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Op-Ed: The hidden tax increase in plain
sight
By Vance Ginn and John Hendrickson
“For a typical family, the inflation tax means a loss
in real income of more than $1,900 per year,” stated Joel Griffin, a
research fellow at The Heritage Foundation.
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 Americans have less money than
they had last year – though taxes haven’t been raised. So what’s the problem?
Inflation, which has increased at a 40-year high annual pace of 7.9%. It acts as
a hidden tax because we don’t see it listed on our tax bills, but we sure see
less money in our bank accounts.
In fact, inflation-adjusted average hourly earnings for private employees are
down 2.8% over the past year. This means a person with $31.58 in earnings per
hour is buying 2.8% less of a grocery basket purchased just last February.
“For a typical family, the inflation tax means a loss in real income of more
than $1,900 per year,” stated Joel Griffin, a research fellow at The Heritage
Foundation. The hidden tax of rapid inflation has been avoided
for four decades. But that’s understandable because we haven’t seen these sorts
of reckless policies out of Washington since the Carter administration.
The policies from the Biden administration’s excessive government spending and
the Federal Reserve’s money printing must correct course now before things get
worse.
What’s causing inflation is being debated.
One claim is “Putin’s price hikes” stem from the Russian president’s invasion of
Ukraine.
While this has contributed to oil and gasoline prices spiking recently, these
prices – and general inflation – were already rising rapidly. This was because
of the Biden administration’s disastrous war on fossil fuels through increased
financial and drilling regulations, cancellation of the Keystone XL pipeline,
and more.
Specifically, the price of West Texas Intermediate crude oil is up about 110%
since Biden took office, yet only up 21% since Russia invaded Ukraine. And to
think, the U.S. was energy independent in the sense that it was a net exporter
of petroleum products in 2019.
Another claim is the supply-chain crisis.
For example, the global chip shortage has contributed to a large shortage and
subsequent increase in the average price of new vehicles – to a record high of
$47,000, up 12% over the past year. This contributed to buyers switching to used
cars, which has pushed the average price up to nearly $28,000, about 40% higher.
These two claims will likely be transitory price increases, though not
sufficient to drive down overall inflation to what we’ve experienced for the
last year-plus. Inflation is persistent because of rampant
government spending and money printing.
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Larry Kudlow, who served as the director of the
National Economic Council for President Donald Trump, stated that
inflation “is destroying working folks’ pocketbooks and devaluing
the wages they earn, and the root cause of the inflation is way too
much government spending, too many social programs without workfare,
and vastly too much money creation by the Federal Reserve.”
Both political parties share the blame for too much government
spending, which has caused the national debt to balloon to $30
trillion. Just over the last two years, the debt has increased by
25% or $6 trillion.
While some of that may have been necessary during the
(inappropriate) shutdowns in response to the COVID-19 pandemic, much
of the nearly $7 trillion passed in spending bills was not,
especially the trillions by the Biden administration far after the
pandemic had slowed and people were returning to work.
Laughably, Speaker of the House Nancy Pelosi recently argued that
government spending is helping inflation and President Joe Biden
argued that he’s cutting the deficit. Both are false.
Government spending doesn’t change inflation because it just
redistributes money around in the economy. And the deficit would
only be rising from Biden’s big-government policies but he’s taking
advantage of an optical illusion: one-time COVID-19 relief funding
drying up and tax revenues rising partially from the effects of
inflation.
Ultimately, the driver of inflation is from discretionary monetary
policy by the Federal Reserve as it monetizes much of the $6
trillion in added national debt since early 2020.
The Fed did this to keep its federal funds rate target from rising
above the range of zero to 0.25% by more than doubling its balance
sheet to $9 trillion. More money is fueling the ugly government
spending and bubbly asset markets that’s resulting in dire economic
consequences.
Instead, we need to learn what Presidents Warren Harding and Calvin
Coolidge realized a century ago. This would mean a return to sound
fiscal policy, monetary policy, and the dollar that built on the
principles of America’s founding.
We need binding fiscal and monetary rules to hold politicians and
government officials in check if we hope to tame inflation and
return to prosperity.
Vance Ginn,
Ph.D., is chief economist at the Texas Public Policy Foundation,
and is the former associate director for economic policy at the
White House Office of Management and Budget, 2019-20. John
Hendrickson is policy director at the Iowans for Tax Relief
Foundation.
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