Inflation relief controls: Why some economists warn they could fuel higher prices

Inflation relief controls: Why some economists warn they could fuel higher prices


Washington
CNN

Several states are sending money to taxpayers to help them deal with inflation, but some economists warn that the payments will do little to ease the pain of rising costs and could fuel further inflation.

In California, for example, about 23 million eligible taxpayers are expected to receive up to $1,500, with smaller payments going to high-income earners. The payments, which are technically tax refunds, will begin on Oct. 7 and are intended “to help with rising costs,” according to Democratic Gov. Gavin Newsom’s office.

In Georgia, taxpayers received up to $500 in one-time tax refunds over the summer.

“As hard-working Georgians face rising inflation caused by failed federal government policies, we are doing what we can to provide relief by putting their money back in their pockets,” Republican Gov. Brian Brian Kemp in a May statement.

In other places, like Colorado, states are required by law to return excess state revenue to taxpayers. The tax refunds granted this summer are worth $750 for single filers and $1,500 for joint filers. Labeled as a “Cash Back” program, Democratic Gov. Jared Polis said the state has increased sending refunds by about a year “because they need it now,” according to an interview with the Colorado Public Radio in August.

For families struggling to pay for gas and other day-to-day expenses, having a little extra cash on hand could provide short-term relief. But economists say putting more money into the economy can raise demand and prices for everyone.

“Distributing dollars in an inflationary environment will only make things worse by pushing prices up even further,” wrote Beth Akers, senior fellow at the American Enterprise Institute, in a blog post last week.

On Friday, the Federal Reserve’s preferred gauge of inflation showed prices continuing to rise, up 6.2% in August from a year ago. The central bank is responsible for keeping inflation under control, which it can do by raising interest rates. Unfortunately, higher rates can create economic hardship for Americans by making it more expensive to borrow money. The Fed raised its key rate by three-quarters of a percentage point for the third consecutive time at the start of the month.

Jason Furman, a Harvard professor and former economic adviser to the Obama administration, also argued that the California payments, one of the biggest programs, could contribute to higher prices.

“As such, these inflation relief payments will export inflation to the rest of the United States — with some also showing up in California,” Furman said. tweeted earlier this month.

Still, politicians are eager to sell the payments as a useful benefit to taxpayers in a midterm election year.

“Unfortunately, stimulus checks are more of a tool to advance a political agenda,” said Lucy Dadayan, senior research associate at the Urban-Brookings Tax Policy Center, where she leads a project on state tax collection. .

“Checks could further fuel inflation,” she added.

Moreover, it could put state budgets – many of which see tax revenue growth slowing – in a precarious position this year.

“At this rate, I think we’re going to see state budget deficits this fiscal year,” Dadayan said.

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