The U.S. in 1981--83 went from a high-inflation, high-tax economic basket case to a much stronger competitor, able once again to attract capital from locals and foreigners.
Rampant inflation--tax brackets weren't indexed in those days--was slamming workers with massive unlegislated tax hikes by pushing them into higher tax brackets.
Back then the United States did not have inflation-immune tax structures (the more money you made every year, nominally, the higher a tax rate you were subject to), so inflation just led to higher tax bills and the decline of real income and thus unemployment.
The International Monetary Fund deserves its share of discredit for pushing antigrowth, pro-inflation, pro-big-tax prescriptions on Argentina.
Then, high prices followed the government's policy of above-inflation tax rises, inherited from the Tories.
Tax compliance increased and the inflation-adjusted revenues from the personal income tax rose more than 20 percent annually during the three years following the adoption of the flat-rate tax.
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Key to mitigating the damage of the about-to-worsen inflation is making permanent the tax cuts of 2003--or at least extending them for a couple of years.
These adjustments prevent inflation-induced increases in tax rates, an effect called bracket creep.
It was Margaret Thatcher's extraordinary reforms--deep tax cuts, low inflation, privatizing government-controlled companies and public housing, and labor law reform--that turned this Sceptered Isle from being Europe's perennial sick man into its economic powerhouse (along with Ireland).
The group has argued that that corporate taxes, payroll taxes and so-called "bracket creep"--where taxpayers are bumped into a higher tax bracket because of inflation--are all examples of hidden taxes.
Chancellor George Osborne described CPI as a "more appropriate" measure of inflation - for state benefits and tax credits as well as public sector pensions - which would save the government money by producing smaller increases each year.
For instance, if interest rates are 10%, tax relief is 30% and inflation is 7%, the real after-tax interest rate is 0%.
George Osborne has been looking at securing the headlines this year by scrapping a much hated tax: the so-called "beer tax" - the automatic 2% increase above inflation in alcohol duty - which both the Sun and the Sunday People have campaigned to see the back of.
Kudlow powerfully makes the case that the policies of Ronald Reagan -- tax cuts, deregulation, slashing inflation and winning the Cold War -- made possible the current economic boom.
One can only hope that he owns some tax-exempt inflation-indexed bonds, just in case.
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Baby-boomers getting their first foot on the housing ladder enjoyed both mortgage-tax relief and the debt-gobbling effects of inflation.
You can see that in this issue, where we tell of the struggle to preserve capital against the ravages of inflation, tax collectors and in-laws.
In the middle panel David Armstrong describes a low-risk strategy: tax-exempt bonds that, like Treasury Inflation-Protected Securities, give you a return over and above inflation.
Legislation to increase the country's rate of consumption tax, enacted last August, states that the government must try to achieve nominal economic growth of about 3 per cent and real growth of about 2 per cent -- implying inflation of about 1 per cent -- before going ahead with the tax hikes.
His rival, Vice President Al Gore, also focused on education, pledging to expand a tax-free, inflation-indexed savings plans enabling parents to set aside money for their childrens' college education.
Remember that inflation is the sneakiest of all tax hikes--it destroys capital gains.
After-tax income, net of inflation, has barely been growing over the past five years and is likely to decline this year.
We are now willing to buy safe bonds that pay above our expected rate of inflation (after tax) out to 7-10 year maturities rather than the 3-5 year target we have maintained for the past two years.
The Conservatives have accused the government of "spin", arguing a 4% increase in council tax would compound previous above-inflation rises.
Income streams from real enterprises were nil anyway in the context of negligible economic growth and a tax code un-indexed for inflation.
It was Margaret Thatcher's extraordinary reforms deep tax cuts, low inflation, privatizing government-controlled companies and public housing, and labor law reform that turned this Sceptered Isle from being Europe's perennial sick man into its (along with Ireland) economic powerhouse.
The benefits dished out in the early months, such as income-tax cuts and bigger pay-outs for children and sickness, were soon forgotten, leaving the impression that the government was harshly intent only on clobbering the little man by holding back pension and welfare increases to stay in line with inflation, while giving hand-outs to business via corporate tax cuts.
It doesn't work for tax-paying individuals, but take Treasury inflation-protection bonds.
The Bank's favourite measure of inflation, which excludes both mortgage-interest costs and indirect-tax changes, was unchanged in July, at an annual rate of 2.2% (see chart).
The Hall-Sargent calculations show that almost all of this inflation tax was borne by those who held bonds with a maturity of five years or more. (That is because investors in short-term bonds could more quickly demand higher interest rates to compensate for inflation.) The trick is harder to repeat today.
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