Throughout his career, famed economist Milton Friedman described inflation as a “hidden tax.” When prices rise consistently, he warned, they cut into consumers’ purchasing power, forcing them to earn more money (and pay more in taxes) to maintain the same lifestyle. On top of that, nominal wage and revenue increases during periods of high inflation can end up pushing an unlucky group of consumers and businesses into higher tax brackets even as their purchasing power falls—an effect called “bracket creep.”
“Inflation is a form of taxation without representation. It is the kind of tax that can be imposed without being legislated by the authorities and without having to employ additional tax collectors,” Friedman famously wrote in a 1974 article that called for the indexing of tax brackets in order to prevent “bracket creep.”
