first counterpoint is completely incorrect. When you say inflation does not translate into money to pay for other services, that’s EXACTLY what it does with respect to the government! The Fed prints money out of thin air, backed by nothing but the promise to repay it based on taxes earned by the productive citizens in the private sector — that excess money ultimately results in inflation which devalues our currency. The only value is to the debtor (our government) which gets to watch the real value of its debts decrease at the expense of everyone else — especially savers and fiscally responsible individuals.

      On your second point, who said I resent taxes? I am railing against excessive taxation through inflation. I realize the government needs some taxes to function.

      The real problem isn’t taxes — it’s a bloated federal government that is way too expensive to maintain and has grossly overstepped its duties as spelled out in the Constitution.

  9. 17

    says

    Inflation comes about because of the excess money being created and is pure and simple theft from the people. Pamela, Len has got it spot on,there are NO problems with his thought process. Of course most of this created money is being used to bail out the property boom.

  10. 19

    says

    Hoorah! You said it so eloquently! Come sit with my kids during their homeschool social studies lesson sometime… they could learn a lot from you. (Hubby especially likes this post, Len.. it’s so right on.)

  11. 20

    says

    @Derek: Good point, Derek!
    @Jenna: :-)
    @Linsey: Aww, thank you. If I could I would. Glad your hubby enjoyed it too. Dare I say he sounds like a smart guy!

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