President Joe Biden recently penned an op-ed for the Wall Street Journal that outlines his plan to fight record-high inflation in America.
Given how incredibly rare it is for a president to do this, Biden’s actions reflect the extraordinary level of pain that workers all over the country are currently experiencing at the grocery store and gas pump, as well as the sense of urgency that’s felt around addressing this issue.
In recent weeks, lawmakers and economists have proposed a variety of policy solutions that they argue could stop or slow the rise in consumer prices. However, one of the best paths forward to save the country from the inflation crisis is arguably taxing the rich.
There are many contributing factors to inflation, but we are in this mess largely because aggregate demand–the total amount of money that consumers can use to pay for stuff– has outstripped aggregate supply as the economy rebounds from the pandemic. Backlogs in global supply chains and increased production costs have fueled price hikes, forcing millions of American families to pay more for almost everything.
To cool historically high levels of demand, economists insist that we need to decrease the money supply in the economy. However, the correct path forward here does not lie in hiking interest rates, as the Fed has recently done. It’s true that this will help decrease demand and ease inflation, but only at the expense of millions of Americans who are already struggling to buy their first house or a car.
In contrast, Biden’s proposal to tax wealthy individuals can help decrease the money supply in the economy without harming virtually anyone. America’s millionaires and billionaires are doing better than ever and have made out like bandits over the course of the pandemic. They can absolutely afford to have their wealth grow a little less than it normally would because of higher taxes. If that happens, they will want for nothing–that is, of course, if they even notice it at all.
Tackling inflation doesn’t just involve lowering demand: It also involves helping supply meet the moment and keep pace with demand by boosting the economy’s productive capacity. If Biden and the Democrats play their cards right, the revenue raised from tax hikes on the rich could help fund other parts of Biden’s plan. For example, investing in clean energy, fixing the supply chain, and improving our infrastructure.
But taxing the rich needs to involve more than just taxing billionaires, which Biden is already pushing for. If we really want to tackle inflation, then taxing the rich must also include taxing ultra-profitable corporations that are price-gouging consumers.
The inflation we’re fighting right now is not just a simple story of supply and demand. It’s also a story of corporate power. A recent report from the Economic Policy Institute found that no less than 53.9% of the rise in prices can be attributed to increased corporate profit margins. In effect, this means that corporations across a variety of industries have used the hype over inflation to raise prices above and beyond what is necessary to make up for increased production costs. The result is that in a time of significant economic hardship for most Americans, corporations are more profitable than they’ve been in 70 years.
Biden’s plan to tackle inflation must address these issues. It’s nice that, as he claimed in his piece, the president led the charge to lower gas prices by tapping into global oil reserves. But it would be even better if he proposed doing something to stop price-gouging by gas companies like ExxonMobil, Shell, and Chevron, all of which have reported record profits in recent quarters. Instituting a windfall corporate profits tax, like the one proposed by Senator Bernie Sanders, would go a long way toward fighting one of the root causes of higher prices in America today.
To make his plan a reality, Biden now needs Congress to do its part. Thankfully, the notoriously recalcitrant Senator Joe Manchin has publicly expressed his willingness to work with Democrats to pass some form of “skinny” Build Back Better plan that includes tax increases on the rich.
Americans of all political stripes want the federal government to fix inflation, and they deserve a solution that doesn’t cause more harm to poor and middle-class Americans.
The way to do that isn’t endless rate hikes by the Fed or strongly worded Tweets directed at gas station owners–it’s taxing the wealthy and corporations.
Morris Pearl is a former managing director of BlackRock. He is the chair of the Patriotic Millionaires.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.
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