According to a statement released by the Taxpayers United of America, President George W. Bush and members of Congress are financing the war in Iraq and pork barrel spending with a hidden tax increase all of us see at the checkout line: inflation.

“The United States inflation rate for the 12-month period of October 2002 to 2003 was 2.04 percent,” stated James Tobin, president of TUA. “For the most recent 12-month period for which figures are available, October 2004-05, the inflation rate has climbed sharply to 4.35 percent. That’s a huge increase in inflation of 113 percent – and a huge hidden tax increase.”

Largest increase since Johnson’s presidency

Tobin claims this is the largest increase in inflation since the presidency of Lyndon B. Johnson, and charges that Bush is intentionally supporting high inflation, and using it as a way to fund the war without the knowledge or direct taxation of the American public.

“A middle-class taxpayer, for example, with a house and other assets valued at $500,000,” claims Tobin, “saw his assets decline by almost $22,000 this past year, in addition to the actual taxes he paid.”

However, according to the publication “EconExplorer,” by the McGraw-Hill Higher Education Company, inflation often happens like this in times of war. One main cause of inflation is printing too much money, and the publication explains why this becomes an issue in war time.

“There are many different costs incurred during a war, but getting money to pay for these things is often difficult,” reported the McGraw-Hill text. “Raising taxes is as unpopular, even though government spending is popular. One alternative is to borrow the money, but sooner or later you have to pay it back. Probably the easiest way to pay for those popular government spending programs is to ‘print’ some more money.”

This is exactly what TUA, and others, believe the Bush administration is doing.

“Federal Reserve Chairman Alan Greenspan has helped his Republican buddies finance the war in Iraq by continually pumping billions of dollars into the money supply,” said Tobin. “In October 2003, the money supply was $8.9 trillion. In October 2005, the money supply was $10 trillion, an increase of $1.1 trillion.”

Not always the case

Some economists are weary of Tobin’s attacks.

“It is not the case that President Bush is ‘controlling’ inflation,” says NIU economics professor Jeremy Groves. “They are just increasing the government’s demand of goods and services for the war effort,” which naturally causes inflation.

Groves pointed out the flaws in Tobin’s assumption that higher inflation would equal more spending money for the Iraq war. “While there is a connection between money supply and inflation,” he says, “It is not necessarily a two-way street … While increased money supply may result in increased inflation, it is a flawed assumption that inflation leads to an increase of money supply, which it does not.”

Groves also reminded taxpayers weary of inflation that it is not always bad for the economy. While it is usually harmful to the economy because it reduces the purchasing power of the dollar, “if inflation is coupled with equal or greater rises in wages, then it is not bad at all.”

It’s all relative

An example of this can be seen over the generations. Earlier generations paid $0.25 for a gallon of gas. Prices today are more, but average incomes also are higher.

Several economists believe this is the case with our current inflation. “If there had been 113 percent inflation, we would have seen the price of all goods and services more than double in the last two years and this has not been the case,” Groves said.

Furthermore, war can often lead to increased wages, which balances out the inflation. When reservists are called to action, they leave their previous positions open. Employers then either have to raise the wages of the remaining employers to balance their output spending or hire new temporary employees.