Talk:Inflation tax

Just copied stuff from Hyperinflation, please feel free to expand (perhaps with direct printing of money for gov'mt use?)

Just done that. Examples would be nice. Argentina looks like a prime candidate... --Pablo D. Flores 15:37, 13 Jun 2005 (UTC)

The definition was wrong. It was a definition of 'inflation' rather than 'inflation tax'. There is a difference.

By definition, if the nominal value of your money increases by the real interest rate, and then by the inflation rate, it has increased by the nominal interest rate. As an equation, we get (1+N) = (1+R)(1+I), where N is the nominal interest rate, R is the real interest rate, and I is the inflation rate. Solving for R, R = (1+N)/(1+I) - 1. For small values of N and I, R = N - I with small insignificant errors. 160.83.36.130 (talk) 08:53, 15 October 2019 (UTC) In contrast, the first makes the incorrect definition R = (1+I)/(1+N) and then later suggests the second incorrect definition R = 1 - (1+I)/(1+N). To see further why the definitions given in the article are wrong, note that if inflation is 0, we must have N = R. The definitions in the article do not agree with this simple fact. I don't have time to make all the necessary corrections right now, so I'll leave this comment for now. I'll try to fix things later if no one else gets to it before me. Norman314 (talk) 00:12, 7 October 2008 (UTC)Reply

The definition I gave may have been incorrectly phrased, or restrictive, but it was not incorrect. The one you gave was not clear at all. Note also that the original article (not by me) was text copied from another article, Hyperinflation, which is quite well researched and extensive.

References:

• An article about optimal inflation: [1]
• A short definition (somewhat different, but probably less inclusive): [2]
• A study guide with an overview of inflation (restrictive - defines inflation tax as the government revenue produced by creating money): [3]

Inflation tax cannot be confused with inflation according to the original definition. It's a more-or-less intended result of inflation. I think the article is clear enough. --Pablo D. Flores 02:00, 23 Jun 2005 (UTC)

I'll merge your opinion of what it means with my opinion, even though I think you are wrong. We can have both definitions.

1. You need to look "inflation tax" up in an economics textbook. You are defining inflation. Nowhere in your definition do you explain why or how it is a tax on the individuals. Please move your definition to the inflation page.
2. Also, your definition is confusing. What does improve position mean? Position usually refers to physical location. Maybe an example is in order of how this is a tax in your definition.
3. Note "Humble fool" does not get it in his comments about this page.

I'm no economist and I have no economy textbooks at my disposition. I only interpreted the idea as I could. But I do understand the basics of economics, and from what I gather, the definition of "inflation tax" is not as simple. This is how I see it.

An inflation tax is not a tax. It acts like a tax, but in fact it is just an (automatic) effect of inflation. In fact, the reason why you might be seeing that "my" definition is the same as that of inflation is that "inflation tax" is really "inflation viewed as a tax". Unless your textbooks say that governments must purposefully induce inflation in order for this to be called "inflation tax", or that there are governments that actually do this. I know enough about economics and ideological biases to imagine what kind of economists consider this definition to be the only correct one. (I live in Argentina, land of failed economic experiments conducted by people of the Friedman school and their ilk.)

It's not a matter of negotiating the definition, or merging two different ones; if there are more than one, let's keep them apart. If mine is in fact incorrect, it must be deleted. What about this?:

--- BEGIN DEFINITION ---

An inflation tax is the economic disadvantage suffered by holders of cash and cash equivalents in one denomination of currency due to the effects of inflation, which acts as a hidden tax that subtracts value from currency.

For example, if the annual inflation rate in the United States is 5%, one dollar will buy $1 worth of goods and services this year, but only $0.95 the next year; this has the same effect as a 5% annual tax on cash holdings.

--- END DEFINITION ---

... followed by the rest ("Governments...").

I've taken the liberty to format your post a bit. It would also help if you registered and/or signed your posts, but that's up to you. Four tildes (~~~~) will automatically insert your name (or IP address) and the date and time. --Pablo D. Flores 11:03, 23 Jun 2005 (UTC)

Ok. I was the anonymous poster (by IP address) who was arguing this point. I think the definition is ok with me now.

81.64.150.248 13:18, 3 January 2006 (UTC) I just edited the article to mentione an utilisation of the term in economic litterature. Cf. for exemple the page 35 of these paper : "Crises and Crashes : Argentina 1885-2003" by Cerro and Meloni, may 2005, articledownloadable on http://econpapers.repec.org 81.64.150.248 13:18, 3 January 2006 (UTC)Reply

If the argument in these links, both to the same article: http://www.gold-eagle.com/editorials_05/petrov011606.html http://www.informationclearinghouse.info/article11613.htm is correct then 'what is an inflation tax' becomes one of the most important questions which could be asked.

