What you don’t know won’t hurt you is the motto of the tax man. Write a check to the IRS and you will squirm and whine. Write a big enough check to the IRS and you will holler and maybe even protest in the streets. So the tax man cometh and figureth that his chances of getting away with your money are better if he uses the tactics of a pickpocket than of an armed robber. But be not fooled, for he is armed with the coercive power of government force, which does indeed include the ability to imprison and kill you.
Dead citizens, though, don’t pay taxes and incarcerated citizens can actually cost money so what the tax man wants is to keep you happily buzzing along in productive work while he skims as much of the money off your pay and profits as he can without alarming you. His favored way of doing this is to hide taxes from you so that you don’t even know you are paying them.
Inflation is a hidden tax and it is a tax that most directly affects and hurts those in the lower and middle economic strata. Inflation is not some natural phenomena that just happens to money like evaporation happens to water, even though we all take it just about as much for granted. Inflation is intentional. Inflation is not prices going up; it is the value of your money decreasing. What causes that? The government printing money, and more money, and more money.
Remember when your dad used to tell you that money didn’t grow on trees. He was saying of course that he went out and earned the dollars you were trying to wheedle out of him and that there was only a finite amount of them available. But consider for a moment if money did grow on trees. At first the thought is pleasant; you imagine just walking outside and stripping a handful of 20s off a tree like loose leaves as you head out to the grocery store. Fives and tens whirl about your feet as you cross the parking lot and the store is full of other shoppers, pockets stuffed with cash. The reality of course is that it all would be as worthless as the fallen leaves you ignore in the street today. The very easy availability of it would inflate its value down to nearly zero.
Now the tax man knows that he can’t get away with that level of inflation, but he has figured out that as long as he keeps the inflation rate at around 3 percent or so, you won’t squeal too much. So how does he inflate the money since it doesn’t grow on trees? Easy; he just prints it. Putting more money into circulation devalues it. As long as the devaluation is gradual and as long as people are able to demand cost of living increases to wages and salaries, the taxman has learned, the population will put up with it. The taxman then uses the printed money to pay for things like schools and roads and fighter jets and farm subsidies and you don’t object to the expenditures because you don’t realize that your taxes are steadily increasing to pay for them. You might even be under the impression that your tax rate is staying the same or even decreasing during the exact same period that the earning power of your dollars is eroding due to inflation.
This is a direct assault on representative government. The reason the Constitution gives congress control over spending and taxes is because congress is (ostensibly) closest to the people. The founders figured that this would put a natural cap on government spending because the citizens would be up in arms over the imposition of taxes that were driven too high by reckless spending. So instead of going to the people and asking them to support, say a 3 percent tax increase for buying up wetlands, they just write it into the budget, borrow the funds, and then print the money to pay what they borrowed.
Which brings us to another hidden tax. When the government borrows money, the government competes with everyone else who wants to borrow money: with the small business man looking to build a second gas station, with the town trying to get a mortgage on a school building, with the couple trying to get a condo in Florida. Everyone who wants to borrow money is in competition for the dollars with everyone else seeking to borrow and the demand determines the interest price. So the cost of interest becomes another hidden tax.
It really does not even matter if you are not in debt at all. You cannot avoid paying this hidden interest tax because the cost of this tax to your state and municipality will result in increases in income, sales, and property taxes. The cost of this tax to local businesses will be compensated for by an increase in the prices you pay. The cost of this tax to your own employer will increase his business expenses, restrain funds he might have otherwise paid you or used to grow his business and give you more opportunity for advancement.
Besides, the inflation itself encourages debt as everyone tries to figure out how to game the system by getting what they need or want today and paying for it with inflated dollars tomorrow. It punishes productivity, thrift, and savings. Here is an explanation of how inflation robs the spending power from a retirement account.
The hiding of these taxes created by government debt and the printing of money keeps out of public awareness the actual tax burden. It also obscures the fact that it falls, despite our so-called progressive tax rates (which charges higher incomes at a greater rate) proportionally more onerously upon the lower economic strata.
Here is how. Lower income people are more likely to be carrying a personal debt load than higher earners and more likely to have incurred debt for needs (as opposed to luxuries). They are also less likely to be lenders who benefit from higher interest rates than are those with higher incomes. (One does not have to be a “bank” to loan money; members of credit unions, corporate stock holders, etc. are lenders in the economy.) Those with lower incomes often face greater lag in “cost of living” adjustments, so that the effects of inflation hit them harder and they experience greater erosion proportionally of earning power over time.
None of this is an argument for increasing the progression of the current tax system. The entire system, with the happy collusion of congress — the branch that is supposed to be most responsive to citizens — is so constructed as to deny the principles of “government by the people” by obscuring from said people what is really being taken from them. The people will not get control of this government again until the tax system is put right and every single robber is put out.