Last month, inflation rose to a 40-year historic high of 9.1 percent. In June alone, the Consumer Price Index (CPI) increased 1.3 percent, with high increases in the price of gasoline, shelter, and food being major contributors. Relative to May, the price of gasoline increased by 11.2 percent. Correspondingly, real average hourly earnings decreased by 3.1 percent, relative to last year. This is a problem that requires policymakers to immediately respond with policies that ease inflation pressures and respect the nation’s taxpayers in the process.
NTU has assembled a brief list of policy “Do’s and Don’ts” for properly addressing high inflation:
Do Lift Tariffs & Don’t Resort to Protectionist Barriers
Despite campaign promises, President Biden has kept many of former President Trump’s tariffs, most notably those placed on goods imported from China. Unfortunately, American consumers ultimately bear the costs of these tariffs, as reflected in higher prices and lower quantities of goods. In addition to increasing prices, the cost of tariffs is reflected in reduced long-term GDP and a loss of American jobs.
Despite the clear costs of tariffs to taxpayers and consumers, there are still those who advocate for them, claiming that they are needed to boost domestic industries or sectors. While tariffs may have accomplished the narrow goal of reducing imports of affected goods, the costs of tariffs have greatly outweighed any short-term, parochial benefit – especially for low-income and middle-class consumers most affected by rising cost of living.
Now more than ever, the Biden administration should reject calls to continue or even expand on protectionist measures and instead lift tariffs and seek out new free trade agreements. Free and open trade will not only lower prices, but it will also increase American income, productivity, and purchasing power. For example, the Biden administration should have the U.S. rejoin the Trans-Pacific Partnership – a trade agreement between 11 other countries in the Pacific which will have direct positive benefits for the American economy.
Do Temporarily Suspend or Permanently Repeal Regulations that Undercut the Supply of Essential American Goods
There are many costly government regulations that undercut efficient and resilient supply chains, and some efforts by the Biden administration have made the regulatory environment worse. This is especially the case with American energy production. Throughout his administration, President Biden has imposed countless regulations and taken other unilateral executive actions to curb American energy production, such as terminating the Keystone XL pipeline and suspending oil and natural gas leases. As a direct consequence of these actions, consumers are paying more money at the gas pump and at the grocery store.
To combat rising prices, the Biden administration should temporarily suspend or permanently repeal regulations that have directly contributed to the inflation crisis America is experiencing now.
Additionally, lawmakers can avoid creating burdensome requirements in the first place. Overzealous antitrust proposals like the American Innovation and Choice Online Act could worsen our current economic situation by handing over unprecedented power to federal bureaucrats. Heavy-handed antitrust legislation is also divorced from what Americans want according to a recent national poll, and Congress would be wise to avoid unnecessarily inserting the government into free markets, especially ones offering free and innovative services to millions of consumers.
Do Reduce Government Spending
Since taking office, the Biden administration has endorsed initiatives and legislation that are extremely costly to taxpayers, such as the American Rescue Plan. A major consequence of this heightened level of government spending has been high inflation rates in the nation, according to the San Francisco Federal Reserve. Unfortunately, the Biden administration is still pushing for new, unsustainable levels of government spending. For example, President Biden’s fiscal year 2023 budget proposal would make for the most costly budget ever. Pumping more money into the economy will accelerate inflation, at best, and lead to full-blown economic and fiscal crises at worst. If the Biden administration wishes to address inflation, they must stop excessive government spending.
Better yet, the administration and Congress should seek out ways to reduce government spending from current levels. NTU and NTU Foundation have offered proposals to do so in the defense budget, major entitlement programs, across the federal budget, and more.
Don’t Raise Taxes
Biden’s proposed budget for fiscal year 2023 would include $2.5 trillion in tax increases, on top of the trillions in tax increases already proposed in the Build Back Better Act. But with prices as high as they are right now, American consumers need every penny they earn to meet heightened costs. Real wages have already been decreasing; raising taxes would only exacerbate that problem. If the Biden administration truly wishes to help Americans who are faced with extreme inflation and high prices, they should abandon plans to raise taxes and let Americans keep their hard-earned dollars.