After spending the last year promoting policies that have produced the highest inflation in 40 years, Democratic lawmakers are proposing policies that risk pushing the economy into a recession.
Just as the Federal Reserve is set to begin raising interest rates to curb inflation, congressional Democrats propose higher tax rates on businesses and workers. As economic history shows, raising taxes while the Fed is raising interest rates would be an enormous economic policy mistake.
The Fed has signaled it would begin raising interest rates at its next meeting in mid-March. Goldman Sachs is predicting the agency will raise interest rates seven times this year to reduce inflation. Some economic experts believe that raising interest rates so aggressively may result in an economic slowdown or a recession.
Former Treasury Secretary Lawrence Summers agrees that a significant slowdown is likely and that the record shows the Fed is rarely able to tame “inflation without sending the economy into a recession.”
The problem: Federal taxes are soaring due to inflation, with individual taxes up 43% and corporate taxes up 32% in the first four months of the year. The fiscal drag from these tax increases is already slowing the economy. Raising taxes and increasing spending would fuel more inflation and result in higher, not lower, federal deficits and debt.
Congress needs to stop the spending and tax hikes and let the Fed deal with inflation first.
Bruce Thompson was a U.S. Senate aide, assistant secretary of Treasury for legislative affairs, and the director of government relations for 22 years.
