Bezos was wrong and Biden was right: Taxing the rich will help control inflation

Bezos said such policies had nothing to do with inflation, but he was wrong. Biden’s proposed 39.6% marginal rate would tax income over $400,000, which, yes, sets the floor far too high, but would still capture a good chunk of that free-spending five percent. As for the corporate rate, Summers explained, it is generally assumed that “every dollar of stock market wealth generates between 3 and 5 cents of additional consumption.” Which is nothing. “Everyone would agree,” Summers said, “that progressive taxes reduce the demand for something. »

One of the likely reasons for the rise in earnings in 2021 was the expectation of investors last year that a rise in capital gains would be included in the Build Back Better bill which many of us assumed (wrongly) would pass in some form. “If you thought the capital gains rate was going to go up in 2022,” Summers told me, “you’d be selling in 2021.” We’re now left with the inflationary effect of a expected tax hike without the tax hike itself. It’s the worst of both worlds.

How do the five percenters distribute their wealth in 2022? On the one hand, there is unlikely to be a rise in capital gains in 2023, as Democrats will likely lose what little control Democratic Congressional Senators Joe Manchin and Kyrsten Sinema are now allowing them. That leaves the Five Percenters with no reason to engage in another defensive stock sell. On the other hand, the capital gains rate will remain at 21%, so low that the penalty for selling stocks will do little to dampen the impulses the 5% have to keep consuming. (Their main obstacle now will be that stock prices have fallen.) When you’re even moderately wealthy, it’s never really a bad time to spruce up the living room or go on holiday to Crete. This means that it’s never really a bad time to raise Five Percenters taxes and discourage such inflationary consumption at the margin. It would make the tax system a little fairer, it would reduce the deficit, and it might help the Federal Reserve lower the rate of inflation. Of course it wouldn’t hurt.

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