What Is Inflation Tax?

Inflation (English: inflation) refers to the increase in the quantity of money issued, and the general price level in a certain period of time, continuously rising by a considerable amount, that is, the rise in prices, but it is often accompanied by a Derived phenomenon. "Inflation" means currency in circulation. Inflation refers to an increase in the quantity of money issued, but now people often confuse the two and directly equate "inflation" with the Chinese synonym of "price rise". Inflation is different from currency depreciation. Overall inflation is the decline in the purchasing power of money in a particular economy, while currency depreciation is the decrease in the relative price of money between different economies. The former affects the price of the currency in the domestic market, while the latter affects the price of the currency in the international market. The correlation between the two is one of the controversies in economics.

Inflation tax

It is generally

The government compensated by overdrafts and additional banknotes to banks

Like American

1. The government has been referred to as "inflation tax" for overdrawing banks and issuing additional banknotes to make up for the fiscal deficit and reduce the purchasing power of the people's currency. It is generally a tool for market economy countries to implement economic policies. After capitalism entered the monopoly stage, especially the outbreak of the Great Crisis in the 1930s, the capitalist economy could no longer self-adjust, thus requiring the state to assume the responsibility of intervening and regulating the economy. State intervention and regulation of the economy have caused a substantial increase in fiscal expenditures in capitalist countries. However, because fiscal revenue cannot increase correspondingly, national budgets often run into deficits, and even huge deficits occur year after year. The way to make up for the fiscal deficit, in addition to increasing taxes and borrowing, is to issue more banknotes by overdrawing banks. Under the circulation of banknotes, although the country's additional issuance of banknotes can achieve the purpose of obtaining a portion of fiscal revenue, it will inevitably cause the devaluation of banknotes and increase the price level, so that people can buy fewer goods and services with the same amount of currency income than before. Because it is actually a hidden tax that the government collects from the people through inflation, it is called "inflation tax". Inflation disrupts the normal rate of money circulation. In order to reduce the losses, the currency holders should try their best to release the currency as soon as possible and exchange back the required items. In the most severe period of inflation, there will be blind snapping, which will cause the speed of currency circulation to accelerate, exacerbate inflation, and hinder the stable development of the economy. As a result, governments have increased the use of additional currencies to make up for fiscal deficits, and some countries have used financial systems to limit them. For example, the currency issuance in the United States is controlled by the Federal Reserve Bank, and the Federal Reserve Bank is not affiliated with the President, so the fiscal deficit cannot be made up by directly issuing currency.

2. In general, the tax payable by taxpayers depends on their currency income, and the grade of their applicable tax rate is determined by the level of currency income. When the economy experiences inflation, due to the impact of inflation, people s nominal currency income increases, which causes taxpayers' taxable income to be automatically assigned to a higher income level, which leads to a grade climb, thereby paying taxes at a higher applicable tax rate. This hidden tax increase caused by inflation is also called "inflation tax".