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Issue Analysis

The Tax That Nobody is Talking About (Except Ron Paul)

If there is one topic that has animated the Republican presidential debates this election cycle, it is the economy. Americans are dissatisfied with the economic policies of the current administration which have failed to alleviate unemployment and stimulate palpable economic growth. Consequently, Republican candidates are proposing alternative solutions to the economic woes the country currently faces. One specific aspect of these solutions concerns tax policy. The general theme of all the plans put forth by the Republican candidates is tax reform, specifically lowering taxes and simplifying the tax code. In principle, all the candidates are in agreement on this issue, although the extent to and manner in which they would lower taxes varies among them. In the South Carolina Republican debate on January 16th, the candidates discussed the nominal reforms that they would apply to the federal income tax. Mitt Romney has said that he would like the highest federal income tax rate to be twenty – five percent, Rick Santorum said it should be anywhere between ten and twenty – eight percent, Newt Gingrich advocated a flat tax of fifteen percent, and Ron Paul opined that the federal income tax rate should be zero percent for all Americans (Rick Perry advocated a flat tax of twenty percent, although that is irrelevant at this point). Clearly, if Ron Paul were elected president, he would enact the most dramatic federal income tax cut of any Republican candidate by abolishing the tax altogether. However, Congressman Paul went on to elaborate further on the issue of taxation. He called the initial question about the federal income tax “misleading” because it failed to call into question what he considers to be the most detrimental and insidious tax, the inflation tax.

When Ron Paul refers to the inflation tax, he is referring to the erosion of the purchasing power of the dollar which emanates from the printing of money out of thin air by the Federal Reserve. The reason that he has such a deep disdain for this tax is because it is the only tax that is hidden from the American people. For instance, when the income tax is raised, Americans witness the tax increase, and they knowingly pay more of their incomes to the Federal government. In contrast, when money is printed the results are far less obvious. The American people do not immediately, if at all, recognize that they are losing purchasing power. The newly printed money permeates the economy in the form of higher prices, gradually diminishing the purchasing power of the dollar. The result is equivalent to that of a tax increase. Higher prices mean that Americans must pay more for goods and services, resulting in a devaluation of their incomes and savings. The inflation tax is most harmful for those people that live on fixed incomes, specifically senior citizens who cannot offset the diminution in the value of their incomes and savings by receiving a pay raise. In general, however, inflation does not discriminate. It inevitably results in higher prices which mean a lower standard of living for all Americans. Furthermore, the Federal Reserve circumvents the legislative process in levying the inflation tax as it is allowed to dictate monetary policy independent of the political process.

Ron Paul’s description of inflation as a tax is very telling with regard to his understanding of economics. Not only does he advocate the abolition of the federal income tax (which would in itself be a tremendous boon to economic growth in this country), but he adamantly opposes taxation without representation in the form of inflation. He points out that printing money out of thin air makes Americans poorer because such a policy inevitably results in higher prices, thereby eroding the value of the dollar. Ron Paul is the only candidate that is shrewd enough to articulate the sinister nature of inflation, and the only Republican candidate so far that has pledged to end it. When it comes to tax policy, Ron Paul is clearly the most vocal and sincere advocate of genuine tax reduction.

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Why is Ron Paul hidden away here on FreedomWorks? He's still in the running for Presidential Candidacy!