| The subject of taxes is typically highly charged with | | | | increase in prices is for economic output to go down |
| political animosity. During every election cycle, there | | | | or for the amount of money in circulation to increase. |
| tends to be quite a bit of discussion how what the | | | | (Please note that this isn't an original observation. Milton |
| 'right' amount and structure of taxation should be. | | | | Friedman won the Nobel Prize in 1976 for his work on |
| However, there are actually two types of taxes that | | | | the relation between monetary policy and inflation) |
| people pay. The first is the taxes that the IRS or state | | | | So how does this relate to taxes? Since the |
| revenue agency assesses on your earned income | | | | government has the power to increase or decrease |
| during the year. (This is what most people think of | | | | the money supply, they have the ability to spend |
| when you say the word taxes) The second and much | | | | money without increasing taxes by increasing the |
| stealthier tax is inflation. | | | | money supply. Because of this fact, the primary |
| At this point, I'm sure that many of you are wondering | | | | danger of the national debt is not that the government |
| what inflation has to do with taxes. Most people think | | | | will not be able to pay its obligations. (The federal |
| of inflation as being the result of increases in the price | | | | reserve could literally 'wipe-out' the national debt by |
| of commodities such as oil or concrete. However, let's | | | | purchasing all of the outstanding government bonds |
| step back from the details for a moment and think | | | | with treasury notes and tremendously increase the |
| about the big picture. If the total amount of products | | | | money supply, thus causing widespread inflation) The |
| & services in the economy stays the same, and | | | | primary danger of the national debt and unfunded |
| the total amount of money in circulation (both hard | | | | social security / medicare obligations is that the |
| currency & electronic records) stays the same, | | | | government will have to massively inflate the currency |
| any time one product goes up in price something else | | | | to meet its previously committed obligations. Ultimately, |
| would have to go down in price. The only way that | | | | this amounts to a tax that is never passed by |
| you can possibly experience an across-the-board | | | | congress. |