Let’s pull back the curtain on the subtle ways you are manipulated by systems designed to benefit everyone but you. In this post we will address the yearly “raise.”
Inflation: The Hidden Tax
To understand why the yearly pay raise is a scam, you must first understand the concept of inflation. Simply put, inflation is the steady increase in the prices of goods and services. Stated another way, it is the decrease in the purchasing power of your money. Said even simpler, your money buys less over time.
Inflation functions like a silent tax that you never voted for. It quietly extracts value from your labor every single year. Unlike income tax, which feels painful once, inflation bleeds you slowly enough that most people never notice until they’re far behind.
We’ve all heard the stories: “Back in my day, a movie ticket cost a dime!” This doesn’t necessarily mean movies were cheaper. Adjusted for technology, distribution, and production quality, they were often more expensive. What grandpa forgets to mention is that he was making $1.00 for a grueling day in the coal mine. That dime represented 10% of his daily pay. The number on the price tag and on your paycheck are equally meaningless. What matters is purchasing power.
If you earn $100,000 but pay $50,000 for a studio apartment, you are functionally poorer than a friend earning $50,000 who pays $10,000 for a three-bedroom house. If you’re grinding out 80-hour weeks for that six-figure salary while your friend works 30 hours, they are vastly wealthier in the one currency you can’t print more of: time.
It’s important to note that controlled inflation isn’t inherently evil. If there was no inflation, the wealthy could remain so without any work. Inflation forces people to spend and invest their money or suffer a loss in purchasing power. But it’s only beneficial when wages keep up with or outpace true inflation. Otherwise it is a wealth transfer from wage earners to asset holders.
The Tax Bracket Trap
The second pillar of this scam is the Progressive Tax System. In the United States, as your income increases, you move into higher tax brackets. This is often sold as “fairness.” The rich pay more. The poor pay less. This sounds fair, yes?
Not quite.
The scam reveals itself in the margins. When your raise pushes you into a higher bracket, your new income is taxed more aggressively. This phenomenon, known as bracket creep, reduces the value of your raise. You feel like you’ve advanced but in reality you haven’t. You don’t lose money outright, but you lose what that money can buy.
Worse, tax brackets often fail to adjust meaningfully for real-world cost increases. Housing, healthcare, childcare, insurance all inflate faster than wages, and much faster than tax brackets are updated. So even if your income rises “on paper,” your obligations rise faster.
The Math of the Scam
Let’s analyze the “standard 3% raise.” This is not a raise! It is a Cost-of-Living Adjustment. It is the minimum required to placate employees. Corporations frame it as a reward for loyalty and hard work, but in reality, it is the bare minimum needed to keep your purchasing power from collapsing. And that’s assuming inflation numbers are honest, which they rarely are.
1. The CPI Illusion
The Consumer Price Index is a curated basket of goods that doesn’t reflect how people actually live. It understates the costs that dominate modern budgets: rent, healthcare, education, insurance. If “official” inflation is reported at 3%, but your rent jumps 10%, your insurance 15%, and your groceries 8%, you didn’t receive a raise. You took a pay cut and were thanked for your loyalty (usually with pizza).
2. The Marginal Tax Reality
Let’s say you earn $50,000 and receive a 3% raise, bringing you to $51,500. That extra $1,500 is taxed at your highest marginal rate, 22% federally, plus state and payroll taxes. You might take home $1,000 if you’re lucky.
Now compare that to your expenses. Gas, groceries, utilities, rent, subscriptions, insurance premiums. If those costs rise by $1,200 over the year, you are now working the same job for less value. That “raise” is actually a reduction in purchasing power.
In Summary
When your boss offers you a 3% raise, they are not rewarding performance. They are acknowledging currency debasement. They are saying, “We will allow you to stay where you are, barely.” To actually get ahead, your income must outpace the combined drag of inflation, bracket creep, and rising baseline costs. That’s the real hurdle. If your raise doesn’t start with a 5 or a 7, you aren’t climbing the ladder, you’re just running faster to stay in place.