In August, Ben Bernanke pledged that the Fed would take “unconventional measures” to keep the economy afloat. Since then, the U.S. dollar index has dropped 7 percent. Speculation claims that Bernanke is hinting toward more long-term asset purchases to lower interest rates. Multiple problems are brewing with such a policy, leaving some economists baffled. First, the immediate result of QE2 will be increasing prices – a tax on the consumer; gas prices and consumer goods are sure to see a spike. Secondly, consumers are still drowning in debt. Even if the interest rate is 0 percent, companies won’t be encouraged to purchase additional fixed assets. Where is the revenue going to come from if companies are struggling to sell their product or service? Additionally, job security is suffering and prospective homebuyers are feeling the pressure in the workplace. So, there is much to be questioned with the “unconventional” monetary policy on the horizon as many doubt the same trick will work twice this time.
Although not directly related to federal income taxes, the article shows how taxes can sometimes be implicit as they don’t always have to appear in the Internal Revenue Code to hurt consumption and investment. The policy being tossed around by the Fed is supposed to stimulate the economy. However, a policy gone bad can have the opposite effect – what some economists might call a “tax”.
This is a very interesting take on some of the lasting effects of such a move. I find it particularly interesting that you refer to it as a "tax" although it may be indirect. This is very similar to theoretical "inflation tax" that Goran posed during our first exam.
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