Can corporate tax control inflation?

WASHINGTON (AP) — Jeff Bezos became the latest centibillionaire to launch a political fight on Twitter over the weekend when he denounced a tweet from President Joe Biden on corporate taxes as “misinformation” and “hijacking.”

The White House was quick to retort on Monday that Bezos “opposes an economic agenda for the middle class.” And then Bezos hit back, arguing that the Biden administration would have made inflation worse had his $3.5 trillion economic and social spending bill, known as “Build Back Better,” been signed into law. .

“They failed, but if they had succeeded, inflation would be even higher than it is today, and inflation today is at its highest level in 40 years,” tweeted Bezos.


The dispute is unusually high-profile for Bezos, who has generally sought to avoid political fights in public. Bezos is the second richest person in the world, with a net worth of $150 billion, behind Elon Musk, whose wealth has reached $268 billion. Musk, the Tesla founder who is looking to buy Twitter, has frequently used the social media platform to attack suspected critics and provoke fights over free speech.

The spat began on Friday, when Biden’s account tweeted, “Want to lower inflation? Let’s make sure the wealthiest companies pay their fair share.

Biden has often accused Amazon, the e-commerce giant Bezos founded and led for nearly a quarter century, of not paying its fair share of taxes. In 2017 and 2018, Amazon paid no income tax despite making billions in profits. Since then, the company has made modest tax payments.

“Good to discuss raising corporate taxes,” Bezos tweeted in response. “It is essential to discuss the control of inflation. Mixing them together is just a misdirection.

On the real policy question — whether raising corporate taxes would actually reduce inflation — most economists give Biden the edge, with one caveat.

Larry Summers, a Harvard economist who served as Treasury Secretary in the Clinton administration, tweeted, “I think Jeff Bezos is mostly wrong in his recent attack” on the Biden administration.

“It is perfectly reasonable to believe, as I do,” Summers added, “that we should raise taxes to reduce demand in order to contain inflation and that the increases should be as gradual as possible.”

Indeed, raising corporate taxes would reduce business spending, lower aggregate demand “and put downward pressure on prices,” said Michael Strain, an economist at the conservative American Enterprise Institute.

Still, Strain and other economists warn that it would take several months for a rate hike to have a big impact, and even then wouldn’t reduce inflation much.

“Of all the things I would do to contain inflation, corporate income tax is way down the list,” added Carl Tannenbaum, chief economist at Northern Trust, an asset management firm in Chicago. .

Alan Auerbach, an economist and tax expert at the University of California, Berkeley, suggested that Bezos was right about the long-term impact of higher corporate taxes.

A higher corporate tax would leave companies with less money to invest in additional capacity, Auerbach said. Over time, this financial burden would increase their production costs.

“In the long run, it would be true that you would expect prices to be higher due to higher corporate taxes,” Auerbach said.

Neither the White House nor Bezos mentioned a curious backdrop to their dispute: A year ago, Bezos endorsed a Biden proposal to raise the corporate tax rate to pay for more investments in corporations. infrastructure.

“We recognize that this investment will require concessions from all sides – both on the details of what is included and how it is paid for (we support an increase in the corporate tax rate),” Bezos wrote on Amazon’s website in April. 2021.