Inflation Is the Tax Congress Never Has to Vote For

Washington needs prices to keep climbing every year, on purpose. Here's why that's true, why it's called the hidden tax, how a $40 trillion national debt makes it worse, and — in the corporatocracy this outlet keeps writing about — exactly who ends up ahead when your grocery bill doesn't.

inflation tax (noun, informal) — the loss of purchasing power citizens experience when a government tolerates, or engineers, sustained currency devaluation. Economists treat it as a de facto tax because it transfers real resources from savers and wage-earners to the government and other large net debtors, without ever requiring a vote in Congress, a line on a 1040, or anyone's signature.

The following contains editorial analysis and opinion clearly labeled as such, alongside verified reporting. You asked this Dispatch not to go easy on the government's own role in this — the sections marked as editorial do exactly that; the numbers around them are reported straight.

What the numbers say right now

The Bureau of Labor Statistics released the August 2026 Consumer Price Index on September 11th. Headline CPI rose 0.4% for the month — up from 0.1% in July — putting the year-over-year rate at 3.4%. Core inflation (stripping out food and energy) came in at 2.4% year-over-year, actually the lowest core reading since March 2021, but core CPI still rose 0.3% for the month, up from 0.2% in July. Gasoline did the most damage in August, specifically: prices jumped 3.9% for the month, accounting for more than a third of the entire monthly increase, and are now running 27.4% higher than a year ago, up from a 24.6% annual increase in July.

Translation: the "good news" (cooling core inflation) and the "bad news" (a reaccelerating headline number driven by gas) are both true at once, and neither one means prices are falling. They're not supposed to. That's the part worth sitting with before this Dispatch gets into why.

Why Washington actually wants inflation — not zero

The Federal Reserve doesn't target 0% inflation. It targets 2%, and has since 2012. The official rationale, in the Fed's own words, is that inflation expectations "well anchored at 2 percent foster price stability and moderate long-term interest rates" and give the Fed room to fight downturns without the economy tipping into deflation — a scenario where consumers delay purchases waiting for prices to fall further, spending seizes up, and a recession feeds on itself. Mainstream economists broadly accept some version of this logic: a little inflation gives the Fed room to cut rates during a slump without going negative, and modest inflation is treated as a sign of a functioning, growing economy rather than a stagnant one.

Editorial: That's the textbook answer, and it isn't wrong, exactly — it's just incomplete in a way that happens to flatter the people telling it. The United States government is the single largest debtor on the planet, owing $40 trillion and counting. Every year that prices rise by 2% (officially) or 3.4% (actually, as of last month), the real value of every dollar of that debt shrinks a little, and the government pays it back in cheaper money than it borrowed. A "modest, healthy" inflation target isn't just good monetary theory. It's also a standing, permanent, quietly convenient discount on the largest debt in human history — owed by the same institution that sets the target. Nobody has to admit that's a motive for it to function as one.

The hidden tax, explained

Here's why economists and critics across the political spectrum call inflation a "hidden tax" rather than just a side effect of a growing economy:

No vote required. Congress has to pass a law, and the president has to sign it to raise the income tax rate. Inflation doesn't need either. The Fed can let the money supply grow, deficit spending can keep flowing, and the value of your paycheck erodes without a single elected official casting a recorded vote you could hold them accountable for.
It's regressive. The people hurt worst are the people with the least room to absorb it — households living paycheck to paycheck, retirees on fixed incomes, and anyone holding cash savings rather than assets that appreciate alongside inflation. The Tax Foundation and other researchers have specifically documented inflation's regressive effects: it hits low- and middle-income households harder as a share of their budgets than it hits people who already own stocks, real estate, or other inflation-hedged assets.
It taxes gains that don't exist in real terms. This is the part almost nobody explains: capital gains tax is calculated on the nominal difference between what you paid for an asset and what you sold it for — not adjusted for inflation. If you bought an asset for $10,000 a decade ago and sold it today for $14,000, and inflation alone accounted for that $4,000 difference, you have zero additional real purchasing power. The IRS taxes you on that $4,000 anyway. Researchers call this a "phantom gain," and because the tax code has never indexed capital gains basis to inflation, every year of higher inflation quietly raises the effective tax rate on anyone who sells an asset they've held a while.
Benefit adjustments lag reality. Social Security's cost-of-living adjustment for 2027 — announced October 14th, based on September's CPI — is currently projected at around 3.6%, up from 2.8% for 2026. That sounds like keeping pace. Critics have long pointed out that the COLA formula tracks a general urban wage-earner index that doesn't weight medical costs the way actual retirees experience them, which is a big part of why many seniors report their benefits never quite keep up with their real cost of living, year after year.

