The Sneaky And Hidden Tax: How High Inflation Can Heavily Tax Your Cash

The Sneaky And Hidden Tax: How High Inflation Can Heavily Tax Your Cash

hidden tax

The Sneaky And Hidden Tax: How High Inflation Can Heavily Tax Your Cash Photo: Nerthuz / iStock

There’s more to inflation than just rising prices. Some economists say inflation is actually another way to tax your dollars.

Back in February, Larry Summers, former director of the National Economic Council and an alumnus of both the Clinton and Obama administrations, warned President Joe Biden that more spending could easily trigger a spike in inflation. Despite this prediction, Biden went ahead and signed a $1.9 trillion covid spending bill in March. As Americans received their stimulus checks, they spent more. Today, we see the result — inflation. But it turns out, there was a reason the White House went ahead with the spending bill. With inflation, the government can tax your cash, economists say.

“Rising prices are not just an abstract concept for economists to debate and the Federal Reserve to monitor; they are a real hindrance to paying the bills, saving money, and moving up the economic ladder. In other words, inflation is effectively a tax,” wrote Congressman Alex Mooney, a Republican who has represented West Virginia’s 2nd congressional district since 2015.

Inflation takes money out of your pocket that could be better spent or saved by you, Mooney wrote in an article published by The Journal, a daily newspaper in Martinsburg, West Virginia. “In other words, inflation is a sneaky and hidden tax on your cash.”

Because of 2021’s core inflation rate of 4.3 percent, a household with a combined income of $50,000 saw their income devalued by $2,150 compared to 2020, according to Mooney.

Libertarian writer Kristin Tate seems to agree with Mooney. “The sharpest tax President Biden is levying upon Americans is Congress never passed, promised from the White House, or voted on by citizens at the ballot box. The invisible tax of rising inflation will do far more to harm working and middle-class Americans than Biden’s proposed tax hikes,” Tate wrote in an opinion piece for The Hill. Tate is an analyst for Young Americans for Liberty, a conservative student activism organization, and the author of “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.

While inflation has a negative effect on consumer spending, the government “has a vested interest in inflation and the ones who create it,” wrote personal finance blogger Kevin Mercadante.

Higher prices mean more money in the economy, and inflation also means higher salaries, which result in higher tax revenues.

Taxes and inflation originate with the government. “The government may impose one (taxes) and hide its participation in the other (inflation), but the net result is that both leave people with less money. Second, just like taxes, inflation reduces your purchasing power. Taxes reduce your purchasing power on the front, while inflation does its dirty work on the back where you can’t necessarily see it. This is why inflation is referred to as a hidden tax,” Mercadante wrote.

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“This inflation also acts as a tax on us as it reduces our purchasing power. Put simply, the government uses inflation to confiscate a portion of your savings and your wealth,” wrote Texas Public Policy Foundation economists E. J. Antoni and Vance Ginn.

Billionaire investor and hedge fund manager Ray Dalio has declared that cash is not a safe place right now due to the hidden tax of inflation.

“Cash is not a safe investment, it is not a safe place because it will be taxed by inflation,” said Dalio, the founder of Bridgewater Associates, the world’s biggest hedge fund, on CNBC’s “Squawk Box.”

“You can reduce your risk without reducing your returns. You will not market-time this. Even if you were a great market timer, the things that are happening can change the world, so it changes what could be priced into the market,” Dalio said.