How to Use Taxation Levels Rather Than Interest to Regulate Inflation
Executive Summary
- In most countries, interest rates are regulated by the central bank to regulated inflation.
- There is another and far more effective way to control inflation.
Introduction
Warren Mosler believes that it is necessary to tax to create a demand for that currency. However, it does not say “how much” that taxation needs to be. Mosler proposes that taxes are only levied at the amount required to keep an economy from overheating and inflation. Under mainstream economic thinking, interest rates are used to fight inflation. However, Mosler states that this is unnecessary, and the lever can be taxation percentage instead.
This is explained in the following quotation.
“In sum, when the government wants to stimulate demand and increase inflation, it can cut tax rates. And when it wants to dampen demand and decrease inflation, it can raise tax rates.”
Source: Mosler Economics
http://moslereconomics.com/wp-content/uploads/2019/02/Full-Employment-AND-Price-Stability.pdf
This is also explained in the following quotation.
“The federal income tax was instituted specifically to coerce taxpayers to pay the interest to the banks on the federal debt. If the money supply had been created by the government rather than borrowed from banks that created it, the income tax would have been unnecessary.”
Source: Contrahour