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Comment by arcticbull | Hacker News Reader

1 USD always equals 1 USD and you pay taxes on gains relative to the USD as a US person.

It's not possible for your USD to be an appreciating asset relative to the USD and that's how capital gains are defined. However, if you go to a store in America (and hypothetically) they give you change in Euros, then you take that to another store, and redeem the Euros there, you do in fact owe taxes on the increase in value of the Euro relative to the US dollar over that time period spanning those two transactions.

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At one point in time and at one location. At different places in the US, 1 USD can purchase more or less. So on the internet, the purchasing power of the dollar is fairly nebulous. So, I agree, but with more nitpickiness.

Yeah, capital gains are not adjusted for purchasing power parity within a country otherwise it'd be difficult to do business in both high and low PPP regions like SF vs the midwest.

Again, you don't pay taxes in terms of purchasing power.

You pay taxes in terms of USD.

So that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue! I always wondered about that. In this light it makes perfect sense.

I’m not aware of any evidence that that’s actually the motivation behind preventing deflation. Just about every economist will tell you that deflation is undesirable because it incentives hoarding accumulated currency rather than investing it in productive capital because of the decreasing value of production relative to currency.

> that's why we can't ever have some deflation here in the modern US, it would reduce tax revenue

Deflation also increases the buying power of that tax revenue.

We avoid deflation because it incentivises hoarding currency over productive activity. We also know how to stop inflation--raise rates. We don't have reliable tools for fighting deflation (see: Japan).

(Also, it's not true that we've never seen deflation. Around the financial crisis, we saw negative CPI.)

>> We avoid deflation because it incentivises hoarding currency over productive activity.

No, it incentivises reasonable spending on things you need and saving the rest over mindlessly throwing money on useless crap because your money lose value every day.

> over mindlessly throwing money on useless crap because your money lose value every day

Your have more choices than spending and hoarding. Buying Treasuries, for instance, yield around inflation. (TIPs if you're more worried.) To say nothing of the entire universe of investable assets, from commercial paper to venture capital.

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