Fight inflation with tax increases?

Discussion in 'Budget & Taxes' started by wgabrie, Oct 2, 2021.

  1. Hey Now

    Hey Now Well-Known Member

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    So what was the actual context of the tax increases relating to inflation? Slowing down economic growth? What's the name of the textbook?
     
  2. OldManOnFire

    OldManOnFire Well-Known Member

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    We are a consumer economy...if we don't consume the economy drops. And we have no issue with debt so when we don't have cash out comes the credit cards to buy a Starbucks. IMO people have certain spending habits and this does not change much in the long term...
     
  3. modernpaladin

    modernpaladin Well-Known Member Past Donor

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    In theory, the more taxes we pay, the less the govt needs to print.

    ...or the govt could spend less.

    I dont have any confidense that govt will stop printing money if we pay more anyway. Theres always some 'crisis' or another they'll virtue signal about to authorize more spending.

    No, taxes need to be reduced and we need to stop printing money. Shrinking govt will reduce inflation.
     
  4. Chrizton

    Chrizton Well-Known Member

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    We'll see I guess. My 401K hopes you are right. My bank account hopes you are not.
     
  5. Monash

    Monash Well-Known Member

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    Concur entirely with the last point. Inflation has been dormant for so long some people seem to have forgotten it existed. So the first time it years it raises it's ugly head they go into 'Chicken little mode' and start acting like a 5% inflation rate has taken the US into Weimar Republic territory!

    In reality? Chances are its going to get worse before its gets better but that should start to happen as soon as global supply chains untangle themselves and manufacturing gets on top of pent up/post COVID demand. So a lot of the pressure on prices looks to be temporary (say a couple of years) not permanent (all other factors being equal of course). What would be an issue for the US Government is the size of the US deficit if inflation stayed high for some reason for an extended period of time beyond that.
     
    Last edited: Nov 6, 2021
  6. wgabrie

    wgabrie Well-Known Member Donor

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    I'm sorry when I made that post I confused this thread with another one I made about how the Federal Reserve has the ability to control inflation (Do you think that the Federal Reserve should try to lower inflation? | PoliticalForum.com - Forum for US and Intl Politics).

    The textbook:
    Macroeconomics for Today 9th Edition
    Irvin B. Tucker University of North Carolina Charlotte

    The textbook talked about how the government can use higher taxes to lower demand. Once that happens the prices of goods go down.

    This is because when demand drops it leaves the Keynesian part of the curve. The vertical area on the right where higher demand only raises prices and leads to price inflation.
    [​IMG]
     
  7. Mircea

    Mircea Well-Known Member

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    No doubt.

    I'm not sure what is worse, the general public's complete ignorance on the matter or the talking pundidiots on Media fanning the flames.

    It's unfortunate Liberals removed Economics from the high school curriculum back in the 1970s, but then I guess they had to do everything in their power to protect Carter.

    Yeah, chalk it up to the Mouse-Click Generation who thinks you can restart an economy with a mouse-click.
     
  8. OldManOnFire

    OldManOnFire Well-Known Member

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    More people and business and development every day so consumption should remain on the rise. But we can screw this up with high inflation or a war or shortage of products...
     
  9. Monash

    Monash Well-Known Member

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    Really? Over here economics and commerce/business studies are on the curriculum at high school albeit after a basic introduction any further advanced study is chosen as an elective. Nor as far as I am aware has either side of politics ever expressed any particular interest in removing them from the syllabus.

    Oh I suppose it could have been raised as an option at some point or other during academic discussions about the high school curriculum (there are always more topics that could be taught than there is time in the schedule) and I suppose I could have missed it but if so those discussions have never gone anywhere. Economics etc is still going strong.
     
  10. Mircea

    Mircea Well-Known Member

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    Over where?

    There's probably 5 school districts in the entire US that still teach Economics.
     
  11. wgabrie

    wgabrie Well-Known Member Donor

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    I wonder if they removed math from school because they plan on jobs of the future not requiring a high level of attainment in math?

    Or, maybe they plan on drafting up new economic systems that are complex and too convoluted to explain? Or understand? And they didn't want to explain it to the general public? Nor getting the people, who are still brainwashed to believe that economics is capitalism vs communism, or to misuse math to misunderstand and worry their pretty little heads off about that?

    They say that true AI, once it gets its stride, and is fully developed and in applied use, will be able to come up with theories that humans may not understand.
     
  12. Monash

    Monash Well-Known Member

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    Australia. And here all states still teach economics/commerce/business studies. I'm surprised at least an introduction to basic economics isn't taught more widely in the US because anyone going on to college with the intention of studying fiance etc would have a steeper learning curve than necessary.
     
  13. Patricio Da Silva

    Patricio Da Silva Well-Known Member Donor

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    The historical way to curtail inflation is to increase the interest rate at the Fed.
     
  14. Jack Hays

    Jack Hays Well-Known Member Donor

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    The prominence of the monetary approach (interest rates) is relatively recent. For a long time the fiscal approach (taxation) was more prominent, and very Keynesian.

    Individual Income Tax as a Method of Inflation Control - Tax ...
     
    Last edited: Nov 10, 2021
  15. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Stated in much more simple terms, higher tax rates take money out of the economy, so help to counteract inflation.

    It's actually extremely simple when we think about it. Collect the money from taxes rather than just printing more new money.

    But it is also just a little more complex than that also, because when tax rates go up, people need to have more money to pay those taxes, so it does actually help increase the value of the dollar a little bit.

    Yes, higher taxes will "reduce demand", something that is usually not so good for the economy.
    But the exact of meaning of "reducing demand" has to be qualified a little bit here.
     
  16. Mircea

    Mircea Well-Known Member

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    That's only in theory.

    If you have Monetary Inflation -- and currently it is practically non-existent -- and government increases taxes, it will take 9-36 months to have any effect, but that's only if government maintains its current spending or decreases spending.

    If government raises taxes then increases spending, you have a net zero effect or if spending exceeds the revenues from the new taxes, Monetary Inflation is worsened.

    When you have Demand-pull Inflation -- which is what you're experiencing now -- it still takes 9-36 months to have any effect.

    If Congress levies a tax hike today, it won't go into effect today. It won't go into effect for at least 30 days and it will be another 8-12 months before a significant number of consumers adjust their spending habits to have an impact and cause prices to drop.

    Remember, the economy is not a train. It doesn't run on a schedule or a mouse-click.
     
  17. OldManOnFire

    OldManOnFire Well-Known Member

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    No one takes money out of the economy?? If the government increases tax revenue by $1 trillion, within a very short time frame the government will spend that $1 trillion into the economy. Money just moves from government to people to business to people to government. But that same $1 trillion remains in the economy...
     
  18. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    I agree with you.

    Too bad this is just a little bit more complicated than most people can easily fit in their heads.

    But you are mostly right.
     
    Last edited: Nov 13, 2021

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