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Inflationary Tax

Issue

   To control inflation, the Federal Reserve adjusts the prime interest rate that commercial banks use as a basis for lending. The higher the prime interest rate, the greater impediment exists for consumer spending, which in turn, lowers the risk of inflation.

   However, this approach is problematic in that it only affects a consumer's credit line, and 
has little effect on those who don't take out loans for purchases. Another concern is that it typically takes several months for the new interest rate to take effect on the economy, and something more timely would be preferred to control inflation.
Solution
 
   Instead of using the bank's prime interest rate, a better means of controlling inflation would be to impose an inflationary tax on all goods and services.

   An inflationary tax would be more effective since it applies to all consumers regardless if they use credit or cash for their purchases. An inflationary tax would also have a more immediate impact on the nation's economy rather than waiting several months for the adjustment to take effect.

   
The inflationary tax rate may be changed quarterly in order to allow businesses and consumers time to adjust to the new rate. By having a separate means to control inflation than interest rates, the nation's economy may advance at a more moderate and healthy pace, while inflation is kept at a minimum through the new policy.
Other Considerations
 
   A possible concern with the above tax proposal is that it provides a broad-based effect on all goods and services regardless if certain sectors are experiencing a higher rate of inflation than others. Perhaps, a more surgical approach that targets specific sectors may be more appropriate than a general policy that affects the entire nation.

   Discussed in my other post (c.f. Medical Insurance), it mentions that to bring down excessive costs in the medical industry, the Department of Health will need to establish a universal charge list that encompasses all medical expenses in the country. A charge list is commonly used by hospitals and medical centers in order to regulate their medical expenses regarding how much they should charge their patients.

   In similar manner, the Department of Commerce should be granted new powers to regulate the price controls on specific economic sectors that experience greater inflation compared to others. For example, if gas prices rise excessively due to a weather-related event (e.g., hurricane), the Dept. of Commerce may set the maximum on a gallon of gasoline in every state to prevent runaway inflation and price gouging.

   In another example, if food prices rise excessively due to something unusual (e.g., Covid-19's supply chain issues), the Commerce Dept. would step in and bring such costs under control rather than allow them to get out of hand. Exceptions may be allowed if an increase in price is justified by businesses that file a request as long as the adjustment is limited in nature (with financial proof being required).

   For the housing market, prices primarily rose due to billion-dollar corporations that purchased homes at higher than original asking prices. This caused the housing market to be artificially inflated that prevented the average family from being able to purchase a home. To prevent this, a new restriction should be imposed to prevent such entities from purchasing a home until after the home has been on the market for at least two years. That will allow the average family to purchase a home at reasonable prices, while also permitting the seller to make more money if they're willing to wait longer.

   Another measure to lower the housing market is to establish a mandate that the selling price of a home cannot exceed the previous three-year average of the home’s value. This method is commonly used for determining property taxes so it could also be used to set the maximum price for selling a home as well. After a two-year limit, any price is possible by the seller.

   These are just a few examples where price controls imposed by the Dept. of Commerce may be used to prevent runaway inflation in specific sectors rather than using a broad-based inflationary tax policy for the nation.
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