How a $40 trillion debt feeds the fire

As of September 11, 2026, the national debt stood at $40,046,178,322,792.78, per the Treasury Department's own "Debt to the Penny" figures — growing by roughly $51,176 every second. That works out to about $119,784 for every person in the country.

The connection between that debt and inflation runs in more than one direction. First, the direct mechanical one described above: inflation shrinks the real burden of existing fixed-rate debt, which is a genuine incentive for any heavily indebted government to tolerate more of it rather than less. Second, and more urgent by the day: per CBO Director Phillip Swagel's own February 11, 2026, statement on the agency's current baseline, net outlays for interest rise from $1.0 trillion in 2026 to $2.1 trillion by 2036 — climbing from 3.3% of GDP to 4.6% of GDP over that span. Separately, secondary reporting on the same CBO baseline has described the 2026 interest share of GDP as already the highest since 1991 and equal to roughly 18.6% of federal revenue, also above the 1991 high; that specific revenue-share figure wasn't independently confirmed in CBO's own director's statement, so it's presented here as reported rather than as independently verified. That same CBO statement projects federal debt held by the public growing from 99% of GDP at the end of 2025 to 120% of GDP by 2036, and notes that under current law, debt surpasses 2030 at a level exceeding the historical high of 106% of GDP set in 1946.

Editorial: That interest bill creates its own political pressure, separate from the debt-erosion motive. A government paying $1 trillion a year in interest has an acute, ongoing interest in interest rates staying lower than inflation alone would justify — because every percentage point the Fed holds rates below where inflation and risk would otherwise price them is a direct savings on Washington's own debt-service bill, sometimes called "financial repression" by economists who study it. Whether that pressure ever explicitly shows up in a Fed decision is a separate, harder question this outlet won't claim to answer definitively. But the incentive is not hypothetical, and pretending it doesn't exist would be a form of dishonesty in itself.

What this is actually costing you

The abstractions above show up in a checkout line. Some current, concrete numbers:

Groceries: Food-at-home prices are up roughly 25% since 2019. Eggs are up 57% from their 2019 annual average. Ground beef is up 81% from a 2017 baseline tracker. Grocery prices overall rose 2.7% in the most recent 12-month period.
Shelter: Rent and housing costs remain the single largest contributor to headline CPI, up 3.0% year-over-year as of August 2026, per BLS's own release — and in the metro areas that saw the sharpest wage growth in 2024–2025, landlords are now recapturing much of that gain at lease renewal.
Insurance: This one's genuinely mixed, and worth being precise about rather than just picking the scarier number. Auto insurance premiums surged sharply in 2023–2024 and, by some secondary trackers, were still running well above headline CPI earlier this year — but BLS's own August 2026 release shows the motor vehicle insurance index actually declining 0.8% in August after falling 0.3% in July, a real cooling trend worth acknowledging rather than ignoring. Homeowners insurance is the clearer ongoing pain point: double-digit premium increases remain common in many disaster-prone states, and that trend hasn't reversed the way it has in auto insurance.
Wages: Real (inflation-adjusted) average hourly earnings fell 0.8% between May 2025 and May 2026 — meaning a typical worker's raise, if they got one, still lost ground to prices over that stretch.
Debt stress: Credit card delinquencies (balances 90+ days overdue) hit 13.12% in the first quarter of 2026 — the highest level in 15 years, approaching rates last seen during the 2008 financial crisis — while total credit card debt stands around $1.2 trillion and the average card APR sits near 21.5%. Auto loan delinquencies hit the highest level the Federal Reserve Bank of New York has ever recorded. Notably, this is happening with unemployment still relatively low, around 4.1% — this isn't a story about mass layoffs. It's a story about prices and interest costs outrunning paychecks even while people are working.

Who benefits — and why this outlet calls it corporatocracy

Inflation doesn't hurt everyone equally, and it doesn't help everyone equally either. Net debtors benefit, because they repay fixed obligations in cheaper future dollars — and the largest net debtor in the country is the federal government itself, as described above. Owners of appreciating assets — stocks, real estate, anything that reprices upward with inflation — come out ahead of people holding cash or fixed-income savings. And there is real, published evidence that large corporations with pricing power have done more than just pass along their own higher costs.