The article argues that the U.S. taxes its empire cryptically using a variation on the 'classical inflation tax'. By forcing oil to be traded substantially in dollars and then inflating America taxes its empire. The implications of this would go on forever and drive most geo-politics.

So pull your fingers out boys and girls and get it sorted, non economists like me are depending on you. To be frank I don't understand your definition.

Actually 5% compound inflation would mean that one dollar would buy 1/1.05 or slightly more than 95.2% of what it would have if spent the year before.

In 20 years that same dollar pulled out from a mattress would buy 1/(1.05)^20 or 1/2.653... or almost 38% of what it would have bought before it was tucked away for two decades.

Perhaps a mention could be made about the effects of adjusting for inflation vs adjusting for wages, GDP, size of population, etc.

Hcobb (talk) 12:41, 5 February 2008 (UTC)Reply

I made an entry on the stealth tax page a month ago. Is it any use here? Foofighter20x (talk) 03:28, 22 February 2008 (UTC)Reply

The Keyser Soze of taxes. This must be mentioned somewhere in this article. —Preceding unsigned comment added by 87.194.21.39 (talk) 00:00, 2 November 2008 (UTC)Reply

The last section of the article does not appear to be an unbiased presentation of the effects of inflation on the business cycle. Other researchers believe that a small amount of inflation actually encourages economic activity as it gives consumers an incentive to buy goods today rather than wait until the price goes down. Fed Chairman Ben Bernanke has made comments recently about the perils of deflation. Further, banks may be among those hurt the most by inflation since the long-term fixed rate borrowers (e.g. consumers with mortgages) will be able to pay them back using "cheaper money".

The language about trickery and "biting the bullet" does not appear to be consistent with the Wikipedia:Manual of Style. —Preceding unsigned comment added by Thomaswagner (talk • contribs) 01:34, 19 March 2009 (UTC)Reply

Most of the claims in this article that are presented as hardcore fact are, at best, up for debate. For instance, many economists think that inflation is an important driver of growth, yet this article simply states that it harms future growth as if there weren't any sort of question on the subject. The "inflation tax" is a derogatory word for any sort of expansionary monetary policy (sort of like "death tax" for the estate tax), so it's really NPOV to use it as is without mentioning that. Using the word "tax" to describe it is also dubious, as money that's printed doesn't go into the treasury.130.18.131.194 (talk) 12:11, 18 April 2011 (UTC)Reply

This article depends solely on the premise that inflation is strictly harmful to the economy. This is an opinion and not a fact. It is already discussed in the inflation article that inflation affects purchasing power. There should be no need to have an entire article dedicated to this fact. It seems that this article intentionally attempts to mislead the readers. Dotter (talk) 07:25, 23 October 2010 (UTC)Reply

"If the annual inflation rate in the United States is 5%, one dollar will buy $1 worth of goods and services this year, but it would require $1.05 to buy the same goods or services the next year; this has the same effect as a 5% annual tax on cash holdings, provided there is 0% economic growth, or other price-reducing factors, such as efficiency-enhancing technology. With price reducing factors at play, a 5% inflation rate indicates a tax rate of higher than 5%."

I feel like this is saying "this will be a 5% tax on cash holdings unless other unrelated stuff happens." My position is to change it to

"If the annual inflation rate in the United States is 5%, one dollar will buy $1 worth of goods and services this year, but it would require $1.05 to buy the same goods or services the next year; this has the same effect as a 5% annual tax on cash holdings, ceteris paribus."

on the grounds that the (now removed) half of the sentence only muddles the issue of the inflation tax. Those are other straightforward economic lessons that act independently of the inflation tax. -Ich (talk) 18:04, 6 May 2011 (UTC)Reply

The article refers to an economic phenomenon, not a levy on persons, things, or transactions by a government. Therefore, "inflation tax" is not a tax. See any reliable dictionary. I have modified terms used appropriately. In addition, I removed some statements that improperly used the terms seignorage (which means the difference between the face value of a coin and the value of the metal it contains) . Also, I have tagged some uncited items as citation needed. Finally, I recategorized the article to Economics, since it is not about taxation. Oldtaxguy (talk) 22:28, 23 May 2011 (UTC)Reply

The inflation tax represents a real financial charge to the taxpayer. Put another way, the inflation tax represents a transfer of financial value from the taxpayer to the tax authority (the government). For more information we've been having a detailed discussion with Oldtaxguy about whether the inflation tax, or the financial repression tax, are actual taxes in the talk section of the Taxation page. References and further reading on the inflation tax can be found there.Ghileman (talk) 20:19, 28 May 2011 (UTC)Reply

We need a more concrete section on phantom capitol gains tax paid due to inflation.

