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Inflated with Motivated Reasoning

Here’s a letter to the Wall Street Journal:

Editor:

A serious contradiction lurks in Jason Furman’s argument that “the Schumer-Manchin bill will ease inflation and climate change” (July 29).

On one hand, Mr. Furman insists that raising taxes will help reduce inflation in large part because “[d]emand reductions resulting from tax increases … are much larger and more immediate than any impact they have on future supply.” On the other hand, he asserts that it “isn’t at all clear” that raising corporate taxes will reduce business investment – which is another way of saying that it isn’t at all clear that demand reductions will result from corporate-tax increases.

Mr. Furman misses this contradiction by immediately shifting his focus to the allegedly similar effects on business investment of raising corporate taxes and of raising interest rates. Yet the contradiction nevertheless looms: If it isn’t at all clear that raising corporate taxes will reduce business investment, then it isn’t at all clear that raising corporate taxes will help ease inflationary pressures.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030