# In what ways will taxing corporations reduce inflation?

President Biden Tweeted to the effect that taxing corporations will reduce inflation. When I look at what goods are experiencing the most inflation it seems to be things like groceries and rent. What hope is there that taxing corporations more will reduce inflation on these goods? It seems to reason that the only way taking money out of the economy will reduce inflationary pressure on these goods is to ultimately take it out of the pockets of those buying the goods. How does increasing taxes on corporations target the inflation I experience without also targeting the people buying those goods (also me)? It seems like whatever mechanism you use, you are ultimately stuck undoing stimulus spending. Is this just political maneuvering to do just that?

How big these distortions are is again empirical question, depending on parameters of the economy the effect could be smaller or large. Below I drew a picture for you showing two scenarios where depending on whether the shock to LARS is high (H) or low (L) the price level will either increase or decrease leading to either higher or lower inflation in the process (inflation is positive change in price level). The new price level is given by intersection of $$LARS_i$$ with $$AD_2$$ which represents the effect of increasing taxes on shift in aggregate demand from the original aggregate demand ($$AD_1$$).