${\displaystyle SalePrice=Inflation*(OriginalValue+RealGains)}$ 

${\displaystyle CapitolGainsTax=CapitolGainsRate*(SalePrice-OriginalValue)}$ 

Substituting for sale price,

${\displaystyle CapitolGainsTax=CapitolGainsRate*(Inflation*(OriginalValue+RealGains)-OriginalValue)}$ 

${\displaystyle CapitolGainsTaxWithNoInflation=CapitolGainsRate*((OriginalValue+RealGains)-OriginalValue)}$ 

${\displaystyle InflationTax=CapitolGainsTax-CapitolGainsTaxWithNoInflation}$ 

${\displaystyle InflationTax=CapitolGainsRate*(Inflation*(OriginalValue+RealGains)-OriginalValue)-CapitolGainsRate*((OriginalValue+RealGains)-OriginalValue)}$ 

${\displaystyle InflationTax=CapitolGainsRate*(Inflation*OriginalValue-OriginalValue+Inflation*RealGains-RealGains))}$  GrEp (talk) 20:43, 9 November 2012 (UTC)Reply

added definition of inflation tax with reference Rim sim (talk) 09:22, 30 June 2014 (UTC)Reply

Worldorg claims "This still forms a fundamental theory and important concept in macroeconomic theory." Except there are ZERO scholarly sources on this page, despite the fact that it's been around for over a decade. The only working link is a self-published book written by a non-notable non-economist with 200 twitter followers who personally submitted the content himself (in violation of wikipedia guidelines). The article also violates NPOV standards, presenting an entirely one-sided view outside of mainstream economics (hence the lack of citations).

Everyone in discussion has already admitted that the "inflation tax" isn't a tax in the literal sense. And any argument that it's a tax in the figurative sense of having downsides can be covered under "inflation." In short, even if you think the issues discussed here are important -- NO ONE has explained why it deserves it's own page.

Imagine if someone created a page on "Depreciation," where they discuss how items lose value over time. And then they created a separate page called "Depreciation Tax," where they said basically the same thing. The only reason the page exist is because "tax" sounds scary, in violation of NPOV. Like if a disgruntled restaurant owner created a new page called "food safety tax" where he complains that soap and cleaning supplies cost money which adds to the cost of food. RonLawl (talk) 11:56, 9 March 2016 (UTC)Reply

Doing a search, I found the University of Chicago press book Inflation, Tax Rules, and Capital Formation and an ECB working paper THE OPTIMAL INFLATION TAX WHEN TAXES ARE COSTLY TO COLLECT as sources that discuss the inflation tax . Both have a nice overview of the the history of the concept in economics and show that "inflation tax" seems to be a real concept used in the literature. I am not enough of an expert to improve the article based on these, but perhaps they will be useful to others. --Mark viking (talk) 20:07, 9 March 2016 (UTC)Reply

The paper in question never actually presents an academic distinction between "inflation tax" and just "inflation." For instance, I couldn't find where the author provides a distinction between the optimum rate of "inflation" vs the optimum rate of the "inflation tax," implying that these are essentially the same thing. (i.e., could you have 10% inflation tax on 2% inflation? If so, how would this be measured)? If it means the same thing, then why do you need a separate article?

Likewise, there are other articles you can google that say "Inflation is like a tax," but which don't actually state that the inflation tax is a separate concept from regular inflation. RonLawl (talk) 05:35, 10 March 2016 (UTC)Reply

My read of the sources is a bit different. While inflation can have many causes, these sources are considering the inflation stemming from monetary policy. Is it better (for some measure of "better") for a government to raise funds through taxation, or through printing more money? In this context, an inflation tax is a recognition that printing money can cause inflation, which devalues the currency, which leads to financial assets losing value, which could be considered as effectively a tax on those assets. Friedman and others had some back and forth about this some years ago. --Mark viking (talk) 23:23, 10 March 2016 (UTC)Reply

