Sen. Rand Paul (R-KY) released a new report on Tuesday that details inflation’s impact on American consumers and small businesses.
The Bureau of Labor Statistics recently announced that consumer prices rose by 7% between December 2020 and December 2021 — the highest rate in roughly 40 years. The higher prices are having a direct impact on Americans’ living standards; according to the agency, “real average hourly earnings” decreased by 2.4% over the same period.
Paul’s report — “The Hidden Tax” — explains how rising prices have bottlenecked the economy.
“$4.9 trillion in COVID-19 stimulus spending has led to one of the highest and most sustained levels of inflation in U.S. history,” commented the lawmaker in a press release. “While government stimulus spending was intended as a form of relief, and low and middle-income families as well as small business owners were promised that their taxes would not increase, Americans everywhere are now paying a hidden tax called inflation.”
“In recent months, prices on nearly everything from gas, food, and clothes to electricity, car prices, and rent, have all increased, and unfortunately it’s only going to get worse,” he continued. “Congress needs to realize that further spending at this time of rapidly rising prices is only going to continue the trend of rising prices on this nation’s already vulnerable businesses and families.”
Citing data from multiple federal agencies, Paul’s report shows that inflation is disproportionately affecting low-income Americans:
71 percent of households making under $40,000 annually have indicated economic hardships from rising prices, as opposed to just 29 percent of households making $100,000 or more.
Low and middle-income families spend a larger portion of their income on high-inflation items, such as gasoline, used cars, and food. Families in the lowest income quartile spend nearly 40 percent of their annual income on these three categories. As a means of comparison, families in the top quartile spend only 10 percent of their annual income on these categories.
The same is true for small businesses, according to the report:
82 percent of small businesses reported raising prices in the last several months, 42 percent reported raising prices by 20 percent or more.
45 percent of small businesses reported taking out a loan to cope with the pressures of inflation in this last year.
Large corporations have reported consistent profit margins.
Paul also pointed to concerning findings from Goldman Sachs’ 10,000 Small Businesses project, which found that 86% of surveyed small business owners “are concerned about inflation,” while roughly the same number “have seen an increase in operating costs.”
Beyond Capitol Hill, monetary policymakers are facing pressure to hike interest rates without triggering a recession. In an interview with Fox Business, Harvard University economist Kenneth Rogoff explained that “it’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak.” Central bankers willing to do so would have “a lot of stomach.”