Archive for June 30th, 2022

More reasons that government is ambivalent about inflation…

June 30, 2022

Bottom line: All levels of government benefit from inflation.

Recently, Biden raised eyebrows when he blurted that we’re in an “incredible transition” away from fossil fuels … and inflated gas prices are the price to be paid.

I’m surprised that so many folks are surprised that Biden thinks high gas prices are good … and that his claim of “all things being done” to arrest further gas price spikes is just window dressing.

In a prior post, we spotlighted the world’s worst kept secret, revealed publicly by Biden’s press secretary


English translation: “If high gas prices bother you, get on our climate control program and buy an electric car.”


OK, that’s one reason that Biden’s people are ambivalent or maybe even enthusiastically supportive of skyrocketing gas prices.

And, there are other reasons that all levels of government — local, state and Federal — have some degree of ambivalence (or enthusiasm).

As the WSJ puts it:

One irony of inflation is that while it’s bad for working Americans, it’s great for the government.

Tax revenues soar as nominal profits and incomes rise.

“Overall state and local government receipts including federal aid are already 23% above pre-pandemic levels … thanks to Congress’s gusher of spending.”


How does that happen?

Let me count the ways…


At the Federal level:

(1) inflation devalues the national debt

(2) higher nominal wages push some tax filers into higher Federal tax brackets

(3) increasing asset prices boost capital gains and push some tax filers into higher Federal income  tax brackets


At the State level:

(1) higher wages and capital gains push some tax filers into higher state income tax brackets

(2) higher retail prices increase state sales tax revenues … assuming that consumers continue to buy the same “real” volume of goods.


At the Local level:

(1) higher wages and capital gains push some tax filers into higher local income tax brackets

(2) higher retail prices potentially increase local sales tax revenues

(3) higher real estate prices push real estate assessment values higher and boost local real estate tax collections.


And, there’s a blue state slant to all of this:

The WSJ observes:

Progressive states with higher tax rates are especially flush (with tax revenues).

Democratic states in particular are building in new structural spending in the form of higher pay and pensions for public unions.

As Jen Psaki might say if she were still frequenting the podium: “suck it up”.

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