Inflation gives everyone some skin in the game

David MoonBlog

The nonpartisan Tax Policy Center estimates that 57 percent of all U.S. households paid zero federal income tax in 2021. Even if there is an income level below which a person shouldn’t be required to help finance the operation of the federal government, shouldn’t at least half the people pay something?

In the same way that a person is less likely to take great care of an automobile he didn’t purchase, people tend to think about their federal government differently when they don’t pay for it. If I don’t pay for government, I don’t care if it is inefficient or even ineffective, except for the programs that benefit me.

Voters who don’t bear the cost of their elected officials’ policies impose no discipline on those politicians. Too often, the negative effects of a Congressional action are felt by a minority of taxpayers or are postponed so far into the future that it’s difficult to make the connection between negative consequences and the policies that enable them.

Economists have long argued that printing money causes inflation, but the cause-and-effect was always separated by large amounts of time. The inflationary effects of Lyndon Johnson’s Great Society programs and Richard Nixon’s manipulation of the Federal Reserve weren’t felt until many years later.

However, Covid made everything happen faster. The root cause of today’s inflation traces back only months, to the indiscriminate distribution of $5.2 trillion of newly printed or borrowed dollars. People who pay no federal income tax are paying a lot more for everything they purchase. Most of them generally understand why – and it’s not #PutinsPriceHike. When you create $5 trillion from thin air and force that money into a system with zero percent interest rates, inflation occurs.

Inflation has been described as a tax that requires no politician’s vote. For the first time ever, that description proved true in a very rapid 24 months. Yes, there have been some other inflationary forces at work, but bad things tend to happen at the worst time.

The price of hamburger reminds us that everyone has skin in the game – and we should reject elected officials’ attempts to bribe us with the promise of free money. There is no free money. Governments aren’t wealthy entities with trillions of dollars lying around. They are pass-through entities, foisting the cost of newly created money on who buys groceries, even if they don’t pay taxes.

In response to inflation, some lawmakers are threatening to fight inflation with even more inflation, proposing various forms of “inflation relief programs” that would send money to people to help offset higher consumer prices. Let’s hope voters are smarter than these politicians think we are.

David Moon is president of Moon Capital Management. A version of this piece originally appeared in the USA TODAY NETWORK.