On today’s show we are talking about inflation and the hidden tax that can impact investors.
If you have been listening to this podcast for a while, you will know that we don’t adhere to the typical mainstream media definition of inflation. The correct definition of inflation is the inflation of the money supply. All the extra currency in circulation has the effect of pushing up prices as businesses and individuals bid up the price of goods and services.
Inflation is often compared with a hidden tax.
Governments prefer this hidden tax because when you go to the grocery store and pay $6 for a head of lettuce, most people blame the grocery store and not the government for the high price of lettuce. It’s politically more palatable.
After all, if the government wrote you a check you would probably celebrate, rather than criticize the government for printing more money.
But apart from the hidden tax, there is a very real tax. The real tax is capital gains tax on the sale of assets. When the value of your property goes up because of inflation, and then you are subsequently taxed on the capital gain, there is a double taxation of sorts happening.
A discussion of investment returns cannot be complete unless you take tax consequences into account.
Host: Victor Menasce