On May 14, Amazon entrepreneur and founder Jeff Bezos he criticized on Twitter a tweet of the president of the United States Joe Biden, who on the social network had written the same day: “Do you want to lower inflation? Let’s make sure the richest companies pay a fair share.” According to Bezos, who is the second richest man in the world according to the ranking of Fortunelinking the theme of inflation, ie the general increase in prices, with the taxes paid by companies is a form of misdirection.
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Bezos also provocatively suggested submitting Biden’s tweet for scrutiny Disinformation governance board, a committee of the US Department of Homeland Security, created in late April to counter disinformation on issues such as the war in Ukraine and immigration on the Mexican border. On May 16, the deputy spokesperson for the White House then replied to Bezos, accusing him of opposing an “economic agenda for the middle class”, which “fights inflation in the long term”.
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Just a year ago, in April 2021, the Amazon founder posted a message on the company’s official website, supporting the US president’s plan to increase the so-called corporate tax, a corporate profit tax. At the moment, the corporate tax in the United States it has a tax rate of 21 percent, but President Biden recently proposed raising it to 28 percent. Going back to Biden’s tweet, can raising taxes on the wealthiest companies really help contain the growth in inflation? There seems to be no unanimous agreement on this question among economists.
A little context
Before diving into the positions of the experts, a brief review of inflation is necessary. This term indicates a progressive average increase in prices, with the consequent decrease in the purchasing power of the currency. In simple terms, if prices tend to rise on average, the 100 euros with which I buy certain goods and services today will not be enough for me in the future. There are two main factors that determine an increase in inflation. “On the one hand, there are the costs of companies, which mostly concern raw materials and wages: if these rise, companies increase prices”, he explained to Italian Tech Riccardo Trezzi, Professor of International Macroeconomics at the University of Geneva, Switzerland. “On the other hand, there are the future expectations of businesses, which can push prices to rise”.
According to the most up-to-date data ofUs Bureau of Labor Statistics, which is part of the US Department of Labor, prices in the United States increased by an average of 8.3 percent in April compared to the same month in 2021. In March, growth was 8.5 percent, the highest since 1981. In Europe too, inflation has now started to rise again for several months, after years in which it had effectively stopped. According to Eurostat, in fact, in April the countries of the euro area recorded a price increase of 7.5 per cent compared to the previous twelve months. However, there is a fundamental difference between the United States and Europe: European inflation is largely determined by rising energy costs, while that of the United States is much less.
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“In the United States there was a perfect storm: there was a negative shock on the supply side, which contracted the offer of companies, mainly due to Covid-19, with production problems in China, distribution and on the labor market “, Trezzi explained. “But then there was the monetary and fiscal stimulus bomb, a positive shock that caused the demand side to increase significantly, among other things concentrated on a few goods in the early stages of the pandemic. asking for more raw materials than before: supply was limited and demand was very strong, and the market began to adjust prices upwards “.
As the US site recently pointed out Vox, the last two US presidents Joe Biden and Donald Trump have poured into the US economy a total of nearly $ 4 trillion, which, as we have seen, has driven demand up a lot, without supply being able to keep up. In this context, what can be the contribution of an increase in taxes to the richest companies?
More business taxes, less inflation?
On May 16, economist Lawrence Summers, former US Treasury Secretary under Bill Clinton’s presidency, summed up on Twitter what is the position of those who are in favor of Biden’s words. According to Summers – who has also been critical of the huge fiscal stimulus of the past few months – “it is perfectly reasonable to believe that we should raise taxes to reduce demand and contain inflation” and that the increases should be as progressive as possible “. .
An increase in taxes on corporate profits would act on two fronts on the demand side, he explained Italian Tech Tommaso Faccio, head of secretariat all’Independent commission for the reform of international corporate taxation (Icrict) and lecturer in Tax Law at Nottingham University Business School, UK. “According to the first factor, the most factually important one, the increase in the tax on profits would reduce the resources available to companies which therefore have less money to invest and this reduces the demand for goods and work,” said Faccio. The mechanism would therefore be as follows: less demand, more ability of firms to satisfy it and therefore less pressure on prices to increase (and therefore less inflation). “Secondly, but here there is more uncertainty, a tax increase in theory reduces the so-called return on investment [che, semplificando un po’, indica quanto rende il capitale investito da un’azienda, ndr] and therefore certain investments would no longer be made because they were not profitable “.
This is the theory, but the reality is often different. For example, “Trump’s big corporate tax cut in 2017 did not lead to increased investment,” Faccio added. “And studies of Biden’s proposed tax hike show that the impact in the short term is likely to be limited.”
As pointed out, opinions in hand, too Associated Press on May 16, several American experts are also dubious about the concrete consequences and timing of a tax hike on the wealthiest corporations. “In the short term, the increase in profits tax would be entirely borne by the shareholders of large companies and not by consumers”, explained Faccio to Italian Tech. “In the long run, there is debate as to who actually falls the cost of raising the profit tax. In any case, the effects would not be immediately but over a period of one to five years.”
The question therefore remains open and ends up touching on other, more general themes. “Going to raise taxes because business margins are thought to have increased a lot is probably a more ideological position than factual, and it even risks aggravating the situation”, concluded Trezzi. “Acting on demand remains a painful process. There is definitely a US concentration problem, but acting through taxes risks being the wrong channel.”
To recap: the connection made by US President Biden between a tax increase for the richest companies and that of inflation has its own logic, unlike what Bezos wrote on Twitter. However, the criticism of the Amazon founder captures a point: among economists there is uncertainty as to whether higher taxes can lead to a containment of US inflation in the short term, caused, among other things, by the strong fiscal and monetary stimulus. deployed to deal with the pandemic.