The Relation Between Taxes And Inflation
Whereas it pertains to common sense that citizens should pay taxes to the government so that the latter can afford all the expenses related to running an entire country, if, on the contrary, it just unaccountably wastes that money, the said taxes are useless and the citizens shouldn’t be burdened with them. In general, citizens are obliged to pay taxes for any revenues they receive either as salaries or capital gains and on the goods and services they buy. This money should be used by the government for paying civil servants, for infrastructure, national security, health care, education and any other domains related to the adequate operation of a state and its citizens.
If the government overspends its budget, therefore the money it gets from taxes, then it can expect inflation. This appears when the prices of goods and services are higher than the value of currency, therefore when demand is higher than supply. If when confronted with this phenomenon, the government does not encourage production and exports but prefers to print more money and import cheaply from emerging countries, it should expect the inflation to go up. If there is too much money on the market, the purchasing power of the money is decreasing; therefore, you need more money to purchase the same goods. At the same time, by importing cheaper goods, the government will have to confront not only the budget deficit but also a trade deficit, being obliged to borrow substantially. Once in deep debt and given the high interest rates, it will be not able to control inflation at all.
And understandably enough, its creditors will ask a raise in taxes, which will stifle both production and investments and, therefore, the entire national economy. Even if the government resorts to a partial raise, applied exclusively to wealthy citizens and large enterprises, finally, all the citizens will be affected by the subsequent increase in the prices of goods and services.
For reducing the likely effects of an increase in taxes, citizens should be knowledgeable about taxation matters. By investing in the right assets, they may qualify for tax exemptions and gain more. For example, there are exemptions from capital gain taxes for gold coins. As regards for instance gold bullion bars, these can qualify you for your retirement benefits.
And what can the government do, when faced with a decreasing purchasing power of the national currency? Devalue it, reduce spending or sell some valuable assets, such as its gold reserves. But the most sensible decision to be made by a bad manager is to resign before being fired.
Learn from specialists how to purchase gold bullion bars in times of recession.
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