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Inflationary Tax
Issue
To control inflation, the government currently adjusts the prime interest rate that commercial banks use as a basis for lending. The higher the interest rate becomes, 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 takes several months for the new interest rate to take effect on the economy and something more timely would be preferable to control inflation.
Solution
Instead of adjusting the prime interest rate, a better means of controlling inflation would be to impose a nationwide inflationary tax on all goods and services. Which is similar to a value added tax but with the purpose of controlling inflation.
Managing inflation in this manner would be more effective since it applies to all consumers regardless if they use cash or credit for their purchases. It would also have a more immediate impact on the economy rather than waiting several months for the adjustment to take effect. To accommodate resellers better, an inflationary tax policy may become a quarterly process to allow point of sale (e.g., cash registers) to adjust to the new rate in a reasonable manner.
So, by having a separate and more direct means of controlling inflation than adjusting interest rates, the nation's economy may advance at a moderate pace while inflation is kept at a minimum through the new measure.
Other Considerations
A possible concern with an inflationary tax policy 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. At times, a surgical approach may be more appropriate that can target specific sectors than a generalized policy that affects the entire nation.
Discussed in my other post (c.f. Medical Insurance), it mentions that to reduce medical costs, the Department of Health should establish a nationwide charge list to determine the cost of all medical services in the country. A charge list is commonly used by hospitals and medical centers to regulate their expenses on how much they should charge their patients for their services.
In similar manner, the Department of Commerce should be granted the authority to regulate price controls in specific sectors that experience greater inflation than others. For example, if gas prices rise due to a weather-related event (e.g., hurricane), the Dept. of Commerce may set the maximum limit on a gallon of gasoline to prevent runaway inflation and price gouging (e.g., only a 5% increase is permitted after the event).
If food prices rise excessively due to something unexpected (e.g., Covid-19 viral outbreak), the Commerce Dept. may step in and bring such costs under control by placing limits on food items rather than allowing them to get out of hand. Exceptions may be permitted as an appeal with the Department if the price increase is justified with financial proof being required by the business.
For the housing market, values have risen primarily due to corporations that purchased homes at higher than original prices (to be used as rentals). This caused the housing market to be artificially inflated to the point that it prevents the average family from being able to purchase a new home.
To correct this, such companies should be restricted from purchasing a home until it has been on the market for at least a year. This will allow the average family to purchase a home at reasonable prices since they wouldn't have to compete with multibillion dollar corporations, while also permitting the seller to make more money if they're willing to wait longer. The same rule should apply to individuals who purchase additional homes meant to be investments or rental properties.
Another measure that can further reduce the housing market is to establish a policy that limits the selling price of a home to not exceed the previous three-year average of the home’s value. This method is commonly used for determining property taxes so it may also be used to restrict the price of homes as well. After a year, 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 that affects all goods and services nationwide.
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