The cruelest tax

One often hears inflation referred to as "the cruelest tax," as in this piece by Len Oppenheim:

Inflation is the cruelest tax of all because it does the most damage to the middle class, retirees, and anyone living on a fixed income possibly supplemented by hard-earned savings.

Inflation, when it occurs, is certainly a macroeconomic problem. The argument that inflation hurts the poor most of all is an effective one, and there's a chance that it's true. Inflation is a tax on money holdings (you can insulate yourself from inflation by holding your wealth in nonmoney form such as bonds, stock, or real estate, whose rate of return tends to rise along with inflation). People with low incomes are likely to hold a larger fraction of their wealth in the form of money than people with high incomes, and so it's possible that inflation is a regressive tax.

But I'm interested in the origins of this expression, "the cruelest tax." We hear it everywhere - a Google search for "inflation" and "cruelest tax" comes up with over 10,000 hits. So who came up with this gem?

Back in 1982, in his letter to Congress introducing the Economic Report of the President, Ronald Reagan trumpeted the success of his economic policies of the past year:

The most significant result was the contribution these policies made to a substantial reduction in inflation, bringing badly needed relief from inflationary pressures to every American... This moderation in the rate of price increases meant that inflation, "the cruelest tax," was taking less away from individual savings and taking less out of every working American's paycheck.

But the quotes suggest that this isn't the first time the phrase was used. Blinder and Esaki (Review of Economics and Statistics, May 1994) quote Tobin (American Economic Review, March 1972):

Facile generalizations about the progressivity or equity of inflationary transfers are hazardous; certainly inflation does not merit the cliche that it is 'the cruelest tax'.

The quotes again: where is Tobin getting the phrase? Well, I can take it back to the 1964 Republican Party platform:

In furtherance of our faith in the individual, we also pledge prudent, responsible management of the government's fiscal affairs to protect the individual against the evils of spendthrift government—protecting most of all the needy and fixed-income families against the cruelest tax, inflation—and protecting every citizen against the high taxes forced by excessive spending, in order that each individual may keep more of his earnings for his own and his family's use.

And can go no further. Incidentally, there's a long tradition in economics beginning at least from Keynes' Economic Consequences of the Peace that inflation has a progressive effect on the income distribution, because it redistributes wealth from the passive accumulators of wealth to entrepreneurs, thereby stimulating economic activity. This is most likely to be true when inflation is unanticipated in advance (because then the interest rate on bonds that the wealthy have accumulated would not have risen in advance to compensate them for the loss). In fact, Blinder and Esaki found that inflation probably has a small progressive effect on the income distribution once macroeconomic effects are accounted for. Their results were confirmed by Markus Jantti (Review of Economics and Statistics, May 1994). He concludes that

The notion that inflation is the "cruellest tax" on the disadvantaged is not supported by empirical research on the distribution of income. The present evidence indicates that unemployment, not inflation, is the crueller tax.

Next up: when did we start spelling "cruellest" with two L's instead of one?