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Comment by bryanlarsen | Hacker News Reader

The least bad option would be to raise taxes. If the problem is too much money, directly removing the money from the system is the solution. Taxes can be precisely targeted and work quickly. Call it a "windfall tax" for political cover, but given that it would have to be large to be effective, it would be more than that. The Inflation Reduction Act was a good start, but it only raised taxes by $700B.

The next least bad option would be to reduce spending. It'd be slower to act, can't be targeted as easily as increased taxes and there's no possible way to reduce spending by the trillions necessary to have an effect on inflation.

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Too slow. While I fully agree that taxes have gotten out of whack and should be raised, raising taxes would have an impact a year from now (way too slow of timeframe to manage inflation). Additionally, practically speaking, the government would have one shot and no realistic way to quickly correct if they raised taxes too much or too little. Finally, there's so much uncertainty in the market when major political decisions like that are afoot, that you risk doing harm just from the perception.

The fed has the power to act quickly. They raised rates a little on almost a monthly basis last year. Each was a little experiment. If they raised them too much, they could reduce them the next month. If they raised them too little to fully counter inflation, they could continue raising them.

Finally, the issue isn't getting "money" out of the system - it's getting purchasing power out of the system - reducing demand. And most people are buying 5-20% of houses, banks are buying the rest. Most large businesses aren't paying cash reserves to pay employees, they're using debt to pay those salaries.

Also, reducing spending is even slower than reducing taxes.

The vast majority of government spending is on Medicare, Social Security, Medicaid, and defense spending. Politically those are untouchable, mostly for good reasons - reducing any of them will result in people literally dying.

The vast majority of what's left is hugely impactful high ROI activities like scientific research, infrastructure projects, and other basic good governance activities.

I agree, raising taxes would definitely help AND would help the US govt with their currently fiscally idiotic ways.

Unfortunately, that would imply Congress has their act together. Since they currently can't even manage to keep from defaulting the US govt on their current debt, I'm not hopeful they will stop being fiscal idiots anytime soon. I mean this to imply both political parties are fiscal idiots as far as I can tell.

It's worse. Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on? Congress being Congress, they're going to spend it. And that won't help with inflation, because it reroutes the money rather than removing it.

Agreed, hence Congress is full of fiscal idiots. It's not new, Congress has been full of fiscal idiots for well over a decade.

> Congress has been full of fiscal idiots for well over a decade.

For well over 200 years. Compared to how Andrew Jackson destroyed the US economy, the current Congress is doing fairly well.

I'm sure reasonable people could debate the timeframe ad-nauseum, but I think most people can agree, Congress in general has never been all that fiscally responsible.

> Let's say Congress raises taxes, as some here advocate. All right, what's Congress going to do with the money? Have less of a deficit? Or are they going to find new things to spend it on?

Probably the former; if they found new things to spend it on, they’d spend it independent of whether or not they raised taxes.

Congress understands, even if they pretend not to when it provides a public excuse for opposing popular spending that they choose to avoid (while not bothering with that pretense when they want to spend) that there is no necessary, non-self-imposed, relationship between revenue and spending when operating in your own fiat.

> The least bad option would be to raise taxes

Taxes also reduce productivity/supply, which is that opposite of what you want.

Raising interest rates also reduces productivity and supply. Raising taxes is more efficient so reduces productivity less than raising interest rates does.

> Raising taxes is more efficient

I'm not sure if that's true. And even if it is the effect is much slower compared to the near immediate impact raising interest rates has had.

Also, I consider inflation as a tax on it's own. So adding a tax on top of a tax is pouring salt on the wound if you ask me.

I'm satisfied that cash is paying 5%, at least that takes a bite out of inflation. For the last several years savers have been penalized and borrowers have been spoon fed money so I'm glad that's reversing. And I'm glad that rising mortgage rates are putting a ceiling on the housing market.

No I don't want to pay more in taxes to cover the recent insanity that I had nothing to do with.

Maybe when you advocated for raising taxes you mean somebody else's taxes, not yours? I suppose that's usually what people mean when they say that.

The inflation reduction act couples 2.4 trillion of spending with 740 billion of taxes.

2.4 trillion of spending over 10 years with 740 billion of taxes annually.

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