The consumer price index increased by 5.4 percent on an annualized basis before seasonal adjustment in September, matching a 13-year high, according to the Bureau of Labor Statistics (BLS). In January 2021, before Joe Biden took over the presidency, annual inflation was at a stable 1.4 percent. Inflation has remained consistently high since Biden took office. While inflation has already hit American families hard, Democrats are pushing policies which would make this problem even worse.
Not only does inflation harm consumers by increasing household costs, but it can also have long lasting economic damage. Inflation erodes purchasing power, especially when wages do not keep up.
The erosion of purchasing power is especially concerning given that wages are decreasing. In the past several months, particularly in June and July, seasonally adjusted real average weekly earnings decreased. Most recently, real average hourly earnings decreased by 0.8 percent, seasonally adjusted, from September 2020 to September 2021.
According to BLS, the cost of many goods and services have increased significantly over the past year:
- Gasoline has increased 42.1 percent in the past 12 months.
- Used cars and trucks have increased 24.4 percent in the past 12 months.
- Meats have increased 12.6 percent in the past 12 months
- Fresh fish and seafood have increased 10.7 percent in the past 12 months.
- Bacon has increased 19.3 percent in the past 12 months.
- Eggs have increased 12.6 percent in the past 12 months.
- Furniture and bedding have increased 11.2 percent in the past 12 months.
- Children’s footwear has increased 11.9 percent in the past 12 months.
88 percent of voters say they are concerned about increased inflation, according to a recent Harvard CAPS and Harris poll. When asked what causes inflation, the top three answers were “Massive government spending,” “Significant amounts of money being injected in the economy by the Federal Reserve,” and “Uncontrollable government deficits.”
As Democrats move forward with a $3.5 trillion reconciliation bill, containing radical welfare spending and massive tax increases like raising the corporate income tax rate to 26.5 percent, raising the capital gains rate to 25 percent, and more, inflation poses an even more serious threat. The idea that this level of spending is appropriate during a time of such high inflation is careless and short-sighted.
If the provisions in the reconciliation are made permanent, which is likely, the Committee for a Responsible Federal Budget (CRFB) estimates that the true cost could be between $5 trillion and $5.5 trillion over a decade. Flooding the U.S. economy with this kind of spending is bound to exacerbate inflation.
The bill also includes trillions of dollars in tax hikes on businesses. This, similarly, will be passed on to consumers through higher prices. Raising the corporate income tax from 21 to 26.5 percent will certainly have this effect. According to a 2020 National Bureau of Economic Research paper, 31 percent of the corporate tax rate is borne by consumers through higher prices of goods and services.
The Biden administration and congressional Democrats should focus on growing the economy and helping businesses and working families. Instead, at the expense of Americans’ financial security, they are pushing tax increases and wasteful spending.