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They’ve Secretly Raised Your Taxes

The government borrows dollars, and you earn dollars. Taxation is one way that governments take money from citizens to pay off government debt. But taxes are unpopular and hard to get approved by Congress.

Inflation works much better.

It reduces your real income since the dollars you earn are worth less. And it reduces the government debt because the money the government owes is easier to repay for the same reason – the dollars are worth less.

So inflation works the same as a tax increase except that you can’t see it and Congress doesn’t have to lift a finger. Nice, right?

Another damaging effect of inflation has to do with the difference between nominal income and real income. Nominal income is the amount of money you make measured in dollars. Real income is the amount those dollars are actually worth when adjusted for inflation.

For example, your wages might have gone up 5% (that’s the latest annualized wage increase as of April 1, according to the Labor Department). That’s a nice gain, but with inflation of 7.9% (also the latest data we have), your real wages actually went down 2.9% (5.0 – 7.9 = -2.9).

A lot of the inflation today comes from the supply side, not the demand side. It has to do with supply chain disruptions and the cascade of consequences from the economic sanctions because of the war in Ukraine. None of these situations will show any improvement in the short run.

They may actually get worse, as the situation in China suggests…

https://dailyreckoning.com/theyve-secretly-raised-your-taxes/