NOTICE | The tax increase hidden in plain sight | Op-Ed

Americans have less money than they had last year – although taxes have not been raised. So what is the problem? Inflation, which rose to a 40-year record annual rate of 7.9%. It’s a hidden tax because we don’t see it listed on our tax bills, but we certainly see less money in our bank accounts.

In fact, the inflation-adjusted average hourly wage of employees in the private sector fell by 2.8% over the past year. This means that someone earning $31.58 per hour buys 2.8% less than a basket of groceries bought last February.

“For a typical family, the inflation tax means a loss of real income of more than $1,900 a year,” said Joel Griffin, researcher at the Heritage Foundation.

The hidden tax of rapid inflation has been avoided for four decades. But it’s understandable because we haven’t seen these kinds of irresponsible policies from Washington since the Carter administration.

The Biden administration’s excessive government spending and Federal Reserve money printing policies need to correct course now before things get worse.

What causes inflation is debated.

One claim is that “Putin’s price hikes” stem from the Russian President’s invasion of Ukraine.

While this contributed to the recent spike in oil and gasoline prices, those prices – and general inflation – were already rising rapidly. This was due to the Biden administration’s disastrous war on fossil fuels through increased financial and drilling regulations, the cancellation of the Keystone XL pipeline, and more.

Specifically, the price of West Texas Intermediate crude oil has risen about 110% since Biden took office, but only 21% since Russia invaded Ukraine. And to say that the United States 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 contributed to a major shortage and subsequent increase in the average price of new vehicles – to an all-time high of $47,000, up 12% from a year ago. This prompted buyers to turn to used cars, which pushed the average price up to almost $28,000, or about 40% more.

Both of these claims will likely be transitory price increases, but not enough to bring headline inflation down to what we’ve seen over the past year-plus.

Inflation is persistent due to rampant government spending and money printing.

Larry Kudlow, who served as director of President Donald Trump’s National Economic Council, said inflation “destroys workers’ wallets and devalues ​​the wages they earn, and the root cause of inflation is also far too public expenditure”. many social programs with no forced labor and far too much money creation by the Federal Reserve.

Both political parties share responsibility for too much government spending, which has driven the national debt to $30 trillion. In the last two years alone, the debt has increased by 25% or $6 trillion.

While some of this may have been necessary during the (inappropriate) shutdowns in response to the COVID-19 pandemic, much of the nearly $7 trillion spent in expense bills was not, especially the Biden administration’s trillions long after the pandemic slowed and people were returning to work.

Laughably, House Speaker Nancy Pelosi recently argued that government spending helps inflation and President Joe Biden claimed he was cutting the deficit. Both are wrong.

Government spending does not change inflation because it just redistributes money in the economy. And the deficit would only increase because of the policies of Biden’s big government, but it’s enjoying an optical illusion: One-time COVID-19 aid funding is running out and tax revenue is rising partially due effects of inflation.

Ultimately, the driver of inflation comes from the Federal Reserve’s discretionary monetary policy, which monetizes much of the $6 trillion in national debt added since the start of 2020.

The Fed did this to keep its federal funds rate target from breaching the zero to 0.25% range by more than doubling its balance sheet to $9 trillion. More money is fueling ugly government spending and bubbling asset markets, leading to dire economic consequences.

Instead, we must learn what Presidents Warren Harding and Calvin Coolidge achieved a century ago. It would mean a return to sound fiscal policy, monetary policy and the dollar based on America’s founding principles.

We need binding fiscal and monetary rules to keep politicians and government officials in check if we hope to bring inflation under control and return to prosperity.

Vance Ginn, Ph.D., is chief economist at the Texas Public Policy Foundation and former associate director of economic policy in the White House Office of Management and Budget, 2019-20. John Hendrickson is director of policy at the Iowans for Tax Relief Foundation.