Taxes and inflation were in the news Wednesday. Or, put differently, the same macro narratives continued to hold sway.
Three-year yields in Australia jumped as much as 24bps after CPI data showed a key price gauge leaping to the highest in seven years.
The annual trimmed mean index accelerated to 2.1% in the third quarter (figure below), as did the weighted median, another gauge that excludes large, one-off price impacts. It was the first time since September of 2015 that both measures exceeded 2%, the Australian Bureau of Statistics said.
As is the case in other locales, traders are keen to bring forward tightening. Swaps priced a trio of RBA hikes by the end of next year, in stark contrast to Philip Lowe’s timeline.
The RBA sees rates steady through 2023, a position that may not be particularly malleable, despite core inflation now exceeding the bank’s year-end forecast.
“We suspect that the RBA rhetoric will continue to dismiss the numbers as temporary,” Credit Suisse said, just ahead of Wednesday’s data. “However, we think that market expectations are likely to remain resilient.”
Last week, the RBA was compelled to flex on the April 2024 security, after yields pushed nearly 8bps above the YCC target.
Ultimately, Wednesday’s fireworks down under were just another manifestation of traders testing the waters on the notion that central banks are prepared to countenance market pricing suggestive of preemptive rate hikes for risk management purposes. The same thing played out in New Zealand and, poignantly, in the UK last week. Kiwi two-year yields jumped 14bps Wednesday, piggybacking on the CPI-inspired selloff in Aussie rates.
Meanwhile, back at the ranch, Democrats are poised to tax some folks. Rich folks. Super-rich folks.
In a move that’s sure to be challenged in court by very expensive lawyers (and challenged on paper by very expensive accountants), the new levy would apply to taxpayers whose assets total at least $1 billion or whose annual income is $100 million or more for three consecutive years.
So, in other words, not you. In fact, not anybody, really. The total number of affected taxpayers would be just 700. (And no, that’s not a typo.)
Crucially, billionaires will be forced to mark-to-market and pay taxes on any gains, irrespective of whether those gains have been booked. “Tradable assets (assets like stocks that are easily valued on an annual basis) owned by billionaires will be marked to market each year,” Senator Ron Wyden said. “This means that billionaires will pay tax on gains or take deductions for losses, whether or not they sell the asset,” he added, noting that “taxpayers would be able to carry back their losses for up to three years in certain circumstances.”
As for non-liquid assets (or non-tradable assets), the plan will impose a “deferral recapture amount,” basically a tax on top of the usual tax, which Wyden described as “akin to interest on tax deferred while the individual held that asset.”
Invariably, the plan will garner all manner of derision on finance-focused social media, despite it only being applicable to a handful of Americans. Any such complaining will be yet another manifestation of America’s “temporarily embarrassed billionaires” problem, whereby everyone views themselves as potentially wealthy, rather than permanently exploited.
No amount of evidence will every change that perception. Tens of millions of Americans indoctrinated by decades of capitalist propaganda will go to their graves poor or middle class, believing that they too would have become rich if only they’d had more time.
Wyden delivered a devastatingly succinct assessment in a statement issued early Wednesday.
“The wealthiest few who avoid taxes by indefinitely holding assets are also able to borrow against those assets to fund their lifestyles,” he said. “This means they opt out of paying taxes and instead pay only low interest rates on loans from Wall Street banks.”
Oh, and you can’t get around it by leaving, either. As Bloomberg noted, “billionaires who want to give up their US citizenship would be required to pay taxes on their entire fortunes before expatriating.”