A Tax-Based Incomes Policy

Our earlier suggestions for using the income tax mechanism to implement an anti-inflationary incomes policy have received some attention.1 This article aims: (1) to present a full statement of the approach, (2) to extend the economic analysis underlying it, (3) to assess some troublesome technical matters, and (4) to demonstrate the advantages of an incomes policy relying on market forces over those that do violence to the market. The facts of our intractable inflation need not be recited. Complicating the price rise has been an unduly high rate of unemployment. The twin goals of price level stability and full employment have so far eluded conventional monetary and fiscal techniques. New measures commend themselves to counter the new experience of 1969-70 in which prices and unemployment rose simultaneously in contrast to past business cycles when their paths diverged.2 It would be an error, however, to regard an incomes policy, such as we propose, as a substitute for monetary and fiscal policy. Instead, the proposal is conceived as a supplement to the familiar monetary-fiscal policies so that the economy might operate closer to full employment without the inflationary danger of excess demand and overheating.