On Inflation, Some Math, Higher Prices & Taxes

Hi there. In this short post, I cover the topic of inflation and taxes. Inflation and higher prices is something that is visible all around us.

Paying More In Taxes On Top Of Higher Prices

Inflation is bad for many as there would be higher prices to deal with on groceries, gas, supplies, dining, etc. One more thing to also consider is that consumers also pay more taxes on top of the higher prices.

Math Example

Suppose that Bob buys an electronic item for $100. Apply a 13% tax rate on this item and the after-tax price would be 113 dollars.

If this same electronic item has its price shoots up to $200, the 13% tax rate is still applied. This after-tax price would be 226 dollars.

$$200 \times (1.13) = 226$$

With this $200 item, the amount of taxes paid would be $26 compared to paying $13 in taxes on the $100 item.

Inflation & Higher Prices Hurts Low-Income Families & Those With Fixed Incomes

Those with lower incomes or on fixed incomes will get hit hard by inflation and higher prices. As prices increase, the amount of taxes to be paid increases. The increases in tax payments and higher prices diminishes people's incomes. It can get really bad to the point where the cost of groceries can reach to a person's annual income. With prices being really high in everything, less money will be flowing in the economy which can likely lead to lower business profits and bankruptcies.

Who benefits from higher prices? It wouldn't be the businesses necessarily as raised costs would be passed down to the consumers. Government would benefit from higher prices as there would be higher amounts of taxes on top of the higher prices. There is also the case where if the prices can get out of control (hyperinflation case) where no one can pay for anything and governments would not receive any tax revenue.

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