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Inflationary Tax


   To control inflation, the Federal Reserve adjusts the prime interest rate that commercial banks use as a basis for their 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 nation's economy and something more timely would be preferred in order to control inflation.
   Instead of using the bank's prime interest rate in this manner, a better means of controlling inflation would be to impose an inflationary tax on all goods and services.

   An inflationary tax would offer an effective means to control 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 on the nation's economy rather than waiting several months for the adjustment to take effect.

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 to control inflation than adjusting 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. A more surgical approach that targets specific sectors may be more appropriate for certain situations 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 at the federal level 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.

   To continue with this concept, the Department of Commerce should be granted new powers to regulate the price controls on economic sectors that experience excessive inflation. For example, if gas prices rise excessively due to a weather-related event (e.g., hurricane), then the Dept. of Commerce may set the maximum cost of a gallon of gasoline in every state to prevent runaway inflation (due to price gouging).

   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 it to get out of hand. If an increase in prices is justified then businesses may file an official request with the Dept. to be granted permission as long as the increase is limited in nature and duration (with financial proof being required).

   For the housing market, prices have risen due to billion-dollar corporations that purchased homes (to rent) at higher than their original asking price. This artificially inflated the housing market and pushed the average family out from being able to purchase a home. To prevent this, a new rule should be established to prevent such entities from purchasing a home until after the home has been on sale for at least two years. This will allow individual families to purchase a home at reasonable prices while also allowing the seller to make extra money if they're willing to wait a while.

   Another measure that could be taken to reduce the overinflated housing market would be to establish a mandate that the selling price for 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 may also be used to set the maximum price range of selling a home as well. After two years, any price range is possible.

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