Taxation and Business

Abstract

It is not obvious that taxes in themselves are a significant element in inflation. When taxes reach a level that is regarded as unduly high by a broad spectrum of taxpayers, protective and defensive reactions are likely to take place. Al though the primary cause of inflation is the growth in the money supply resulting from deficit financing, even a balanced budget under certain circumstances can be inflationary. The corporation income tax is probably largely shifted forward to the consumer; but its level tends to defer new investment, and therefore has a price-lifting effect which, however, is not cumu lative. A shift toward a tax system emphasizing direct rather than indirect taxes might help encourage opposition to govern ment expenditure increases.