Inflation Is ‘Just a Form of Taxation’ per Elon Musk — How Could Trump Lower Prices?
Written by
Dawn Allcot
Edited by
T. Woods
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In their now-famous discussion on social media platform X, Elon Musk and Donald Trump discussed, amongst other topics, the economy and inflation. Musk, one of the world’s top three billionaires, called inflation a form of taxation from government spending. He proposed a “government efficiency commission” that would ensure the government spends within its means, the way an individual on a budget would.
Both Trump and Democratic presidential candidate Kamala Harris have focused on reducing inflation as part of their campaign promises. But will it work?
What Causes Inflation?
First, let’s explore the causes of inflation. The price of goods rises if demand increases or supply diminishes. During the pandemic, the government delivered stimulus checks and increased tax credits for many Americans. This sparked increased spending. Coupled with supply chain challenges that increased the cost to produce and transport goods, the additional spending increased prices.
At the same time, the war in the Ukraine increased oil prices, which also contributed to inflation.
And, as Musk pointed out, government spending also contributes to inflation. During and immediately following the pandemic, the government printed unprecedented amounts of money to cover its debts, which decreased the value of the U.S. dollar.
As Musk explained during his conversation with Trump: “Inflation comes from government overspending because the checks never bounce when it’s written by the government. So if the government spends far more than it brings in, that increases the money supply. And if the money supply increases faster than the rate of goods and services, that’s inflation.”
Can Trump End Inflation?
Trump has proposed to curb inflation but, so far, hasn’t revealed much in the way of specific tactics, according to multiple news sources. He has hinted at producing more oil and natural gas to bring down fuel prices, which could lower prices on consumer goods and energy. That could help reduce inflation, but at a high cost to the environment.
Trump has also said he wants to increase tariffs on goods manufactured outside the U.S. and lower the corporate tax rate. It’s unlikely that lower taxes will stop inflation as it could spark more spending. It would also increase the government deficit, which could increase inflation. However, it could also strengthen the U.S. economy by creating more jobs and increasing salaries at every level. Even if prices remain high, working Americans would be in a better position to afford the things they need and want.
Additionally, if Congress votes to extend the Tax Cuts and Jobs Act (TCJA) with Trump in office, this will also put more money in the hands of Americans while increasing the government deficit. That, too, could boost, rather than reduce, inflation, but also make it easier for Americans to absorb the higher prices.
Reducing Government Spending
There’s one thing Trump and Musk suggested that could help curb inflation: reduce government spending.
In the conversation, Trump pointed out how he negotiated a lower price for Air Force One. As president, Trump could find additional opportunities to reduce costs without cutting programs. “The federal government is bloated with overlapping agencies and redundant programs. Trump has the business acumen to streamline these agencies, cutting down on bureaucratic red tape and making the government more efficient,” Josh Thompson, CEO of Impact Health USA, previously told GOBankingRates.
Can Any President Control Inflation?
While both Trump and Harris have aspirations to reduce inflation, and can take certain steps to try and do so, a lot is out of their hands. For instance, interest rates have a huge effect on inflation, and that’s in the domain of the U.S. Federal Reserve. The inflation rate dropped to 2.9% in July 2024, still above the Fed’s target of 2%, but the lowest it has been since March 2021, according to August 2024 CPI data. If the Fed cuts interest rates in September, as it’s expected to do, this could slow progress and keep inflation at its current rate – or even increase it depending on other factors.
But the reality is, whoever takes up residence in the White House in 2025 may not have as much control as they’d like over the economy or inflation. “In general, presidents get more credit and blame for the economy than they deserve,” David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, told CNBC.com.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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