0
$\begingroup$

If everyone in the US was given $1000 per month, paid for by a goods and services tax of 10%, would prices then skyrocket, making the extra money useless?

For example, if I wanted to buy products X, Y, Z in a given month, which each cost \$200, then \$1000 would obviously pay for that. But would merchants all raise their prices drastically higher, since they know everyone has free money and can afford the higher prices? Would this cause so much inflation that the extra $1000 would effectively become meaningless?

Edit: This question is unique from the possible duplicate, because it specifies an income amount, tax amount, and source of the tax which can be input into economic models to get a specific answer.

$\endgroup$

marked as duplicate by Bayesian, Giskard, Kenny LJ, Brian Romanchuk, dismalscience Mar 24 at 16:36

This question has been asked before and already has an answer. If those answers do not fully address your question, please ask a new question.

  • $\begingroup$ I’m not sure this is the best forum to start vetting candidates’ policies; it could easily deteriorate. It would have been better to phrase this as a question about a basic income policy. There are questions already about the basic income. $\endgroup$ – Brian Romanchuk Mar 22 at 1:29
  • $\begingroup$ It depends where the money comes from, i.e. how the program is funded. If it's funded from existing taxes, by substituting other forms of welfare with UBI (as some [conservative proposals] do) then I'd expect minimal inflationary effect. At the other extreme, if the treasury just printed this UBI money, then of course that would have the usual effect of increasing inflation by increasing the monetary mass. And somewhere in the middle, if it were funded with new taxes... it depends what that would do to the economy as a whole. $\endgroup$ – Fizz Mar 22 at 3:35
  • $\begingroup$ @BrianRomanchuk This is not a political question. Usually on StackEx, people expect questions to be precise, not general. I only included the candidate so you would know exactly what the structure of economic proposal in question was. I searched the site and found no similar questions. Universal Basic Income is not even a tag. $\endgroup$ – Steve Burke Mar 22 at 15:12
  • $\begingroup$ @Fizz I stated in the question that program is funded by a 10% good and services tax. You say in this case, "it depends what that would do to the economy as a whole". My question about inflation is essentially "what would [this exact proposal] most likely do to the economy as a whole" and the answer is "it depends on what it would do to the economy". I am very ignorant of economics theory (which is why I'm posting here). Does economic theory not answer questions about the economy as a whole? $\endgroup$ – Steve Burke Mar 22 at 15:27
  • $\begingroup$ It doesn't. Ask separately if a VAT/GST increase (or introduction) causes or doesn't cause inflation. There's no clear answer to this. $\endgroup$ – Fizz Mar 22 at 15:52