Why Not Raise Taxes Instead of Interest Rates to Reduce the Deficit?

BY Paul Solman  May 18, 2012 at 10:41 AM EDT

Tax Dollars and Redistribution
Image by Spark Studio via Getty Images.

Paul Solman answers questions from the NewsHour audience on business and economic news here on his Making Sen$e page. Here is Friday’s query:

Name: Phil Webb

Question: When the economy starts to get better and inflation starts to raise its ugly head, the usual cure is to raise interest rates to take money out of the economy and cool things off. Why not raise taxes instead, which could be used to reduce/eliminate the deficit, which would help the economy so you could raise taxes even more in what appears to be a positive feedback loop?

Paul Solman: Why not indeed?