In a presidential campaign year, you hear the word “taxes” bandied about quite a bit. Everyone has a strong interest in Mitt Romney’s taxes, others are concerned by changes to the tax structure, and still others are resolved to vote only for candidates who make a “no new taxes pledge” and stand by their promise.
There’s one tax that almost never makes the headlines, but it is as damaging as it is insidious. What tax is that? A gasoline tax? A tax on cigarettes? A flat tax? None of the above. The most dangerous tax of all for many middle- and low-income Americans is a term without “tax” anywhere in it, an invisible tax of sorts: core inflation.
Core Inflation can function as an unofficial and undesignated tax more effectively than just about any other type of tax. It can creep in no matter how many Tea Party Congressmen are elected, no matter how tough either presidential candidate seems on tax increases and no matter what you put on your next tax return.
Here’s how core inflation happens in a classic scenario, and here’s what it can mean to you:
- More money printing to pay for federal spending, thus lowering the value of the dollar and, in effect, raising the prices of goods and services.
- The danger of money printing, so that the government can spend it is manifold. Among the other consequences are: it delays hard reckonings that elected officials in Washington must face, and it adds a layer of interest costs to all spending in Washington. The end result? Short-term relief for looong-term pain, as the higher costs are passed on to a future generation, in extreme cases.
- As money printing to fund spending and the interest on our already massive debt, the invisible tax begins to set in, hurting the middle and lower classes the hardest. The more money printing that occurs, the less the dollar is worth, PERIOD! This is a simple understanding, kind of like printing tickets to an event. A spectacle that allows only 10 spectators will always be more valuable than one that allows 10,000. That’s why back-stage passes cost so much for a concert! Money is the same way. The more dollars printed, the less they are worth. Consequently, people who live on fixed incomes, for instance, actually receive less money per month. People who have worked hard to save, in another example, see their savings erode gradually as the $5,000 they have in the bank is worth far less over the course of a few years.
- In addition, as businesses understand the decreased value of the dollar, they charge more to ensure that they make enough profit to keep their stockholders happy. The next wave of core inflation hits, and costs for energy, food, prescription drugs, etc. creep up, resulting in a double hit for average consumers. Because of this invisible tax, their dollars are worth less and they have to spend more of them for life’s necessities.
As Peter Shiff points out in his book, The Real Crash; Americas Coming Bankruptcy beware of extravagant promises more than ever during this election year, but also beware of the seemingly “easy” solution to getting our economy going again. That is, don’t vote too quickly for those who urge us to spend our way out of the Great Recession, especially if the government is going to be doing a lot of that spending on contractors in the D.C. area.
The Medicine Becomes the Poison!
More money printing actually compounds the problem and creates additional issues which only delays the pain, which will be far worse later. Ask questions, do research, and find out which candidates are most likely to endorse policies that will encourage inflation. You should definitely think twice before voting for such men and women; their ideas will levy this invisible tax on you and all other Americans in the form of inflation. Inflation is more poisonous and hurtful because it is immeasurable, whereas a 7% sales tax or a 25% income tax you can account for and plan accordingly.
No new taxes? That can only be said if it can be guaranteed that core inflation will not result as we try to find our way out of the current slowdown.