[Congressional Record Volume 150, Number 93 (Thursday, July 8, 2004)]
[House]
[Pages H5384-H5385]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         INFLATION HURTS MIDDLE CLASS AND LOW-INCOME AMERICANS

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas (Mr. Paul) is recognized for 5 minutes.
  Mr. PAUL. Madam Speaker, all government spending represents a tax. 
The inflation tax, while largely ignored, hurts middle-class and low-
income Americans the most. The never-ending political squabbling in 
Congress over taxing the rich, helping the poor, PAYGO, deficits, and 
special interests ignores the most insidious of all taxes, the 
inflation tax.

                              {time}  1800

  Simply put, printing money to pay for Federal spending dilutes the 
value of the dollar, which causes higher prices for goods and services. 
Inflation may be an indirect tax, but it is a very real tax, and the 
individuals who suffer most from the cost-of-living increases certainly 
pay a tax.
  Unfortunately, no one in Washington, especially those who defend the 
poor and the middle class, cares about this subject. Instead, all we 
hear is that tax cuts for the rich are the source of every economic ill 
in the country. Anyone truly concerned about the middle class suffering 
from falling real wages, underemployment, a rising cost of living and a 
decreasing standard of living should pay a lot more attention to 
monetary policy. Federal spending, deficits and Federal Reserve 
mischief hurts the poor while transferring wealth to the already rich. 
This is a real problem, and raising taxes on those who produce wealth 
only make conditions worse.
  This neglect of monetary policy may be out of ignorance, but it may 
well be deliberate. Fully recognizing the harm caused by printing money 
to cover budget deficits might create public pressure to restrain 
spending, something the two parties do not want. Expanding entitlements 
is now an accepted prerogative of both parties. Foreign wars and nation 
building are accepted as the foreign policy of both parties.
  The left hardly deserves credit when complaining about Republican 
deficits. Likewise, we have been told by our Vice President that Ronald 
Reagan proved that deficits do not matter, a tenet of supply-side 
economics. With this the prevailing wisdom in Washington, no one should 
be surprised that spending and deficits are skyrocketing. The vocal 
concerns expressed about high deficits coming from the big spenders on 
both sides are nothing more than political grandstanding. If Members 
feel so strongly about spending and deficits, Congress simply can do 
what it ought to do: cut spending. That, however, is never seriously 
considered by either side.
  If those who say they want to increase taxes to reduce the deficit 
got their way, who would benefit? No one. There is no historic evidence 
to show that taxing productive Americans to support both the rich and 
poor welfare beneficiaries help the middle class, produces jobs, or 
stimulates the economy.
  Borrowing money to cut the deficit is only marginally better than 
raising taxes. It may delay the pain for a while, but the cost of 
government eventually must be paid. Federal borrowing means the cost of 
interest is added, shifting the burden to a different group

[[Page H5385]]

than those who benefited, and possibly even to another generation. 
Eventually borrowing is always paid for through taxation. All spending 
ultimately must be a tax, even when direct taxes and direct borrowing 
are avoided.
  The third option is for the Federal Reserve to create credit to pay 
the bills Congress runs up. Nobody objects, and most Members hope that 
deficits do not really matter if the Fed accommodates Congress by 
creating more money. Besides, interest payments to the Fed are lower 
than they would be if funds were borrowed from the public, and payments 
can be delayed indefinitely merely by creating more credit out of thin 
air to buy U.S. treasuries. No need to soak the rich; a good deal it 
seems for everyone. But is it?
  Paying for government spending with Federal Reserve credit instead of 
taxing or borrowing from the public is anything but a good deal for 
everyone. In fact, it is the most sinister, seductive ``tax'' of them 
all. Initially it is unfair to some, but dangerous to everyone in the 
end. It is especially harmful to the middle class, including lower-
income working people who are thought not to be paying taxes.
  The ``tax'' is paid when prices rise as a result of a depreciating 
dollar. Savers and those living on fixed income are hardest hit as the 
cost of living rises. Low-and middle-income families suffer the most as 
they struggle to make ends meet while wealth is literally transferred 
from the middle class to the wealthy. Government officials stick to 
their claim that no significant inflation exists, even as certain 
necessary costs are skyrocketing and incomes are stagnating. The 
transfer of wealth comes as savers and fixed income families lose 
purchasing power, large banks benefit, and corporations receive plush 
contracts from the government, as in the case of military contractors. 
These companies use the newly printed money before it circulates while 
the middle class and the poor are forced to accept it at face value 
later on. This becomes a huge hidden tax on the middle class, many of 
whom never object to government spending in hopes that the political 
promises will be fulfilled and they will receive some of the goodies. 
But surprise, it does not happen. The result instead is higher prices 
for prescription drugs, energy and other necessities. The freebies 
never come.
  The Fed is responsible for inflation by creating money out of thin 
air. It does so either to monetize Federal debt or in the process of 
economic planning through interest rate manipulation. This Fed 
intervention in our country, although rarely even acknowledged by 
Congress, is more destructive than Members can imagine.
  Not only is the Fed directly responsible for inflation and economic 
downturns, it causes artificially low interest rates that serve the 
interests of big borrowers, speculators and banks. This unfairly steals 
income from frugal retirees who chose to save and place their funds in 
interest bearing instruments like CDs.
  The Fed's great power over the money supply, interest rates, the 
business cycle, unemployment, and inflation is wielded with essentially 
no Congressional oversight or understanding. The process of inflating 
our currency to pay for government debt indeed imposes a tax without 
legislative authority.
  This is no small matter. In just the first 24 weeks of this year the 
M3 money supply increased $428 billion, and $700 billion in the past 
year. M3 currently is rising at a rate of 10.5 percent. In the last 7 
years the money supply has increased 80 percent as M3 has soared $4.1 
trillion. This bizarre system of paper money worldwide has allowed 
serious international imbalances to develop. We own just four Asian 
countries $1.5 trillion as a consequence of a chronic and staggering 
current account deficit now exceeding 5 percent of our GDP. This 
current account deficit means Americans must borrow $1.6 billion per 
day from overseas just to finance this deficit. This imbalance, which 
until now has permitted us to live beyond our means, eventually will 
give us higher consumer prices, a lower standard of living, higher 
interest rates, and renewed inflation.
  Rest assured the middle class will suffer disproportionately from 
this process.
  The moral of the story is that spending is always a tax. The 
inflation tax, though hidden, only makes things worse. Taxing, 
borrowing and inflating to satisfy wealth transfers from the middle 
class to the rich in an effort to pay for profligate government 
spending, can never make a nation wealthier. But it certainly can make 
it poorer.

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