Fighting Inflation While Protecting the Average American

Creating Economic Stability Through Fair and Targeted Measures

Creating a More Equitable Solution for Inflation

The US economy is grappling with a significant inflation issue, with the Consumer Price Index (CPI) experiencing a 7% annualized increase in December 2021, marking the highest annual increase since 1982.¹ Numerous factors, including supply chain disruptions, corporate profiteering, the global pandemic, and war, continue contributing to the current cost-push inflation. The media, along with an active base of economic pundits, has focused solely on demand-pull inflation. This is a flawed interpretation, which I’ve discussed in previous posts.

Inflation has considerably diminished the purchasing power of workers and consumers, particularly those on low and fixed incomes, raising concerns about stagflation. Traditional anti-inflationary measures, such as raising interest rates, have proved inadequate and harmful to the working class. This article proposes a progressive approach that combines taxation on billionaires and multi-millionaires with modern price controls backed by research and financial science to lessen the impact on the working class.²³

Progressive Taxation to Address Inequality

One proposal involves raising taxes on billionaires and implementing a wealth tax, which aims to diminish inequality and generate revenue for public spending, potentially stimulating growth and alleviating inflationary pressures. President Joe Biden has advocated for a 25% minimum tax on billionaires, increasing the top income tax rate from 37% to 39.6%, and adopting Senator Elizabeth Warren's proposal for a 2% annual tax on household wealth exceeding $50 million and a 3% tax on wealth above $1 billion.⁴

While executing and enforcing such taxes can be challenging, recent advancements in measuring wealth and international cooperation can help mitigate tax avoidance or evasion by wealthy individuals. Progressively taxing the ultra-wealthy can fund targeted investments in sectors critical to economic growth and social wellbeing, without burdening the working and middle classes.

Modern Price Controls to Protect Consumers

Price controls, which involve government-imposed limits on the amount private companies can charge for their products or services, can directly target the prices of goods and services driving inflation. Historically, price controls have been utilized in various countries to address inflationary pressures stemming from wars, natural disasters, or other crises.⁵

Modern price controls backed by research and financial science can be an effective tool to protect consumers, especially those with low and fixed incomes. By imposing price ceilings on specific goods and services, such as food, housing, and healthcare, we can prevent excessive price increases resulting from market power or supply shortages. ⁶ For instance, the US Department of Agriculture could impose price ceilings on meat and dairy products affected by supply chain disruptions and monopolistic practices of large agribusiness companies.⁷ The Department of Housing and Urban Development could impose rent ceilings in metropolitan areas experiencing surging demand and affordable housing shortages due to gentrification and urbanization.⁸ The Department of Health and Human Services could regulate prescription drug prices that have skyrocketed due to pharmaceutical companies' monopoly power and limited competition from generic drugs.⁹

A Comprehensive and Progressive Approach to Inflation

While traditional anti-inflationary measures primarily focus on raising interest rates, they fail to address the root causes of inflation and often hurt the working class. This article proposes a progressive approach that combines progressive taxation on billionaires and multi-millionaires with modern price controls. This strategy not only addresses the root causes of inflation but also ensures the protection of the working class's purchasing power.

In conclusion, a comprehensive and progressive approach to inflation can help create a more equitable and prosperous future for all Americans. By adopting progressive taxation and modern price controls, policymakers can directly address the root causes of inflation and lessen the impact on the working class, ultimately promoting social welfare and economic stability.

Overcoming Potential Challenges of Progressive Taxation and Price Controls

To ensure the effectiveness of progressive taxation and modern price controls, it is essential to address potential challenges and limitations. By taking the following measures, policymakers can maximize the benefits of these strategies while minimizing potential drawbacks:

1. Enhance International Cooperation: Strengthen international cooperation and data sharing to combat tax evasion and avoidance, ensuring the ultra-wealthy pay their fair share.

2. Improve Tax Enforcement: Invest in resources to enhance tax enforcement and close loopholes that enable tax avoidance, ensuring the effectiveness of progressive taxation.

3. Implement Data-driven Price Controls: Use research and financial science to determine price ceilings that effectively prevent excessive price increases without causing market distortions or shortages.

4. Engage in Continuous Monitoring and Evaluation: Regularly monitor and evaluate the effectiveness of price controls, making necessary adjustments to ensure fairness and efficiency in the market.

5. Encourage Innovation and Competition: Promote policies that foster innovation and competition in various sectors, ensuring that price controls do not stifle growth and development.

6. Targeted Public Investment: Use the revenue generated from progressive taxation to invest in education, healthcare, infrastructure, and other public goods, which can drive economic growth and mitigate inflationary pressures.

7. Transparent Communication: Engage in transparent communication with the public and stakeholders, explaining the rationale behind progressive taxation and price controls, and addressing any concerns or misconceptions.

Building a Fair and Prosperous Future

Adopting a comprehensive and progressive approach to inflation, including progressive taxation and modern price controls, can help create a fairer and more prosperous future for all Americans. By directly addressing the root causes of inflation and protecting the working class's purchasing power, these measures can promote social welfare, economic stability, and sustainable growth.

As policymakers navigate the complexities of addressing inflation, they must prioritize solutions that account for the needs and well-being of the working class. With a focus on progressive taxation and modern price controls, we can overcome inflationary challenges while building a more equitable and prosperous society for all.

-Avery

1. Bureau of Labor Statistics. (2021). Consumer Price Index Summary. Retrieved from https://www.bls.gov/news.release/cpi.nr0.htm

2. Board of Governors of the Federal Reserve System. (n.d.). Monetary Policy. Retrieved from https://www.federalreserve.gov/monetarypolicy.htm

3. Tanden, N., & Duggan, S. (2021). Taxing Wealth to Fund Investments in Infrastructure, Education, and Health Care. Center for American Progress. Retrieved from https://www.americanprogress.org/issues/economy/reports/2021/10/25/506597/taxing-wealth-fund-investments-infrastructure-education-health-care/

4. Tankersley, J. (2021). Biden Proposes a Minimum Tax on Billionaires as Part of a New Economic Plan. The New York Times. Retrieved from https://www.nytimes.com/2021/10/25/business/economy/biden-tax-plan.html

5. Blinder, A. S. (2013). After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. Penguin Press. https://www.penguinrandomhouse.com/books/312602/after-the-music-stopped-by-alan-s-blinder/

6. Blinder, A. S. (2013). After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead. Penguin Press. https://www.penguinrandomhouse.com/books/312602/after-the-music-stopped-by-alan-s-blinder/

7. Rockoff, H. (1984). Drastic Measures: A History of Wage and Price Controls in the United States. Cambridge University Press. https://www.cambridge.org/us/academic/subjects/history/american-history-general-interest/drastic-measures-history-wage-and-price-controls-united-states

8. Joint Center for Housing Studies of Harvard University. (2021). The State of the Nation's Housing 2021. Retrieved from https://www.jchs.harvard.edu/sites/default/files/Harvard_JCHS_The_State_of_the_Nations_Housing_2021.pdf

9. Collins, S. R., et al. (2019). An Analysis of Policy Options for Inclusive Prescription Drug Pricing in the United States. The Commonwealth Fund. Retrieved from https://www.commonwealthfund.org/publications/issue-briefs/2019/sep/analysis-policy-options-inclusive-prescription-drug-pricing