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All Americans pay taxes – it’s called Inflation

September 21, 2012

A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits, with the result that the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy. — Alexander Fraser Tytler

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. — John Maynard Keynes

Recently there has been a good deal of public debate about the percentage of Americans (is it really 47%?) who don’t pay taxes, and whether these people are more likely to vote Democratic, thus raising the power of “the Left”, thus possibly raising that percentage itself and completing a transition to Socialism. I believe the topic is a good one for debate and the trend is there, although I also believe most of the people who don’t pay income tax have life situations other than being indefinitely on the public dole. More importantly it is broad-brushing in the extreme to assume that the only potential Republican voters are those with a federal tax due of > $0 in the current year. Another recent news story from the Federal Reserve helps us step back from this debate a few steps, though, and see a larger truth:

ALL Americans pay taxes — It’s called INFLATION

When the Fed “monetizes” debt it creates money to buy debt on the open market; this is often given the technical label “Quantitative Easing” although a more descriptive term would be “Creating False Demand for Debt”. Ultimately this drives up bond prices and drives down interest rates on the two main types of bonds often purchased, with two main beneficiaries: the U.S. government, which pays less interest on its bonds than it “should” based on open market demand, and U.S. mortgage borrowers, who pay a lower interest rate than they “should” based on market demand. But this sounds like a good thing, right? – lower interest for the government and homeowners helps our country have more money for other purposes, right?? No.

Inflation is a tax because it more than makes up for its interest rate suppression by devaluing the dollars working people earn, and by driving up the cost of goods and services all people need. The following chart proves the point powerfully. Notice that with our recent inflation the “real” (inflation-adjusted) net worth in the U.S. has been falling fast, having already given up the hard-fought gains of the last 30 years, and heading lower. This is the visual proof of the death of the American dream…

A view of “real” (inflation-adjusted) wages shows the same trend.  We are losing ground as a nation, and yet we continue to attempt more Quantitative Easing.  It continues to prop up the debt markets, the stock market and commodity prices, but all the while TAKING more from Americans than it’s GIVING.

So you may be wondering why there is not more outcry with results so clear and devastating.  Why do politicians continue to claim that we are on the road to recovery, if we’ll just press on in the same way as we’ve been doing?   In truth we have been in an unending recession in the standard of living in this country for a long time.  Why do so few people recognize that?

Because the government statistics lie.  Especially since the 1990s, when under President Clinton the government was given license to “adjust” its reported inflation by factoring in increased quality/features of items, to take out food and fuel (two of every family’s most major necessities!) and to change the weighting of some items over others.   These adjustments ripple their way through many other reported statistics, especially GDP – used to determine whether we are in a formal “recession” or not – and “real” wage growth.

Thanks to the good work of and, we can see the truth in graphs like these, and realize:  we are all taxed by the policies of our government and the Federal Reserve.  I pray that waking up to these facts is only step 1, because we need to turn the tide soon…


From → Economics, Politics

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