Long live wealth tax

If Warsh can mould the Fed to his way of thinking, making money from money will no longer be as easy as it has been. And the shocking rise in inequality will begin to taper off

June 19, 2026 00:08 IST

During his Senate confirmation hearings, Kevin Warsh, the new Federal Reserve chairman, stressed his belief that its communication strategy needed to shift towards “strategic ambiguity” and questioned the need for regular post-meeting press conferences and, indeed, the large number of speeches given by Fed officials.

Breaking the Loop

This is a radical but eminently sensible attitude. Over the past few decades, as the Fed has innocently broadcast its intentions, reflecting its much-admired transparency, market players — generally already knowledgeable and wealthy enough to take advantage of these hints — have been able to increase their wealth substantially, certainly as compared to the man on the street. And while this is certainly not the root cause of inequality, there is little doubt that central bank behaviour has exacerbated the accelerating trend of income and wealth inequality.

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If Warsh is able to stick to his beliefs, it could lead to a dramatic change in market behaviour. First, interest rate volatility would increase, since daddy will no longer be there to show you the way. This increased risk would affect equity valuations. Given the increased importance of the private credit market in the US as well as the “irrational exuberance” in the equity markets, it could turn into the proverbial straw that breaks the camel’s back.

Moving Beyond

Of course, this will not happen immediately — I note that in his first meeting as Chairman, the Fed did (as per the classic approach) project a potential rate hike by the end of this year. And markets will certainly push back against the threat that the money-for-jam framework that regulators have so proudly and sanctimoniously built over the years could end suddenly. But, if Warsh can mould the Fed to his way of thinking — and in sound tradition of “believing” instead of just “hoping”, I should say “when” instead of “if” — making money from money will no longer be as easy as it has been. And the shocking and continuing rise in inequality will begin to taper off.

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Of course, actually reducing inequality will require some sustained action on reasonable and fair taxation. There have already been many tickles — Zohran Mamdani’s pied-à-terre tax, for instance, which was, of course, met with unbelievable anger. Although it was heartening to read about a wealthy woman, who lives in New York, and who recently went public with her approval of the city’s pied-à-terre tax, arguing that ultra-wealthy individuals — many of whom (like her) legally reside in zero-tax states like Florida — have ample money to support essential city and cultural institutions. More power to her and may her breed thrive and multiply.

For the decade or so since Thomas Piketty’ Capital in the Twenty-first Century turned inequality into an economic issue, I have been amazed at the horrified reactions of so many incredibly wealthy people — I guess, rich though they may be, many of them are cheapskates at heart. A 5% tax on second homes or a 2% annual tax on wealth is not going to materially affect Elon Musk’s lifestyle or that of his descendants.

What is even more surprising is that these supposedly smart business elites don’t seem to recognise that reducing inequality will actually lead to stronger and more sustainable growth — I mean, how many ice creams can Jeff Bezos buy, right? If some part of their wealth is effectively distributed more widely, ice cream sales would shoot higher; and, as with ice cream, so with many other products of mass consumption, all of which would lead to greater business opportunities and increased growth.

The good news is that Bernie Sanders and Mamdani are no longer lone voices in the US. More and more politicians are beginning to see this as a ticket to popularity, so different versions of Mamdani’s approach will certainly begin to spread. Already, Massachusetts, Maine, and Washington have approved higher taxes on residents earning more than $1 million, and California, Rhode Island, Virginia, and others have floated different tax proposals.

And, as I have delightedly pointed out, the impact of this change may well get a boost from the new Fed Chairman’s belief that — as I learned at my father’s knee — the central bank should be like God; you don’t know s/he is there unless there is a crisis. Enough of this babble from the Fed.

Importantly for us (and the rest of the world), approaches that start in the US often spread rapidly, and hopefully, soon enough our government will realise that its dreams of Viksit Bharat have a much better chance of coming to fruition if the country had a more progressive tax policy and, indeed, a wealth tax.

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This article was first uploaded on June nineteen, twenty twenty-six, at eight minutes past twelve in the am.

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