Ron Paul: Republican Tax Plan Increases the Most Insidious Tax

Ron Paul has identified an increase in what he calls the “most insidious tax” buried in the GOP tax reform bill.

A lot of Americans have put a lot of hope in tax reform. As Peter Schiff said in a recent Fox Business interview, the prospect of economic growth spurred by tax reform and other Trump policies have generated a great deal of optimism. But the question remains: can the GOP Congress deliver? And even if Congress does get a reform package passed, some question whether it will actually lead to the economic growth promised. Absent spending cuts, the tax plan will increase the federal debt even further. Evidence indicates high debt levels retard growth.

In a recent article published on the Mises Wire, Ron Paul identified another problem with the Republican tax plan. It actually increases the most insidious of all taxes – the “inflation tax.”

Paul acknowledged the tax plan has some positive elements such as increasing the standard deduction, creating a new family tax credit, eliminating the death tax, reducing the corporate tax rate, and lowering taxes on small businesses.

But the former congressman zeroes in on an element in the plan most analysts have missed – or ignored. It adopts what is known as the chained consumer price index (chained CPI) to determine future adjustments of tax brackets.

Chained CPI is a way of measuring CPI that understates inflation’s effects on our standard of living. It does this by assuming inflation has not reduced Americans’ standard of living if, for example, people can buy hamburgers when they can no longer afford steak. This so-called full substitution ignores the fact that if individuals viewed hamburgers as a full substitute for steak they would have bought hamburgers before Fed-created inflation made steak unaffordable.

“Chained CPI increases the inflation tax. The inflation tax may be the worst of all taxes because it is hidden and regressive. The inflation tax is not even a tax on real wages. Instead, it is a tax on the illusionary gains in income caused by inflation. The use of chained CPI to adjust tax brackets pushes individuals into higher tax brackets over time.”

Using chained CPI allows politicians to effectively increase taxes without adjusting rates. In other words, taxes go up while politicians are shielded from having to vote on a tax increase. Instead, the Federal Reserve does the dirty work. Fed monetary policy drives up inflation – on purpose. The stated goal is to boost inflation at a target of 2% per year. That doesn’t sound like much, but when you multiply that over time, it represents a significant devaluation of your money.

And eventually, you find yourself in a higher tax bracket even though your purchasing power hasn’t risen one iota. In fact, it’s fallen.

Paul said this is why we need to continue to push for an audit of, and an eventual end to, the Federal Reserve.

Since their creation in 1913, the Federal Reserve and the income tax have both enabled the growth of the welfare-warfare state, and the erosion of our freedom and economic well-being. The key to restoring our liberty and prosperity, as well as avoiding a major economic crisis, is reversing the great mistakes of 1913 by repealing the 16th Amendment, and auditing and ending the Federal Reserve.”

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Photo by Gage Skidmore