Don’t forget that Congress has tax policy at its disposal
In his Sept. 22 Opinion column, “The Fed wants you to lose your job,” Abdallah Fayyad points out that the Federal Reserve’s interest rate hikes will lead to unemployment. Basic Keynesian economics includes other tools to fight inflation. In particular, taxes can be raised to cool demand during boom times and lowered during times of weak demand. While the Fed’s interest rate hikes disproportionately affect high-cost items such as housing, a broad tax increase cools demand relatively evenly and is less likely to cause unemployment.
Our current inflation is fueled by a combination of excessive demand, fueled partly by the pandemic stimulus, and supply issues. Rolling back the 2017 tax cuts, passed during good economic times, could help drive down demand without disproportionately affecting much-needed housing production. A value-added tax would encourage saving and can omit essentials such as food.
Neither will happen in the run-up to an election, of course, but we shouldn’t lose sight of these basic tools or give Congress a pass on fiscal policy.
The weight of inflation is enough to dampen spending
Re “Not so fast on interest rates” (Editorial, Sept. 19): I think inflationary factors themselves are enough to decrease spending. Even middle-income families will find it difficult to buy discretionary items or take vacations when their electric bills surge, as mine did last summer. Add to that a jump in home and auto insurance rates as well as the ever-increasing cost of putting food on the table, and surely families will be lucky to hold on to what they have, let alone buy anything new.
Mary Jane McCarthy