During the sharpest phase of pandemic-era inflation (Q2 2020 through Q4 2021), researchers found that expanding corporate profit margins — not rising input costs — accounted for an estimated 53.9% of price growth in that window; corporate pretax profits jumped 25% year-over-year to $2.81 trillion in 2021, the largest annual increase since 1976. That pattern didn't reverse when the acute inflation shock faded. As of the second quarter of 2026, S&P 500 companies posted their highest net profit margins since FactSet began tracking the metric in 2009 — reported in the 15.7%–16.9% range depending on how far through earnings season the estimate was taken — and after-tax corporate profits as a share of the entire economy's value-added hit 19.4%, the highest level in data going back to the 1940s, per Bloomberg's reporting. (One caveat in fairness: a meaningful chunk of that S&P-level record was driven by one company's unrealized investment gains rather than pricing power across the board — more on that in the Fact-Check Summary below.)

Editorial: This is the corporatocracy this outlet keeps naming, in a slightly different costume than usual. It isn't only that corporations lobby regulators or capture antitrust enforcement, though this outlet has documented plenty of that this year. It's that the two biggest financial winners of a persistently inflationary economy — the federal government that benefits from cheaper debt, and the large, pricing-power-rich corporations that can raise prices faster than their own costs rise — are also two of the most politically influential institutions in the country, while the two biggest losers — wage earners and fixed-income savers — are the two groups with the least lobbying power to do anything about it. That's not a coincidence that requires a conspiracy to explain. It's just what happens when the rules are written by and for whoever already has leverage.

A word on this election season's rhetoric

Editorial — and yes, this outlet was asked directly to weigh in on both parties here, so it will. You don't have to squint hard to see that both parties' current messaging on inflation and debt is built mostly for a midterm election, not for actually fixing anything.

On September 10th, at the GOP's midterm convention in Dallas, President Trump promised a $5,000 "dividend" to every adult American — explicitly conditioned on Republicans winning full control of Congress in November. Vice President Vance said it would be funded by tariff revenue. The math doesn't hold up: tariffs currently bring in roughly $125 billion a year, while paying $5,000 to each of the country's roughly 245 million adults would cost around $1.25 trillion — about ten times the available tariff revenue. The shortfall would almost certainly be financed with new debt, and reporting on the proposal pegs the resulting jump in the federal deficit at roughly $1.8 trillion to $3 trillion. Multiple economists warned that a one-time cash injection of that size would likely reignite the very inflation this Dispatch is about, the same dynamic seen with pandemic-era stimulus checks. Maya MacGuineas, president of the nonpartisan Committee for a Responsible Federal Budget, called it "this half-baked political scheme." It's also worth noting this isn't Trump's first unfulfilled promise of cash for all Americans — by one count, it's at least his fourth such pledge, with none of the previous ones having come to pass. And this isn't an isolated bad promise. It fits a pattern of specific, fact-checked false statements the president himself has made about this exact subject in 2026. On August 11th, Trump said of prices that "the food, the groceries, it's all coming down." Independent fact-checks (WRAL, HuffPost, and others) rated that claim false to mostly false: grocery prices were running roughly 2.7% higher than a year earlier and had risen since he took office, not fallen — only a handful of items, mainly eggs, chicken, butter, and some fresh fruit, had actually gotten cheaper, while far more grocery categories had gotten more expensive over the same span. In his February 24th State of the Union address, Trump claimed he'd inherited a "stagnant economy" with "record inflation" — both false by the numbers: real GDP growth ran at 2.5% or higher annually through the prior administration, and inflation stood at 3% when he took office, well below the 9.1% peak hit in June 2022, not a record. And on tariffs specifically, Trump has repeatedly claimed foreign countries pay them; independent analyses found American importers and consumers bore an estimated 86–94% of tariff costs through 2025, amounting to roughly a $1,000-per-household tax increase that year, with an additional $1,300 per household projected for 2026 — a claim most mainstream economists, including some within the administration itself, don't fully back. Tariff policy has been a real, measurable contributor to 2026's inflation in its own right (a meaningful share of the inflation running above trend earlier this year has been tied directly to tariff pass-through costs), even as GOP messaging heading into the midterms has largely downplayed that connection.

Democrats have their own version of the same instinct, aimed in the opposite direction. Blaming "corporate greed" for inflation is the party's standard talking point — and to be fair, this Dispatch's own profit-margin data shows that framing isn't invented from nothing; there's real evidence behind part of it. But it's also a convenient, one-sided explanation that lets Democrats sidestep a harder conversation about their own party's spending and its deficit math. The party's signature "Inflation Reduction"-branded legislation has faced pointed, on-the-record criticism — including CBO scoring cited by Republican-controlled House committees — alleging that a large share of its promised deficit reduction was backloaded well past the years that mattered most, and that a redesign of the Medicare Part D drug benefit ended up raising certain senior drug costs rather than lowering them. Full transparency on that specific claim: it comes from Republican committees characterizing CBO's work, not from an independent referee, so weigh it accordingly — but the underlying pattern (a bill marketed as fighting inflation and deficits, which critics on the other side argue did neither cleanly) fits the same "half-hearted" description you asked this Dispatch to name.

