Jobs, Taxation, Inflation: A Triple Whammy

Lewis Walker |

The Bureau of Labor Statistics reported 10.9 million job openings at the end of July. The largest increases in “help wanted” signs occurred in health care and social assistance, finance and insurance, and accommodations and food service. Small business owners and CEOs continue to complain that they cannot get enough qualified people to fill positions.

While the focus is on the shortage of workers, employers must consider the workers they have. A piece in The Wall Street Journal, “Work’s Future, by the Numbers,” 9/13/21, illustrated a major challenge. An August, 2021, survey by PricewaterhouseCoopers LLP indicated “nearly two-thirds of workers are looking for a new job.” Eighty-eight percent of bosses report higher than normal turnover. Noted writer Rachel Feintzeig,  job seekers are “motivated by the promise of more money, benefits and chances to climb the ladder.” The search firm Korn Ferry asked 378 professionals what they’d do if an employer demanded in-person work, even just a few days a week. Reflective of new routines engendered by the pandemic, 21% said they’d refuse to return to the office; 17% would quit.

Human capital strategist, Maria C. Forbes, Chief Engagement Officer (CEO),, Norcross, Georgia, says hiring and retention strategies must be reconsidered. “Applicants have more options but they, and the employer, must understand the role they are to play in the company beyond the basics of the job description. Employers must dig deeper into the skills, knowledge, and strengths of the candidate relative to the well-defined role he or she is to play in sync with the mission and vision of the company and the specific team the worker will interface with. Misalignment of the skills of the employee and the role requirements, lack of synergism with the existing team, contributes to excess turnover.”

Given the demand for workers and skilled professionals, we will see increased wage inflation as salaries for new hires and rising benefit costs push up work force costs across the board. Economists debate the link between price volatility and wages but common sense suggests that consumers ultimately will pay higher prices for goods and services. For small business owners the cost squeeze would mean less reward for the owner(s), perhaps rendering the business untenable.

Democrats are crafting a tax bill, and while the final result is up for debate, the assumption is that taxes will rise for corporations, wealth creators, successful closely-held businesses, and individual and joint higher earners. Higher tax rates on corporations potentially will show up in myriad ways, including lower dividends for stockholders, smaller wage gains for workers, less spent for investment in the business, rising prices for consumers, etc. Ronald Reagan famously said, “You can’t tax business. Business doesn’t pay taxes. It collects taxes.” Consumers ultimately pay with higher prices for goods and services, or less opportunity as small business owners with little or no pricing power are forced out of business.

Under consideration is a top personal income tax rate of 39.6% starting at $400,000 for individuals, $450,000 for married couples. Add a 1.45% Medicare payroll surcharge, the 3.8% Obamacare surcharge on investment income, and state and local taxes, and the price of success goes up. Moving van companies in high tax locales are likely to see increased demand. Corporate taxes are proposed to increase to a top rate of 26.5%. Potentially higher estate taxes may mean less for children and grandchildren.

The Consumer Price Index rose 5.3% in August from a year earlier, the hottest level in 13 years, but slightly lower than the annual pace of 5.4% in July. Energy and food prices account for most of the surge. Some economists continue to express optimism that price pressures will moderate, while others fear the inflation genie is out of the bottle. With on-going supply chain challenges, a tightening labor market with concomitant wage and signing bonus pressures, and environmental policy increasing fossil fuel costs, price inflation will continue to plague shoppers, wiping out the benefit of wage gains for many lower wage earners.

Investors will have to take more risk to grow retirement and other savings in excess of inflation and taxes. Your personal risk/reward profile is a function of age, time frames, tax bracket, comfort level relative to volatility, debt burdens, liquidity needs, cash reserves, etc. Early in my career as a financial advisor, during a period of down market volatility and rising inflation, a gentlemen said, “Lewis, I said I could take a risk, but I didn’t mean I wanted to lose money!” Rising inflation, which is just another way to “lose money,” i.e., purchasing power, increases market volatility and uncertainty.

When pundits say, “Don’t worry, the inflation surge is transitory,” recognize that we’ve heard that before. Pardon me if I’m skeptical.