Alexandria Ocasio-Cortez (D-N.Y.) looked like a big bag of Chick-Fil-A at the Met Gala. As usual, she managed to steal the show. Of course, her designer white dress had a message that was a lot less subtle than most of the modern art at the Met: Tax the Rich!
The hypocrisy and tone-deafness of the wealthy, unmasked attendees inspired most commentators. This is familiar territory. It has long puzzled conservatives why the wealthy support policies that seem to be aimed at them. After all, don’t these limousine liberals want to keep their money?
But this mystery can be solved.
First, the Left is fixated on income taxes. Hence, there is a lot of talk about CEO and worker pay disparities. But income taxes do not hurt the truly rich.
Income is taxed at comparatively high rates compared to capital gains. Thus, billionaire hedge fund owners pay much less on their investment income than the schlubs who make their money via salary. Even among those doing well, income taxes hit the small-town dentists and car dealers a lot harder than Wall Street investors and Silicon Valley start-up founders. The latter get most of their income through stocks and dividends, and they have many ways to park money in options and other untaxed vehicles until needed.
When people think of “rich people,” they may have in mind high incomes. We should really be focused on the fruits of those incomes: wealth. Real estate, investment holdings, cash, options, yachts, and the like are all assets of one kind or another. And these assets, particularly the paper wealth, are not taxed at the same rates as the meager assets of the schlubs, whose biggest asset is their home.
More important, what amounts to a very high tax on the lower and middle class, ends up being a huge giveaway to the rich: inflation. Working people do not get salary increases simply because things are more expensive. They used to say debtors liked inflation, because they can pay back creditors with cheaper dollars. But this only works when wages keep pace with rising prices, rather than being quickly eaten away by inflation.
Rising food, gas, rent, car, and home prices have hit middle and working-class people hard. Biden is now intensifying the loose money stimulus policies spawned by COVID, promising trillions of dollars in new spending labeled—sometimes laughably—as infrastructure. These large flows of money have produced many unpredictable consequences, but one very predictable consequence is that the price of everything has gone up, including assets.
This is great for the rich. Their higher levels of wealth mean their homes, investment portfolios, modern art and all the rest are now worth more than when this process began. Since their wealth often dwarfs their incomes, this means higher asset prices have created large levels of phantom income. The very thing that hurts people working for a living—whether they’re the working poor or the young doctor or attorney up to his eyeballs in student loans—helps those who are already established. But, hey—while they were pushing up the wealthy’s portfolios by trillions they gave you $1,200! A real bargain . . . for them.
Inflation ends up being a tax on the poor and the middle class. This asset-poor, income-heavy group makes up the vast majority of the country. Every extra dollar spent on gas or food or health insurance is one less dollar to spend on paying off debt, saving, or purchasing small luxuries, like a night at the movies or a vacation.
Among these figures, housing is perhaps the most ambiguous. For those already established, this is mostly good news. After all, with so much family wealth tied up in their homes, when the value doubles in a year’s time, it is something of a windfall. But the benefit only accrues if one is willing to move to a comparatively low-cost area. Like an unrealized gain in the stock market, a house going up in value is still the same physical object with the same amenities and space. With high prices, profit from selling a home, even with the windfall, ends up being swallowed up by the price of the replacement home.
The people most hurt by all of this are the young. These would-be homeowners now find the 20 or 10 percent down payment even harder to save up, since wages have not increased at the same breakneck speed as housing prices, and everything else is more expensive. Indeed, for some reason, economists seem more chagrined about “wage inflation” than the omnipresent inflation for everything else.
The Left imagines itself as the home of wise experts, who will regulate the economy and healthcare and much else on the basis of rational plans. These plans prioritize “sustainability” and “equity” and other buzzwords neglected by the unplanned, organic evolution of a free market system. Unfortunately, these plans come at a high price, and that price can be paid in a number of ways.
Higher taxes are the most obvious and transparent price, but these are more controversial than alternatives and face resistance. Deficit spending along with the attendant inflation ends up being a tax, too. Not merely a tax, it is a transfer from those who have low wealth and who depend on wages to those who are already wealthy. The inflation that comes with deficit spending inflates the price of the wealthy’s assets, making those assets more valuable to the holders and more scarce to the buyers.
In addition to being oversold and a bit annoying, Ocasio-Cortez has a bigger problem. Like the rest of the Left, her pretensions of helping the poor through large deficit spending ends up being an act of wealth redistribution that works in reverse: shifting wealth from the poor and middle class to the rich through inflation.
No one ever said rich people were stupid. Maybe now we solved the mystery of why the big wigs at the Met Gala were willing to tolerate AOC and her “Tax the Rich” message.