Its important to note that not only do they mention the disincentive to work, but the disincentive to save and the disincentive to pay your debts.
How is discouraging people to save and pay their debts good for anyone or society as a whole?
How is discouraging people to save and pay their debts good for anyone or society as a whole?
A) a disincentive to pay debts since they will be cheaper in the future
B) a disincentive to save since your money will have less purchasing power in the future
It is a somewhat unusual tax, in that your tax rate is based on what proportion of your assets are in dollars. Does someone know what the rate per year on dollar assets is and how to calculate it? You would need to know how much money the Fed prints in a year. Do they publish it or was that what auditing the fed was about?
Also for A), banks probably factor in inflation while setting the interest rate for a loan. So, the relevant variable, i guess, is unexpected inflation rather than the value of inflation itself. The debtor benefits only when the loan market makes low estimates.
(It's a semi-serious question. Credit card companies encourage people to buy things they can't afford and then carry the balance - it's how they make money. And the Federal Reserve attempts to cause continual low-level inflation, such that savings are worth less and debts are easier to pay back the longer you carry them. I don't really support either practice, but there are lots of things America is doing to discourage savings and encourage debt.)
In a time of economic slowness, it benefits the society as a whole more if you increase your marginal spending (spend more cents of every dollar), because that keeps money flowing through the system. Of course, that means we'd want to create incentives to pay debts off and save when the economy's going well (which also has the benefit of controlling growth).
In America, we've become more and more dependent on consumer spending as the engine of our economy, so we keep incentivizing it beyond reason, even in boom times. That's what's causing the personal debt levels we're seeing.