i'm not an economics major or anything, but i am extremely interested in the relationship of interest rates and taxes on the economy. the following idea occurred to me a long time ago when i first started paying attention to economic issues in an attempt to better understand class politics:
Point#1) my understanding of he Fed is that one of its main purposes is to raise interest rates when the economy is getting too "hot" (and vice versa.)
Point #2) the standard argument against raising taxes on the rich is that it will hurt the economy.
well, it seems to me that if the economy were getting too hot, ie., growing at too fast a pace, then instead of raising interest rates to cool it, maybe we could accomplish the same thing for the economy by raising income taxes on the rich, and in so doing also balance the budget.
more on the flip
the advantages to cooling an overheated economy by taxing the rich instead of raising interest rates would have many advantages, in my opinion. raising interest rates actually increases the amount of money the government pays in interest payments on the national debt, thereby increasing the budget deficit. raising rates hurts the middle and lower classes by increasing the amount they pay for their mortgage, car and credit card debt, and it's bad for business for the same reason.
if we were to cool the economy by taxing the rich we could do so WHILE keeping the cost of borrowing money low, thereby helping both businesses and families struggling to pay their bills. we would add to the treasury rather than detract from it, thereby reducing the deficit and even paying off the national debt.
i don't really have any more to add to this since my knowledge of economics is limited to that of a laymen, except to worry that this is somehow too good to be true. perhaps there is some totally obvious reason why this theory of mine is total sophmorish bullshit and i'm just too blind to see it, but if anyone with a background in the field has anything to say on the matter i would very much like to hear it. please be kind, since, as i explained, i do admit that i am pulling this entirely from out of my ass!