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Taxes Are Deflationary and Can Be Used as a Deflationary Tool

In: Debates in Monetary Macroeconomics

Author

Listed:
  • Joëlle Leclaire

    (Buffalo State College)

Abstract

In the 1970s higher interest rates fought inflation but led to a recession. This paper contends that raising taxes is a better way to reduce inflation. It identifies many different types of taxes and their impact on spending and prices. Corporate and individual income taxes, and social insurance taxes, decrease disposable income and spending. They don’t increase production costs, so shouldn’t increase prices. Excise and sales (value-added) taxes exert both deflationary and inflationary pressures. Most Federal taxes in the US fall on income rather than sales. Corporate income, individual income, and social insurance taxes combined are 30 times greater than all other sources of Federal revenue. Tax hikes that raise these taxes will reduce spending and demand, putting downward pressure on prices.

Suggested Citation

  • Joëlle Leclaire, 2022. "Taxes Are Deflationary and Can Be Used as a Deflationary Tool," Springer Books, in: Steven Pressman & John Smithin (ed.), Debates in Monetary Macroeconomics, chapter 0, pages 131-147, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-11240-9_7
    DOI: 10.1007/978-3-031-11240-9_7
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