Tax Foundation President Scott Hodge warned on “Cavuto Coast-to-Coast” on Wednesday that economists are currently “very concerned about the amount of stimulus money that’s been put into the economy and what impact that’s going to have on inflation overall.”
Hodge noted that he remembers “when inflation was considered a tax on American incomes.”
Hodge pointed out that some economists are concerned the stimulus could bring back a healthy level of inflation that has been lacking since the 2008 financial crisis and put an end to the nearly 40-year bull market in bonds.
On Wednesday, the 10-year yield climbed 4 basis points to a 13-month high of 1.66%. Rising bond yields were in focus Wednesday as the Fed delivers its second policy decision of the year. Investors will be paying close attention to how the Fed will react to the recent surge in bond yields and market concerns about inflation.
Earlier this month, Federal Reserve Chairman Jerome Powell said that inflation could temporarily rise as the U.S. economy reopens from the coronavirus-induced shutdowns, but suggested the increase likely won't be enough to cause policymakers to raise interest rates.
“If we do see what we believe is likely a transitory increase in inflation, where longer-term inflation expectations are broadly stable, I expect that we will be patient," Powell said during a Wall Street Journal conference.
Powell's comments came as inflation fears, driven in part by the rise in Treasury bond yields, have rattled Wall Street, with some investors worried that the U.S. central bank will pump the brakes and tighten monetary policy sooner than expected.
Hodge noted on Wednesday that if President Biden enacted his plan to increase taxes on top of inflation, it “could have a very, very severe impact on the U.S. economy.”
President Biden is reportedly planning to bring back a major tax hike for the first time in nearly 30 years.
Biden’s emerging plan, a source told Bloomberg, would raise the corporate tax rate from 21 to 28% and raise the income tax rate on individuals making over $400,000. It would also raise capital gains taxes on those making over $1 million, expand the estate tax, and pare back tax preferences for certain businesses. The tax hike would likely take effect beginning in 2022.
The tax hike is meant to offset Biden's next major spending package, which is set to focus on infrastructure and green jobs and could cost around $4 trillion, more than double the latest COVID-19 stimulus bill.
An analysis of Biden's tax plan conducted by the Tax Policy Center estimated it would raise $2.1 trillion in new revenue over the decade.
FOX Business’ Jonathan Garber, Megan Henney and Fox News’ Morgan Phillips contributed to this report.