What's the best way for President Carter to make his next tax cut noninflationary?
Change the way inflation is measured, if the British experience is any example.
That's what the conservative Thatcher government did a few months ago when its own tax cut plans didn't trim the official inflation rate as much as expected.
The government first proposed a cut in income taxes to bolster Britons' purchasing power and then pushed through a new value-added tax (a form of national sales tax) to pick up some of the lost revenue.
As would have happened under the U.S. system of gathering statistics, the income tax cut didn't have any impact on the official inflation rate. But the imposition of a value-added tax raised the national price index, despite the increase in workers' purchasing power.
So what did the government do? It came up with a new index that takes into account the increase in take-home pay. As a result, the shift in the British tax burden now officially is antiinflationary.
Observers say Carter might have more trouble proposing the same solution here, because Congress might balk at authorizing a new index for what may seem to some critics to be a political reason.
But it isn't all that far-fetched. Most economists agree the current measure of purchasing power is flawed and needs revision anyway. And lawmakers here have discussed the idea of a value-added tax as well.