[m_nyongesa]

For a moment, pretend the Fed and the Treasury are one institution instead of two. Call it "the government" for simplicity.

When the government spends money into the economy, it creates money (also, increases demand). When the government taxes money out of the economy, it deletes money (also, reduces demand).

The main issue is how much is created over how much is deleted, in a given time frame.

Assume more is created than deleted in a given time frame, so there is a net demand increase over that time frame.

Now compare the net demand increase to that required to bring the economy up to the full employment level. If the net demand increase is less than or equal to that required amount, there is no inflation. If it is more, then there is inflation.

If you didn't have any taxes at all, the net demand increase would be massive and inflation would happen much more easily.

[wolco]

The first year and then it would be factored in.

[m_nyongesa]

What would be "factored in," to what?