With interest rate rises, the people in the most debt suffer the most. With tax rises, the highest paid suffer the most, and the govt has extra revenue to help the ones struggling the most. This is never considered by any govt. Why not?
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Tax raises usually don’t come into effect until the next tax year and last for a year. Interest rates can be raised or lowered on a daily basis. They’re just a way more flexible tool.
There’s a little more to it than that. Sure raising rates hurts people with adjustable rate loans, but most of the pain is felt through resulting layoffs.
As for why, rich people control the money and media and can therefore make or break politicians. Poor people cannot.
Because the core issue is money supply.
When there is more money in circulation the price of everything goes up because there is more money chasing the same goods.
When the fed raises rates the money supply expansion slows down and thus inflation slows down. When they lower rates supply increases and so does inflation. During Covid we printed trillions of dollars adding a LOT to the supply in short order and roughly a year later we saw major inflation. If you understand this money supply issue the inflation was very much not shocking. Printing money has a consequence, it causes inflation. Society pays the bill when it decides to print more money to do things.
Raising rates is not about hurting people in any way, it’s about controlling money supply. It just so happens that changing things always hurts some people.
Taxing people doesn’t change the money supply, it just moves the money supply around. It wouldn’t do much to hurt inflation unless the government took the collected taxes and burned the dollars to reduce the money supply.
Apologies that this answer is long winded but this topic isn’t easy to eli5. Best I can do there is think about total money available.
If we all traded sea shells and today a loaf of bread costs 5 shells, and in our town there are only a total of 1,000 shells that we have collected for trading then that price will largely stay at about 5 shells. If tomorrow someone from another village shows up with 2,000 shells in a sack and hands them out to everyone our loaf of bread is going to go up to about 10 shells. Not because of the bread value increasing but because there’s more shells chasing the same goods.
Because it’s much simpler and effective. Imagine the red tape of rising taxes from the moment inflation starts to hit and up to the point where taxes even begin to have an effect. It’s much quicker to raise the interest rates. Plus no single government in turn would be willing to raise taxes for everyone in a swipe, that’d be politically impossible or at the very least extremely controversial and unpopular.
Tax raises often are considered to slow inflation.
However- tax raises effecting the richest may not be as direct at fighting inflation, and likely will slow the economy in a different way than you think.
The prices of food/groceries have gone way up this year. If you increase taxes on the the rich, do you really think they’re going to buy less food/groceries, or buy less expensive groceries?
The non-rich may respond by going out to restaurants less/eating less expensive food, but you’re less likely to make a dent in the behavior of the rich.
Higher interest rates and tax increases do effect the behavior of the rich, but more with investing than in consumption.
Higher interest rates means leaving money in super low risk bank accounts/bonds (now getting higher interest) can be more attractive than expanding new businesses. Higher taxes for a county can make the rich decide to invest their money in a different country. The effect of this generally is less new business growth, less new jobs, less inflation.
The government can’t actually raise taxes, they can only change the tax rate and that is a very crucial distinction.You can’t tax money that people don’t have so it’s always a fraction of what people’s income is.
Raising taxes means that people have less disposable income and less money to spend, which means that they can’t make as many investments or hire as many people or do things that stimulate the economy.
If taxes are raised too high then it will grind the economy to a halt and the government will actually make less money because their citizens have made less money.
If you make $100,000 in a year and you’re taxed for 20% of that, you’d be paying $20,000 in taxes. If you made 200,000 in a year but only paid 10%, that would be the same amount of money that the government is getting, but you would be better off.
Every action that you take economically has a trade off that causes someone to be deprived of money somewhere. Like with inflation, printing more money to try and pay for more programs devalues everyone else’s money and is essentially a hidden tax because printing more money did nothing to add more real value to the economy, because it wasn’t backed by real work.
Good god. Can you imagine the government telling people they needed to slow the economy, and their plan was to take your next paycheck?
The poor aren’t hurt more unless they’re trying to borrow / live beyond their means. It’s large corps / rich folk taking out new loans for various reasons that are hit by the rates. This slows their efforts due to the higher overall cost of buy-in.
If government raises taxes, it doesn’t remove money from the system. It goes from consumers and business’ (deflationary) to the governments which can be used for infrastructure or social programs (inflationary). Net effect is likely neutral unless they simultaneously reduce spending.
Raising interest rates sucks money out of the system by discouraging debt. Debt is a form of money creation because borrower gets money and lender can sell the IOU like it’s cash.
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