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Should the U.S. Dollar Be Considered a Depreciating Asset on Your Taxes?
The U.S. dollar, like all fiat currencies, is subject to inflation and debasement over time. But unlike other depreciating assets, cash holdings don't currently qualify for tax deductions. Should they? Let’s explore why they should be, and how this could bring more fairness to our tax system.
The Case for Depreciation of Cash Holdings
**Inflation Erodes Value**
Inflation is a well-known economic phenomenon where the purchasing power of money decreases over time. According to the U.S. Bureau of Labor Statistics, the average annual inflation rate in the U.S. has been around 2-3% over the past few decades. This means that $10,000 today won't buy as much in ten years. Unlike other assets, such as real estate or machinery, whose depreciation can be claimed on taxes, cash just quietly loses its value without any tax relief.
Debasement and Historical Context
Currency debasement, historically, refers to reducing the value of currency, often by increasing the money supply. This can lead to inflation. For example, during the 1970s, the U.S. experienced high inflation rates, peaking at around 13.5% in 1980. This significantly impacted the real value of cash holdings. Yet, there was no tax adjustment for this loss of value.
Fairness and Consistency in Tax Policy
Equitable Treatment of Assets
Other assets, like real estate, stocks, and even physical equipment, are subject to tax rules that recognize their depreciation or capital gains. These rules ensure that taxpayers are taxed on real, not nominal, income. Cash holders, often more conservative investors or those saving for emergencies, are unfairly disadvantaged under the current system.
Modernizing the Tax Code
The tax code has evolved over time to address changing economic realities. For instance, the introduction of inflation-indexed tax brackets in the 1980s helped to prevent "bracket creep," where inflation pushed taxpayers into higher brackets without an actual increase in real income. Extending similar logic to cash holdings would be a natural progression.
Practical Implementation
Using Established Measures
Implementing this change could be straightforward. The Consumer Price Index (CPI) is a widely accepted measure of inflation and could be used to determine the depreciation of cash holdings. Taxpayers could then claim a loss equivalent to the inflation rate multiplied by their average cash holdings over the year.
Recognizing the depreciation of the U.S. dollar due to inflation and debasement could bring much-needed fairness to our tax system. It would acknowledge the real economic loss experienced by cash holders and align tax policy with the principles of equitable treatment and economic reality. As we continue to modernize our tax code, considering the depreciation of cash holdings is a logical and justifiable next step.
For me, this would help create more fairness and awareness for the average American when it comes to insane money printing. At least let us claim the loss.
The U.S. dollar, like all fiat currencies, is subject to inflation and debasement over time. But unlike other depreciating assets, cash holdings don't currently qualify for tax deductions. Should they? Let’s explore why they should be, and how this could bring more fairness to our tax system.
The Case for Depreciation of Cash Holdings
**Inflation Erodes Value**
Inflation is a well-known economic phenomenon where the purchasing power of money decreases over time. According to the U.S. Bureau of Labor Statistics, the average annual inflation rate in the U.S. has been around 2-3% over the past few decades. This means that $10,000 today won't buy as much in ten years. Unlike other assets, such as real estate or machinery, whose depreciation can be claimed on taxes, cash just quietly loses its value without any tax relief.
Debasement and Historical Context
Currency debasement, historically, refers to reducing the value of currency, often by increasing the money supply. This can lead to inflation. For example, during the 1970s, the U.S. experienced high inflation rates, peaking at around 13.5% in 1980. This significantly impacted the real value of cash holdings. Yet, there was no tax adjustment for this loss of value.
Fairness and Consistency in Tax Policy
Equitable Treatment of Assets
Other assets, like real estate, stocks, and even physical equipment, are subject to tax rules that recognize their depreciation or capital gains. These rules ensure that taxpayers are taxed on real, not nominal, income. Cash holders, often more conservative investors or those saving for emergencies, are unfairly disadvantaged under the current system.
Modernizing the Tax Code
The tax code has evolved over time to address changing economic realities. For instance, the introduction of inflation-indexed tax brackets in the 1980s helped to prevent "bracket creep," where inflation pushed taxpayers into higher brackets without an actual increase in real income. Extending similar logic to cash holdings would be a natural progression.
Practical Implementation
Using Established Measures
Implementing this change could be straightforward. The Consumer Price Index (CPI) is a widely accepted measure of inflation and could be used to determine the depreciation of cash holdings. Taxpayers could then claim a loss equivalent to the inflation rate multiplied by their average cash holdings over the year.
Recognizing the depreciation of the U.S. dollar due to inflation and debasement could bring much-needed fairness to our tax system. It would acknowledge the real economic loss experienced by cash holders and align tax policy with the principles of equitable treatment and economic reality. As we continue to modernize our tax code, considering the depreciation of cash holdings is a logical and justifiable next step.
For me, this would help create more fairness and awareness for the average American when it comes to insane money printing. At least let us claim the loss.