Neither party's current messaging seriously grapples with the mechanism this Dispatch has spent the most words on: a government that structurally benefits from the very problem it claims to be fighting. That story doesn't fit on a bumper sticker or a 30-second ad the way "vote for us and get a check" or "it's corporate greed's fault" does. It just happens to be closer to true.

Three honest ways to read this

Reading one: This is a structural, largely bipartisan failure — both the Fed's 2% target and Washington's tolerance for deficit spending predate any single administration, and both parties have overseen the debt's growth and benefited from the same inflationary discount on it.

Reading two: The corporate-profit-margin story and the debt-monetization story are two separate phenomena, both real, not a single unified "the system is rigged" mechanism — pricing power in concentrated industries is a distinct problem from sovereign debt dynamics, even though this Dispatch covers both under one roof.

Reading three: None of this requires bad faith from any specific official to be true. A Fed governor genuinely committed to price stability and a member of Congress who's never thought about it for five minutes are both operating inside a system where the largest debtor's interests and the public's interests happen to diverge — and that divergence doesn't need a villain to be real or to matter.

All three can be true at once, in different proportions, depending on which lever you're looking at.

What you can actually do with this

You're right that voting alone hasn't fixed this, and it would be dishonest for this Dispatch to close with a "vote harder" line it doesn't actually believe. Voting is one input, not a working strategy by itself, given everything above about who the current incentive structure actually serves. So here's what's within an individual citizen's control that isn't just about showing up every two years and hoping.

On your own numbers. Track the difference between headline CPI and your own actual spending mix — if your budget skews toward groceries, rent, and insurance rather than the broader basket BLS measures, your personal inflation rate is very likely running hotter than the official 3.4%. When the 2027 Social Security COLA is announced on October 14th, compare it against your own actual cost increases rather than accepting the percentage at face value.

On your own money. Treasury Inflation-Protected Securities (TIPS) and Series I Savings Bonds both exist because the federal government acknowledges that ordinary debt instruments don't protect a saver from inflation — their returns are structured to move with CPI. This Dispatch can tell you that a mechanism exists; whether either belongs in your situation is a conversation for you and, ideally, a fee-only financial advisor, not something to take from a news outlet. Separately, if you carry fixed-rate debt of your own — a mortgage locked in a few years back, for instance — the same mechanism quietly eroding the government's debt burden is working in your favor on that debt too. Inflation doesn't only cut in one direction. And if you hold appreciated assets, the "phantom gains" problem described earlier has a specific, named legislative fix — indexing capital gains basis to inflation — that Congress has never passed. That's a concrete thing to ask a representative about by name, rather than inflation in the abstract.

On pressure that isn't a vote. Federal agencies — the CFTC, the FTC, the Federal Reserve itself — are legally required to accept public comments during many rulemaking processes, and those comment dockets (regulations.gov is the central federal one) are a real, specific, and almost entirely unused lever by ordinary citizens. Freedom of Information Act requests, and their state-level equivalents, are open to any citizen, not just journalists — this outlet uses them regularly, and nothing stops you from doing the same on a question that affects you directly.

On making "vote" more specific than it currently is. If a bill named in this Dispatch — Hawley's HONEST Act, Steil's Stop Insider Trading Act, or a capital-gains-indexing bill — matters to you, look up whether your own senator or representative is an actual cosponsor, not just whether their party claims to support something like it. Cosponsorship lists are public record and far more specific than "he's a Republican, he must be for it" or "she's a Democrat, she must be against it." And state and local races — insurance commissioners in the states that elect them directly, for instance, who set the actual rules behind the homeowners and auto insurance increases described above — carry more direct leverage over your monthly bills than most federal midterm turnout does, while drawing a fraction of the attention. If the federal lever feels broken, that one usually isn't, and almost nobody's using it either.

A closing word

Editorial: Inflation is often described, kindly, as an unfortunate side effect of a complex economy — something that happens to a government rather than something a government has a standing incentive to tolerate. That framing gives Washington too much credit. A government carrying $40 trillion in debt does not have a neutral relationship with the value of its own currency, and pretending otherwise treats an incentive structure as an accident. None of this requires believing anyone sat in a room and voted for higher grocery prices on purpose. It only requires noticing who keeps coming out ahead when they rise anyway.

Sources

V64OTD // THE GOVERNMENT'S DEBT GETS CHEAPER EVERY YEAR. YOUR GROCERY BILL DOESN'T.