How would Sensible Tax Reform affect inflation?
There are many different measures of inflation. They each measure the impact of costs upon different sectors of the economy (e.g., wholesale prices, consumer prices, import prices, cost of living, etc.) The different measures will be affected in very different ways by STR. Wholesale prices will undoubtedly fall because of the reduced costs resulting from the removal of business taxes. Many U.S. import prices will likely decline as foreign producers strive to remain competitive with domestic producers. Measuring the impact upon consumer inflation will be much more difficult. Indeed, it may even require a new measure of inflation. Consumer prices will decline for the same reasons as wholesale prices. Retail costs (prices plus taxes), however, will increase. Thus, a retail inflation index that omits taxes will decline. One that includes taxes will rise. However, an inflation index that would include the decline of other costs resulting from Sensible Tax Reform (e.g., the elimination of in
