A Maine State Senator said Thursday lawmakers need to increase taxes on wealthy Mainers.
“We need to tax the wealthy more,” said Sen. Mike Tipping (D-Penobscot).
“We need to increase taxes on those wealthy individuals and those wealthy and profitable corporations that have rigged the system in their favor,” Tipping said.
Sen. James Libby (R-Cumberland) then took the opportunity to ask whether Tipping understood where inflation comes from.
Asked whether there’s a connection between an increase in the U.S. money supply and inflation, Tipping blamed “corporate profits,” though he admitted he couldn’t be sure whether an increase in the money supply played a role.
“When we did see inflation, it was because of supply changes and corporate profits,” replied Tipping.
“I can’t speak to the money supply and fiscal policy. I do know that changing that has had some effects especially recently,” he said.
Blaming inflation on “corporate profits” and corporate greed is a piece of rhetoric most commonly associated with Sen. Elizabeth Warren (D-Mass.), Sen. Bernie Sanders (I-Vt.), and the socialist impulse to blame society’s ills on capitalism, free markets, and successful entrepreneurs.
In order to believe that greedy corporations cause inflation, you would have to also believe that — for some unexplained reason — these same corporations all decided at the very same time to stop being greedy. For example, from 1991 to 1998, consumer prices fell. According to the Tipping-Warren-Sanders theory of corporate driven inflation, you would have to assume that the corporations decided for some reason to refrain from their greed.
Similarly, from 2011 to 2015, consumer prices fell, before rising from 2015 to 2018, and then falling from 2018 to 2020. Again, the theory that corporate profits drive inflation would lead one to conclude that corporations were greedy for four years, stopped being greedy for a little bit, then got greedy again, then stopped, and now they’re greedy again. It’s a silly idea, right?
The idea that taxing “wealthy corporations” would somehow rein in inflation is even sillier.
If you believed greedy corporations are so greedy that they pursue profits even if it means causing inflation, then you’d have to believe that they remain greedy when taxes go up. Yet Tipping seems to assume corporations will stop being greedy if taxes are increased. But why wouldn’t greedy corporations just raise prices, passing along those tax hikes to consumers, in order to account for what they give up in new taxes? Supporters of the Tipping-Warren-Sanders theory of inflation and taxation have never really found an answer to that question (other than using the government to artificial cap prices).
Since advocates for this theory of inflation haven’t explained why the intermittent greediness of corporations would fluctuate so wildly, and then stop altogether when taxes are raised, perhaps there’s something else that might explain inflation?
From a general perspective, it makes since that business would increase prices when the purchasing power of the dollar declines.
If you’re selling an apple for $1.00 and suddenly a dollar is worth 75 percent of what it was when you first set prices, it’s only rational to increase prices. Further, the business selling orchard supplies will be reacting similarly, raising prices on you, so you’ll also want to account for that with price increases.
Businesses large and small raise prices during periods of inflation in order to stay afloat. If firms did not raise prices to offset inflation, then they would soon fail. At the end of the year, they may have a large amount of sales in nominal dollars, but since the value of those dollars has increased, their true economic gain has remained the same.
Price increases may appear in some cases to precede measures of inflation, but that may be attributed to businesses preparing for an anticipated increase in inflation. If our apple grower expects the value of a dollar to decline, then he will increase apple prices rather than waiting for inflation to harm his bottom line. This isn’t greed, this is rational economic behavior.
A host of economic researchers have studied the Tipping-Warren-Sanders theory of inflation, especially following the high inflation experienced following COVID-19, government lockdowns, and massive deficit spending by central governments. While there may be some corporations who seize on inflation to gouge consumers, there is little evidence to suggest that all corporate profits rise when inflation rises.
Martin Andler and Ann Kovner, writing for the New York Fed’s “Liberty Street Economics” blog, found scant evidence corporations are gouging consumers and thereby causing inflation.
“The relationship between changes in corporate profits and inflation is positive even when inflation is unusually high,” they wrote. “This only means that those industries with higher inflation are able to increase profits more than industries with lower inflation, not that profits are increasing.”
“Profits are falling overall, and it’s just that companies in higher inflation industries have profits that are falling less quickly,” they wrote.
As Sen. Libby suggests, increases in the money supply plays a dominant role in inflation. Consider that the recent period of high inflation just so happens to coincide with unprecedented increases in the money supply.
When you increase the amount of dollars in an economy, the existing dollar supply loses purchasing power. That, in turn, causes corporations large and small to react rationally by raising prices, much as they’d raise prices in response to any tax increases. In that view, the burden of increasing the money supply and increasing taxes are both borne by consumer.
So why does the Tipping-Warren-Sanders theory of inflation and taxation persist?
It’s politically useful if your goal is accruing to the government a larger share of society’s wealth. Higher taxes on corporations may be passed along to consumers in the form of higher prices, but the government will collect a bigger piece of the pie. Progressive politicians enjoy the power that comes with spending more and more tax dollars.
Totally wrong. You should be removed as Senator. Never read such foolishness in my whole life. Apples have NOTHING TO DO WITH ANYTHING – see, that’s why you don’t wear a quality time piece with swiss movement because of one was strapped to your wrist you’d probably have a seizure of something. Let me explain it to you, fuckin’ moron: what is happening right now is like the opposite of when nazi germany said fuckall to league of nations payments and made up their own currency, units of money were made identical to units of work. Because you can’t be bothered to stop the narcotics coming into the State ( which disrupts sales of quality time pieces to quality buyers, by the way) what you pukes are doing is causing units of money to become equal to units of narcotics, which would be more precisely described as units of anti-work. You and other Senators, and not just State Senators, are causing this entire mess because you tie hands that would otherwise be installing narcotics scanners next to the traffic cams you have way too god-pounding few of – the fact that you avoid using available technology to clean up our State is indicative of you yourselves profiting from the units of anti-work ISN’T THAT TRUE and have NO REAL PLAN to help me or any other Mainer, simply for no reason except all the other States get away with it so why should not Maine. This State has historically been the cutting edge of Government. With you running things, that cutting edge is about as sharp as a staining greasy hangover turd that leaves a track all the way from the toilet bowl to the sewer.