“Inflation is a harsh and arbitrary form of taxation.” Do you agree? If so, who pays this tax?

What will be an ideal response?

People who make this statement typically assume that government causes inflation by running deficits which are financed by printing money and using it to marshal resources away from the private sector and toward the public sector. Thus, according to this view, government allegedly benefits from inflation. If the increase in government expenditures is “paid for” by savers and by people on fixed nominal incomes, then there is an “inflation tax.” Savers find that their savings will not purchase as many goods and services as before and fixed income receivers discover that their real incomes have declined. In this sense government has imposed an arbitrary and harsh tax on these groups.
Inflation is a form of higher taxation in other respects as well, and one could regard it as particularly harsh and/or arbitrary since taxes are increased via inflation without citizens or their representatives voting directly on the increase. Some illustrations of how this occurs follow: as the prices of products rise, any sales taxes paid on retail prices would also increase and the same would hold for property taxes if levied on rising property values; income and payroll taxes would also increase if proportional or progressive as nominal incomes increased. Note that this would occur unless the income or payroll taxes were indexed to inflation in such a way that individuals were paying taxes only on their real income. The basic point is that inflation allows tax revenues of nearly every type to increase without an explicit tax hike being passed.