Once again: Everything you described is already covered in the main article on inflation, thus demonstrating that the terms are essentially interchangeable. (https://en.wikipedia.org/wiki/Inflation#Monetarist_view, https://en.wikipedia.org/wiki/Monetarism). Both of which are far better written and far better sourced. The idea that "inflation tax is a recognition that printing money can cause inflation" is incredibly redundant since this was already covered far more extensively in the other article. (https://en.wikipedia.org/wiki/Inflation#Causes) It would be like claiming we need a separate page for "CD Player" and "CD Music Player" in recognition of the fact that a CD player can be used for playing music. I'm still waiting for someone to explain what deserves to be mentioned under "inflation tax" that can't already be included under "inflation," other than the use of non-reputable sources that don't meet Wikipedia's standard guidelines. If a non-economist with 200 twitter followers created a Wikipedia account to submit promote his own book on the "Inflation" page, it would be removed in a heartbeat. But here, it's not merely considered a notable source of information, but currently the only source of information. RonLawl (talk) 22:08, 11 March 2016 (UTC)Reply

Pretty much everything in the header of "Inflation Tax" is already covered in the main article on inflation. Except the main article is far more concise and better written, with actual references. ^[1]

In economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.[1] When the price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index, usually the consumer price index, over time.[4] The opposite of inflation is deflation. Inflation affects an economy in various positive and negative ways. Negative effects of inflation include an increase in the opportunity cost of holding money, uncertainty over future inflation which may discourage investment and savings, and if inflation were rapid enough, shortages of goods as consumers begin hoarding out of concern that prices will increase in the future. Positive effects include reducing the real burden of public and private debt, keeping nominal interest rates above zero so that central banks can adjust interest rates to stabilize the economy, and reducing unemployment due to nominal wage rigidity.[5]

Again, the problem with this page isn't that the information isn't important. The problem is that the information is already covered better in better regarded articles. RonLawl (talk) 06:17, 10 March 2016 (UTC)Reply

Dr. Kempf has reviewed this Wikipedia page, and provided us with the following comments to improve its quality:

The explanation of the term is insufficient. It is necessary to explain that (and how) the government benefits from the transfer due to inflation. The relation with indexation should be a bit developed. It is not too clear. The distinction between nominal and real magnitudes should be better exposed.

We hope Wikipedians on this talk page can take advantage of these comments and improve the quality of the article accordingly.

We believe Dr. Kempf has expertise on the topic of this article, since he has published relevant scholarly research:

• Reference : Russell Cooper & Hubert Kempf & Dan Peled, 2008. "Regional debt in monetary unions : is it inflationary ?," Documents de travail du Centre d'Economie de la Sorbonne v08070, Universite Pantheon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.

ExpertIdeasBot (talk) 20:15, 24 September 2016 (UTC)Reply

Some comments above seem to imply that "inflation tax" is a WP:neologism. It is not. They also assert that the inflation article discusses this subject matter better. But the inflation tax is not simply inflation, nor is it the general economic effects of inflation.

From Nouriel Roubini at NYU School of Business, http://people.stern.nyu.edu/nroubini/NOTES/HAND6.HTM

Note that since the governement, by printing money, acquires real goods and services, seigniorage is is effectively a tax imposed by the governement on private agents. Such a seigniorage tax is also called the inflation tax.

This is the inflation tax. Virtually none of this Wikipedia article has anything to do with this, with the exception of the last section, "Inflation tax benefits to governments". Yet we have a decent article on seigniorage, which is the same thing (except seigniorage is what it is from the government's point of view, while the inflation tax is what it is from the public's point of view).

Since the present article is just wrong throughout (e.g., "it may be better characterized as a wealth transfer than a tax, since...") it is irredeemable. And since the article on seigniorage already exists, without objection I am going to trash all the wrong stuff on this page, redirect "inflation tax" to "seigniorage", mention "inflation tax" in the lead of the latter, and copy and paste the last section of the present article over to there. Any defense of the present article? Loraof (talk) 02:52, 26 November 2016 (UTC)Reply

And I would add that the one reference that claims the inflation tax is something broader is a book by someone who is not an academic economist, who is using the term in his own idiosyncratic, non-technical way, and who has edited this article with a clear WP:Conflict of interest. Loraof (talk) 03:05, 26 November 2016 (UTC)Reply

I mentioned above that, since almost this whole article except for the last section is completely wrong, I'm going to redirect "Inflation tax" to "Seigniorage", mention "inflation tax" in the lead of the latter, copy and paste the good final section of this page over to there, and trash the rest of what's on this page. Last call for objections! Loraof (talk) 22:12, 27 November 2016 (UTC)Reply