I have a question about the whole cascade thing that I'm reading about here. How is inflation different than a transaction tax? We think really good inflation is about 2-3%, right? So this should mean that in order to receive the same income people will have to charge 2-3% more money for whatever people want to buy. So if the claim is that a .5% transaction tax will cripple the economy, why wouldn't an annual 2-3% inflation rate simply kill it off?
Isn't the reason why inflation hasn't crushed us is because people's incomes are increasing by about the same rate as inflation? So if prices went up 2% because of inflation but people's income went up by 2% also, people should be able to buy the same amount of stuff.
Because people know inflation will occur, they get wage increases that should at least cover inflationary costs. So when people see a .5% transaction tax coming, they would demand a .5% increase in income, wouldn't they?
So again, I'm not seeing a difference between inflation and a transaction tax. Whether it's because of inflation or because of a tax, both are going to increase prices. So an increase in wages of .5% would negate or at least severely lessen this cascade just like an increase in wages of 2% would to an inflation rate of 2%.
If anyone could explain the difference between having 2% inflation and a .5% transaction tax, and just having 2.5% inflation that would be very helpful.
So again, I'm not seeing a difference between inflation and a transaction tax. Whether it's because of inflation or because of a tax, both are going to increase prices. So an increase in wages of .5% would negate or at least severely lessen this cascade just like an increase in wages of 2% would to an inflation rate of 2%.
Where is the wage increase going to come from?
Inflation is due to excessive expansion of the money supply, as the money flow into the economy goods are purchased at greater rates allowing the increase in prices, those additional sales revenues increase nominal profit (not percentage of profit), increase nominal returns to investors (not percentage rate of return), and accrues to increased wages as well. Net effect is not net real value gained. the primary nasty part of inflation is that bonds and retirment funds dependant upon them decrease in real value by not returning more for original dollars invested. Any dollar loaned looses value in an inflationary environment thus interest rates are increased to compensate both for current inflation and in anticipation of greater inflation to come.
That interest rate factor burdens the economy dragging productivity done as more dollars are turned to paying taxes, and non-productive factors such as paying loan interest instead of being turnaround to creating more and better products.
If anyone could explain the difference between having 2% inflation and a .5% transaction tax, and just having 2.5% inflation that would be very helpful.
The 2% filters into business and generally has less effect on production than a tax taken out of a business's productive capital flows.
That 0.5% tax by the way is not 0.5% on the price of product delivered, in the transaction tax situation.. That 0.5% transaction tax accumulates in every transaction the business is engaged in, even just moving money from one account to another incurrs that 0.5% tax. The consequence on final price of goods is a function of how many times that 0.5% tax has been applied against the basic capital value in the product's price. That is where the compounding effect of the turnover tax comes into play, the tax burden aggregates tax burden in the financial transactions of the business necessary to the performance of the conduct of the business' financing and movement of money to accomplish its goals.
The aggregate of that turnover tax taken from the business as a pecentage of its final sales revenue is much greate than 0.5% of price for products delivered to the consumer whom must finance the entire operation.
You may think you pay 0.5% with your small part in the deal, the reality is the othet 30% that government collects is done in final product prices. Those turnover taxes flow down the production chain accumulating all the way from the farmer in the field & his financial transactions, passing on to the miller and his financial transactions, passing on to the baker and his financial transactions, passing on to the wholesaler and his financial transactions, passing on to the grocery and thier financial transactions, and finally you get to pay again another 0.5% of the totall of all those taxes as well as the basic value of the products you buy.
The reality is that you are snookered into the belief you pay a low tax rate to the federal government, when the burden on you is actually a 100 times higher.
The piper always gets paid, the individual at the end of the production chaing always pays the full freight. Simply put, business cannot absorb the federal tax, it must pass those taxes along to the customer or go bankrupt.