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Inflationary Tax
Issue
To control inflation, the Federal Reserve adjusts the prime interest rate that banks use as a basis for their lending. The higher that the prime interest rate is raised, the greater impediment is 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 to no effect on those who don't take out loans for purchases. Another issue is that it typically takes several months for the new interest rate to take effect upon the nation's economy, and something a bit faster would be preferred to control inflation.
Solution
Instead of changing the prime interest rate for lending, a better means of controlling inflation would be to consider an adjustable inflationary tax on all goods and services.
An advantage of an inflationary tax policy is that it offers a more direct and effective means of controlling inflation 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 upon the nation's economy rather than waiting several months for the adjustment to take effect.
To simplify things, the inflationary tax rate may be changed up to four times a year after quarterly economic numbers are evaluated in order to allow businesses and consumers time to adjust to the new rate.
By having a separate means of controlling inflation in this manner, the nation's economy will advance at a moderate pace while inflation is kept at a minimum through the new policy.
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