In times of inflation—when too much demand is bidding up prices—a tax increase, coupled with no increase in government spending, will dampen the upward pressure on prices. The tax increase lowers demand by lowering disposable income. As long as that reduction in consumer demand is not offset by an increase in government demand, total demand decreases.
1. When there is inflation and it's significant enough, there will be a tax increase from the government. The goal will be to lower the demand by diminishing the disposable income.
2. Literally everyone who receives a salary pays income taxes, from the School Bus Driver to the Teachers. The difference is on how much they pay because it depends on how much they receive annually.
3. If inflation occurs, a couple of things might happen. As mentioned before, the government can raise the taxes to lower the demand, which diminishes the acquisitive power of the worker. The other thing is that, with the prices going up and the salaries being adjusted to the new prices, the income of the workers will rise, making them go up to a higher tax bracket, paying more taxes in the end anyways.
