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Why Democrats’ Inflation Is A Major Tax Hike On The Poor


President Biden claims he won’t raise taxes on families making less than $400,000 per year. But given Biden’s twists and turns on taxes—he now wants to eliminate a loophole he and his wife exploited to avoid more than $500,000 in taxes the past four years—Americans have reason to take his campaign promises with a grain of salt.

Even if he does not levy taxes on middle-class families directly, Biden’s free-money policies are beginning to impose a heavy indirect tax increase on families of modest means: Rising inflation. At a time the wealthiest Americans have gotten even richer due to booming times on Wall Street, pernicious inflation would give working families a crushing blow.

Prices of Goods Skyrocketing

A recent Labor Department report noted that in April, the Consumer Price Index rose 4.2 percent on an annual basis compared to April 2020. From March to April of this year, prices rose at a 0.8 percent rate, which equates to roughly 10 percent inflation over an entire year. Both the annual and the monthly increases in April significantly exceeded the Federal Reserve’s 2 percent inflation benchmark.

The Federal Reserve considers this spike in inflation “transitory”—a true enough statement, to a point. Some of the price spikes stem from anomalies due to the pandemic.

For instance, this time last year, oil prices tanked when much of the global economy shut down; that sharp spike downward last year will look like a big spike upward this year, as prices move toward higher, pre-pandemic levels. Other price increases could stem from pandemic-related supply chain issues—for instance, the global chip shortage—that may resolve themselves as things return to normal.

But rising prices could also develop into a longer-term phenomenon. The trillions of dollars that the Federal Reserve continues to pump into the economy, coupled with trillions of dollars of federal spending pushed by Biden and congressional Democrats, could let the inflation genie out of the proverbial bottle, leading to sustained price increases.

Regressive Tax on the Poor

A recent analysis in the Wall Street Journal explained in layman’s terms the problem that prolonged “Bidenflation” would present: “A fall in inflation-adjusted wages hits low- and moderate-income households especially hard, because they dedicate a larger share of their paychecks to covering daily living costs. The numbers might be temporarily skewed, but if inflation persists and is fueled by the Fed or the Biden administration’s policies, it could raise questions about the costs and benefits of those policies for working Americans.”

Ironically enough, even as the Biden administration has dismissed the idea of an explicit gas tax increase to pay for infrastructure spending, inflation would present a de facto increase in the price of fuel—while also raising the price of food, clothing, rent, transportation, and other essentials that comprise a disproportionate share of working-class families’ budgets.

While many Americans were too young to have lived through it personally, we’ve seen this phenomenon before. In the 1960s and 1970s, the combination of high government spending, easy-money policies from central banks, and oil crises in the Middle East led to runaway inflation in the United States and many European countries.

In her 1979 election campaign, future British Prime Minister Margaret Thatcher provided tangible evidence of how inflation harms the poor. At one famous photocall, Thatcher—the daughter of a grocer, who understood the struggles working-class families face in ways her wealthier colleagues often did not—held up two bags of groceries.

The very noticeable difference between the size of the two bags showed how five years of a Labour government had eroded the value of “the pound in your pocket” by sharply reducing the value of the goods Britons could buy with their currency:

Another way of looking at inflation’s impact: In April, real inflation grew at a 3 percent annual rate—prices rose by 4.2 percent, while wages rose by only 1.2 percent. If that pace continues over the four years of the Biden administration, a worker earning a $50,000 salary in January 2021 will be able to buy only $44,265 worth of goods with that salary in January 2025.

Some people decided to brag about their $1,400 “stimmy” checks the federal government handed out earlier this year. But if those one-time checks lead to inflation persisting at the level we saw in April, middle-class families will end up thousands of dollars per year poorer.

Big Government Harms the Poor

The inflation spiral of the 1970s demonstrates how government policies end up harming those the left claims to help. As Thatcher famously said in 1976, socialists eventually run out of other people’s money. When they do—and sooner or later, Biden and the Federal Reserve will run out of fiscal firepower—it could leave damaging effects. To put it bluntly, all this “free” money could end up driving American families into the poor house.