pmtriste

Oh, maybe I should address your comment from your perspective. I imagine what you’re suggesting is that microeconomically taxing the poor would combat inflation because they would have less money to spend. For one, I was speaking macroeconomically, not microeconomically. Speaking from a microeconomic perspective, if you’re assuming that supply is inelastic and demand is elastic, then lowering demand (by lowering the amount of free cash of people spending it) makes sense, except that the poor aren’t primarily spending money discretionarily. They spend money because they have to in order to survive. So decreasing their money doesn’t actually help to reduce their spending, because that demand is inelastic. You have to tax people who are making discretionary spending choices. From a “percentage of spending spent on discretionary purchases perspective”, you’re still taxing the rich, because at this point even the middle class is struggling.

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.

That’s because the actual way to lower inflation, raising taxes (especially on the ones who have most of the money), is deeply unpopular with the people who control the government (the ones who have most of the money). Also, everyone likes to pretend the government has a “budget” that equals the taxes it brings in, rather than taxes and spending being the mechanism by which we can control inflation and the tool to improve the economy. That isn’t the narrative they’ve been writing all these years.