Comment on US Federal Reserve raises interest rates for the first time since 2023

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pmtriste@lemmy.world ⁨12⁩ ⁨hours⁩ ago

That’s actually not true at all. Raising taxes on the poor is less efficient exactly because they spend all their money. The purpose of taxation in this scenario is to increase buying power by reducing monetary supply. If you tax the poor, you weaken the economy because they are already spending all their money. The rich, who don’t spend all their money, are objectively a much better place to tax because it weakens the economy less through a lower decrease in spending. If you tax the poor more, the government ends up having to spend extra just to offset the loss of spending from the poor (which then increases the monetary supply, lowering the effectiveness of the tax).

To put another way, government spending is how the government can positively impact economy by increasing spend in targeted areas, but this spending causes an increase in monetary supply, which causes inflation. The offset to this is for the government to tax the money back out of the monetary supply, which lowers inflation, but if they tax the poor then they are decreasing overall liquidity (because the poor reinvest all their money into the economy directly by spending it). So from a monetary supply perspective, the most effective taxation would be on “idle” money, or a wealth tax.

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