Excise and Sales Taxes as Anti-inflationary Measures

Abstract

Sales and excise taxes are in all likelihood typi cally shifted forward in the form of higher commodity prices. Their anti-inflationary influence arises from their effect in re ducing real purchasing power by raising commodity prices rela tive to factor incomes. Unlike other price increases, this type does not have a spiraling effect because it does not generate additional income. Sales and excises have some relative advan tage over income taxes so far as inflation control is concerned. They place a heavier relative burden on persons spending high percentages of their incomes and compel them to reduce con sumption. They give some incentive to spend less and save more. In addition some persons may tend to spend the same dollar sum, including tax elements, as before. If persons at tempt to maintain their old consumption levels of goods and services, they increase their tax liability by so doing. On the other hand, much of the greater anti-inflationary advantage of the sales and excise taxes will be lost if they generate wage increases. The sales and excise taxes may also offer some limited advantage from the standpoint of production incentives, but this can easily be exaggerated. The principal objections to the sales and excise taxes are equity ones; the levies conform much less closely with accepted standards of equity in taxation than the income tax. Sales and excise taxes, as well as the income tax, are greatly inferior to the expenditure tax as anti- inflationary measures, and the latter is more equitable than the commodity taxes.