Could somebody pls help me understand the statement below: “Inflation essentially shifts wealth from the tax payer to the government”! Many thanks in advance.
say your in an economy where one BJ costs 10$, you expect no inflation you own a firm, and you expect this to happen in 1 year revenue=100 costs=50 depreciation on an asset you own=50 profit=100-50-50=0 thus assuming your revenue and costs are all settled in cash you pay no taxes and you keep $50 (since dep is non cash), thats 5 BJs --------------------------------------------------------- now assume that there is inflation of 10% revenue before=110 costs become=55 depreciation stays the same, it does not adjust to inflation, it is based on what you paid for the asset… so depreciation=50 profit=110-55-50=5 now you gota pay taxes on that 5, you pay 30% tax=1.5 so you get to keep 110-55-1.5=53.5 now since you have inflation, the cost of a BJ is 11 you went from being able to afford 5 BJ to 4.86 BJs event though all costs and revenues adjusted for inflation!!! the reason is your tax shelter lost its value hope this does it well, sorry if messy, i log in using mobilephone
correction revenue before= is supposed to be revenue becomes (ie after inflation) a type on darn phone and also remmber, i made this simple and assumed in case A you are not paying any tax at all but the same logic still works if you set up an example where you were paying taxes in the first place, you will just go on to pay more taxes in real terms so insted of taxes being 0+more you have original+more…
Simple and effective! Thanks a lot Ahmadmadoff!
any time, best of luck there is even gain to me out of answering, now the answer is engraved in me for ever.
haha nice example ahmad
yeh used somethin i am desperate for but wont get till june 5 lol All money paid for mocks, bks, vids…
Amazing example