Taxing By Inflation

With all the talk about taxing the rich, we hear very little talk about taxing the poor. Yet the marginal tax rate on someone living in poverty can sometimes be higher than the marginal tax rate on millionaires.

While it is true that nearly half the households in the country pay no income tax at all, the apparently simple word “tax” has many complications that can be a challenge for even professional economists to untangle.

If you define a tax as only those things that the government chooses to call a tax, you get a radically different picture from what you get when you say, “If it looks like a tax, acts like a tax and takes away your resources like a tax, then it’s a tax.”

One of the biggest, and one of the oldest, taxes in this latter sense is inflation. Governments have stolen their people’s resources this way, not just for centuries, but for thousands of years.

Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all. The Weimar Republic in Germany in the 1920s had thousands of printing presses turning out vast amounts of money, which the government could then spend to pay for whatever it wanted to pay for.

Of course, prices skyrocketed with vastly more money in circulation. Many people’s life savings would not buy a loaf of bread. For all practical purposes, they had been robbed, big time.

A rising demagogue coined the phrase “starving billionaires,” because even a billion Deutschmarks was not enough to feed your family. That demagogue was Adolf Hitler, and the public’s loss of faith in their irresponsible government may well have contributed toward his Nazi movement’s growth.

Most inflation does not reach that level, but the government can quietly steal a lot of your wealth with much lower rates of inflation. For example a $100 bill at the end of the 20th century would buy less than a $20 bill would buy in 1960.

If you put $1,000 in your piggy bank in 1960 and took it out to spend in 2000, you would discover that your money had, over time, lost 80 percent of its value.

Despite all the political rhetoric today about how nobody’s taxes will be raised, except for “the rich,” inflation transfers a percentage of everybody’s wealth to a government that expands the money supply. Moreover, inflation takes the same percentage from the poorest person in the country as it does from the richest.

That’s not all. Income taxes only transfer money from your current income to the government, but it does not touch whatever money you may have saved over the years. With inflation, the government takes the same cut out of both.

It is bad enough when the poorest have to turn over the same share of their assets to the government as the richest do, but it is grotesque when the government puts a bigger bite on the poorest. This can happen because the rich can more easily convert their assets from money into things like real estate, gold or other assets whose value rises with inflation. But a welfare mother is unlikely to be able to buy real estate or gold. She can put a few dollars aside in a jar somewhere. But wherever she may hide it, inflation can steal value from it without having to lay a hand on it.

No wonder the Federal Reserve uses fancy words like “quantitative easing,” instead of saying in plain English that they are essentially just printing more money.

The biggest and most deadly “tax” rate on the poor comes from a loss of various welfare state benefits– food stamps, housing subsidies and the like– if their income goes up.

Someone who is trying to climb out of poverty by working their way up can easily reach a point where a $10,000 increase in pay can cost them $15,000 in lost benefits that they no longer qualify for. That amounts to a marginal tax rate of 150 percent– far more than millionaires pay. Some government policies help some people at the expense of other people. But some policies can hurt welfare recipients, the taxpayers and others, all at the same time, even though in different ways.

Why? Because we are too easily impressed by lofty political rhetoric and too little interested in the reality behind the words.

  • mkkevitt

    It’s 100% accurate to call the nefarious activities mentioned here steeling, or theft, etc. It’s just as accurate to call it crime, by criminals, by criminal plans. This is a majority of the activity of the central organization of physical power controling all human relations and all other human action in the U.S. It’s mostly crime by criminals by criminal plans. Only a shrinking minority of the activity of this central organization is government by elected & appointed officials & cops by law.

    This organization is a compromise, on fundamentals, between crime and government. Most of the activity is crime; some is government. Most of the rules are criminal plans; some are laws. How ’bout the PEOPLE running the show? Are they all part crook & part law abiding? Are some pure crooks while others are pure law abiding? Are they ALL a bunch of crooks, because there’s no compromise between fundamentals, but only surrender of the rational to the irrational in any relationship between the two, not compromise?

    The general answer is there are crooks running things under cover of the guise of law, government and due process. They must be dealt with the way crooks are always supposed to be dealt with. Since law and government are involved, elections are the place it has to start. But the re-assertion of law and government to end the ‘compromise’ and to end the actual relationship with crime, then to commence the destruction of the crime, must be THE campaign leading up, starting now, not later. Mike Kevitt

  • Threnody

    They have no idea how to move away from zero rates and QE. None.
    If we don’t some how, stop them now, it’ll be much much worse when no one anywhere will buy our debt.
    How? Could we bring a class action suit claiming that they are stealing from us? Demonstrate government is not authorized to make an agency that taxes us through a process known to cause inflation?
    It’s too late to hope to vote people in that will stop this. What else could work? An Article V attack on Fed money fabrication? What?
    The lower income folks should be the LOUDEST complainers about this. Every dollar put on the fed balance sheet (printed) has value by taking it from every other dollar in existence.
    The explanation given is wrong though — The real reason is most think taking or getting money is the same as MAKING money. Whole generations mutilated by public school have stumps where their intellect should have grown. The abstractions necessary to go from money as marker of value, as created by a human’s time thought and effort, which is a man’s life —- this is impossible for them. We’re being farmed.

