The average U.S. household will spend $3,500 more in 2021 due to inflation, according to a Penn Wharton University of Pennsylvania Budget Model analysis.
Low-income households will be disproportionately harmed, as those households will spend about 7 percent more while higher-income households will spend about 6 percent more. For example, between November 2020 and November 2021, the bottom 20 percent spent $309 more on food, $761 more on energy, $476 more on shelter, $390 on other commodities, and $224 on other services.
In addition, the United States is now tied for the fastest rate of rising prices among the top 35 developed economies worldwide, according to the International Monetary Fund (IMF). The IMF calculated that the U.S. and Iceland were tied for the highest level of inflation at 4.3 percent.
This estimate is lower than the Bureau of Labor Statistics’ (BLS) calculation that the consumer price index increased by 6.8 percent on an annualized basis before seasonal adjustment in November, the fastest inflation acceleration since 1982. Evidently, either way, the United States is not faring well in comparison to foreign competitors.
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.
Since July, the Biden administration has been insisting this problem would go away. Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen described this inflation as “transitory.” Evidently, those claims have not held up.
Not only is inflation harming consumers by increasing household costs, but it could also have long lasting economic damage. Inflation is eroding purchasing power, especially given that wages are decreasing. Real average hourly earnings decreased by 0.4 percent over the past month and have decreased by 1.9 percent over the past year.
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.”
According to a new Gallup poll, 71 percent of low-income households have reported experiencing financial hardship due to rising prices. Of the 71 percent, 28 percent of low-income households say they have experienced “severe hardship” due to rising prices, and 42 percent say they have experienced “moderate hardship.”
Still, Democrats are moving forward with their socialist tax-and-spend bill. If its provisions were made permanent, as Democrats intend to eventually do, this bill’s true cost could be $4.9 trillion, adding $3 trillion to the deficit, according to the CBO. The idea that this level of wasteful spending is practical during a time of such high inflation is careless and short-sighted.
The reconciliation bill also includes massive tax hikes on businesses, like the 15 percent global minimum tax, 15 percent domestic minimum tax, and a new surtax on adjusted gross income (AGI) that will hit pass through businesses. This, similarly, will be passed on to consumers through higher prices. 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. By an 81 to 19 margin, voters believe raising taxes on corporations will increase the cost of goods and services, according to a new poll conducted by HarrisX.
The Biden administration and congressional Democrats should focus on growing the economy and helping businesses and working families. Instead, they are pushing tax increases and wasteful spending that will only make inflation worse.
Photo Credit: “Shopping cart.” by MIKI Yoshihito is licensed under CC BY 2.0.