Is Raising Interest Rates The Solution to Inflation?
Recently, a man asked, “Is there a better way to kill inflation than raising interest rates?” Furthermore, he wondered why talking about raising taxes to combat inflation was taboo.
He noted, “Increased taxes combined with lowering the deficit or better paying off debt also lowers the money supply. Lowering the debt is also good so that we can increase the debt more easily in a deflationary environment because we have paid it down.”
Here is how the internet responded.
Raising Taxes
Many people in the thread agreed with raising taxes on specific groups, mainly those whose annual income exceeds $400,000, and on corporations. Another user proposed, “if billionaires paid a tax rate similar to the ones during the 1950s and ’60s — the Golden Era of Capitalism — we’d probably be fine.”
People Took Issue
Others took exception to the idea of tax increases and had a variety of responses, including one person who succinctly stated that “voters don’t reward politicians who do.” In addition, the potential for cost increases passing to consumers to offset higher corporate taxes would increase inflation.
The inability of the federal government to demonstrate fiscal responsibility was the reason some users objected to increased taxes, with one saying, “until I see money being used and actually deployed in ways I can see and literally be transparently explained, I don’t want to give them any more money.”
Impact on Inflation
The potential impact of inflation on low-income individuals and families was cited by one poster, who wrote, “If we raise taxes only high-income individuals, they have already low propensities to consume out of that income, so increasing taxes will not put a dent in their consumption.”
Controlling inflation with interest rates was offered as a suggestion. One wrote they had no problem with interest rate hikes, preferring them to a specific fiscal policy.
According to several, the problem with taxing the rich is based on the American tax code: “In the US, most taxes come from wages. Rich people don’t work for wages per se. They tell other people to make money for them.”
The user continued by describing that the rich may collect a high salary, but the primary sources of their wealth are stock price appreciation and investments, which are taxed at the lower capital gains rate if or when they sell those assets.
The rich borrow against those gains, using them as investments, replacing the old debt with new debt. The value of those investments increases over the years, making those assets exempt from income taxes.
This loophole rich people and corporations employ makes this poster believe “those laws and loopholes will never be fixed because the rich people and companies are the ones setting (and influencing) the laws.”
The valid arguments for and against increasing interest rates to control inflation show that this issue is more complex than a black-and-white yes or no.