  • mkkevitt

    $1,000.00 put in a piggy bank in 1960 is worth $200.00 in 2000, due to inflation. If, instead, the $1,000.00 was wisely invested over those 40 yrs., it might still be worth $1,000.00 in 2000. But, without inflation, that wise investment could’ve made it worth $8,000.00 in 2000. In fact, putting $1,000.00 in a CD (cert. of dep., not a compact disc) at 7% (back then) could’ve yielded $16,000.00 value by 2000, without inflation. So, whaddabout other wise investments, as I just called them? They might’ve fallen flat or they might’ve made tons more than $16,000.00. Just goes to show how much it costs in money & property, let alone human lives, to allow CRIME to take center stage, mainstream, rather than driving it to the deepest sewers and the farthest back waters, and keeping it there, by means of law and government. Mike Kevitt

  • Ccoop2

    The problem is a huge swath of our population doesn’t understand or hasn’t been taught anything about how economics/economies work. They understand that if I fire up a printing press and print counterfeit $100 bills that a crime has been committed, but only because they have heard that counterfeiting is a crime. They have no concept of the underlying reason why it is a crime or that QE is akin to counterfeiting. We call them 6 penny nails because at one time you could purchase a pound of them for 6 cents. The penny became worthless decades ago. I posit that dollars are worthless today. If you earned $9.99 in interest on savings the Federal Government rounds down and says you owe no taxes on that amount. The glue that causes this is inflation and the Fed wants to see nominal inflation of about 2% in perpetuity.

  • writeby

    Criminals? I wish. These folks are nihilists. Or, in the words of Ayn Rand, they don’t want to live, they want you to die.

    Put another way:

    Wyatt Earp: What makes a man like Ringo, Doc? What makes him do the things he does?
    Doc Holliday: A man like Ringo has got a great big hole, right in the middle of him. He can never kill enough, or steal enough, or inflict enough pain to ever fill it.
    Wyatt Earp: What does he need?
    Doc Holliday: Revenge.
    Wyatt Earp: For what?
    Doc Holliday: Bein’ born.

  • writeby

    When you translate current prices into ’64 & prior U.S. silver coins, you find something most interesting indeed.

    Currently, 90% silver coins are being bought for 12 times face (silver’s $19.53 oz. on the spot): 12 X .25 =$3.00. Below is the price of standard items based (approximately) on that value in silver quarters:

    Cigarettes ($7.00): .58 cents a pack ($7.00/12)

    Gas: ($4.00 gal): .34 cents a gallon

    Milk: ($5.00 gal (FL)): .42 cents a gallon

    Bread ($3.00 loaf): .25 cents per loaf

    Movies ($10): .84 cents

    New Car ($20,000): $1,600

    New Home ($200,000): $16,600

    The above serves to illustrate two things: 1) businesses are charging what they charged 50 years ago; 2) the value of the current U.S. Dollar is .083 cents.

    Just remember this when you’re told government control of the monetary system coupled with deficit spending “saved” capitalism and that such government action “helps” the poor.

    “The nickel today is not what it was fifteen years ago. Do you know what this country needs today?…A seven-cent nickel. Yessiree, we’ve been using the five-cent nickel in this country since 1492. Now that’s pretty near a hundred years’ daylight saving. Now, why not give the seven-cent nickel a chance? If that works out, next year we could have an eight-cent nickel. Think what that would mean. You could go to a newsstand, buy a three-cent newspaper and get the same nickel back again. One nickel carefully used would last a family a lifetime.” –Groucho Marx

  • mkkevitt

    True. But morality (egoism) dictates legality. So legally, they can only be treated as crooks. That about mitigates our need to give them any other treatment.

    I should say, this speaks against my own position about Muslim terrorists, such as Boco Haran (sp?). They should just be killed on sight, all of ’em, exterminated. No prisoners, no charges, trials, convictions or sentences. Just kill ’em, open season in perpetuity, on sight, exterminate ’em, and haul their carcasses off to fertilizer plants to raise crops for livestock feed, for hogs. Or make hog feed from their carcasses, directly. Morally, this maybe can be construed permissible instead of putting ’em thru a regular legal process. But I won’t say, now, not for sure. Mike Kevitt

  • writeby

    True. But knowing what makes them tick can a) determine one’s strategy in fighting them & b) undercut their credibility (to those taken in by them).

    “Keep your friends close; your enemies closer.”

  • mkkevitt

    Your 1960, or 64, prices appear awful ding dang accurate to me, by my own hands on experience. I’m old enough to remember it. Mike Kevitt

  • writeby

    Me, too, Mike. ;o)

  • mkkevitt

    The stuff you’re talking (writing) about here is all true, but it ain’t economics/economies. It’s crime, incl. the crime done by so-called gvt. which is actually crime under cover of the guise of law, gvt. & due process. All this crime, especially the crime done under cover of the guise of law, gvt. & due process merely distorts, infests, infects & displaces economics/economies with crime. This crime does exactly the same with law, gvt. & due process.

    Economics/economies is the individual producing value people want, & offering it in exchange for what he wants according to his needs & desires. Crime tends to mess, or totally messes, that up. Mike Kevitt

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