Families Need a Rein on Inflation, Not Shortsighted Spending Gimmicks
The Consumer Price Index (CPI) hit a 40-year high in June, with an increase of 9.1% over last year before holding steady in July. According to one analysis, inflation is costing American families about $500 per month in higher prices.
Americans are feeling the pain, with a recent Quinnipiac poll finding that 34% of voters list inflation as the most urgent issue facing the country.
We know how we got here. In response to the COVID-19 pandemic, Congress passed multiple stimulus bills. Combined, these legislative actions increased the federal deficit by an estimated $5.23 trillion.
This deficit spending – funded by printing money – increased the United States’ monetary base, or the amount of cash in circulation, by nearly 86% between February 2020 and December 2021.
Exacerbating inflationary pressures, stimulus checks provided many Americans with direct payments that they did not need. These checks ended up as disposable income, creating a situation where too much money was chasing too few goods.
Nearly two years of rising inflation and declining real wages, combined with a looming recession, have caused Democratic Party approval ratings to plummet – and politicians are panicking.
The panic has led both President Joe Biden and Pennsylvania Gov. Tom Wolf to release spending proposals that they believe will “help families dealing with inflation.” Both proposals wildly miss the mark.
Despite its name, Biden’s Inflation Reduction Act has little to do with inflation; it is a typical tax and spend bill. An analysis from the University of Pennsylvania’s Wharton Budget Model found that the legislation will have little to no impact on inflation and would actually slightly increase it in the short term.
The Inflation Reduction Act will double the size of the Internal Revenue Service and increase overall taxes for almost every income group. And it spends almost $370 million on corporate welfare for politically selected “green” corporations.
Following Biden’s lead, Pennsylvania’s governor is pitching a plan to offer more “free money” to voters in an election year. Wolf recently renewed calls to send $2,000 stimulus checks to certain Pennsylvanians.
While he had previously proposed this plan using one-time federal funds, Wolf has no such funds left – he just spent all $2.1 billion remaining on other projects. Instead, Wolf suggests funding these stimulus vouchers with $500 million from state taxpayers.
Incredibly, both Wolf and Biden seem to ignore the reality that government overspending and stimulus checks helped created the inflationary mess and economic struggles that American families are facing today.
If politicians want to return money to taxpayers, they should emulate Colorado, where the Taxpayer’s Bill of Rights (TABOR) Amendment caps annual increases in state government spending and automatically returns any surplus to taxpayers. This year, Colorado residents and families will receive checks for either $750 or $1,500, depending on their tax status.
Proposed legislation could create a similar benefit for households here in the Keystone State. The Taxpayer Protection Act (TPA) is a proposed constitutional amendment that would institute a tax and expenditure limit, just like Colorado’s TABOR Amendment. The TPA limits state government spending increases to a formula tied to inflation and population growth. In years where revenues outpace projections, families would get a refund on their taxes.
Rather than pushing for more big-government spending ideas, lawmakers in Washington and Harrisburg need to stop making inflation worse. Irresponsible government spending created the current economic environment. Reining in government spending and passing fiscally responsible legislation is the path to giving taxpayers the relief they need.
Nathan Benefield is senior vice president of the Commonwealth Foundation, Pennsylvania’s free-market think tank.