In times of economic volatility, wealth often becomes a politicized theme. The “great and beautiful” White House package divided opinions after estimates from the Congress Budget Office (CBO) indicates that policies would cost the poorer Americans about $ 1,600 per year, while raising an average of $ 12,000 the richest homes annually.
This stems from policy adjustments, such as increasing exemption boundary for inheritance and donations to $ 15 million, as well as the elevation of the state and local tax deduction ceiling (Salt) from $ 10,000 to $ 40,000.
A problem in current debates on wealth taxes, says UBS chief economist Paul Donovan is that many richer voters in the US do not recognize themselves as rich.
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At a round table last week, Donovan explained: “A very interesting question that we see more and more in discussions about wealth and inheritances is the growing gap between perception and reality of wealth. People say, ‘Yes, we need a millionaire tax, but not me, I don’t tell you as a millionaire, when you have a two-bedroom apartment. Definition, millionaire. ”
Donovan continued to say that social networks also distort the perception of wealth. Even if inequality has not changed, “people feel more devoid of the alleged luxury displayed online.”
“As a result, people end up confusing the perception of their own wealth with reality,” added Donovan. “Many are rich, but they see each other at a disadvantage for not living as a digital influencer.”
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Shame of luxury
With wealth becoming a socially increasingly divisive theme-even leading the wealthy to distance themselves from their own condition-consumers are already reducing the purchase of status symbols and showy experiences.
Bain’s spring balance of the luxury sector, released last week, shows that the segment of personal goods shrunk.
Claudia d’Arpizio, one of the authors of the report, told the Fortune That the term “shame of luxury” (“Luxury Shame”) emerged during the 2008 financial crisis, when wealth came to be seen as something “tacky”, given the millions of Americans who lost houses and jobs.
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D’Arpizio adds that, at the time, the designer stores began to wear discreet white bags for shopping, as customers did not want to be seen carrying packaging of famous brands. “In the US, it was self -managed; people changed their behaviors because they were ashamed,” she says.
Today, the movement, starring Chinese consumers, has more governmental character. “It is a communist regime that encouraged luxury consumption in the last 15 years, when the population has been increasingly rich. Now, with growth slowing and unemployment among younger generations, they want to avoid tensions, saying to the rich: ‘There are no wealth right now’.”
This social tension is spreading to the West, complete D’Arpizio, and therefore luxury marks should give less emphasis to elitism and more to the idea of being guardians of culture and innovation.
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The rich get richer
That said, the fact that the rich do not want or not realize their wealth does not mean that the gears that generate their assets are slowing down.
“There are two independent engines we need to consider and do not affect the rich growth engine,” says Donovan in response to a question from Fortune. “The first is the increase in economic nationalism.”
Just look at Trump’s “America First” initiative, but Donovan says this behavior is also common in countries like China. “Often, there is hostility to foreign brands and companies. We saw this with European luxury brands in China.”
Donovan adds that the second factor that shapes the consumption approach of the rich is the focus on entertainment. “They often ask me, ‘What does an economist mean with’ fun ‘?’ The answer is anything you can post on Instagram, ”he explains. “So it’s a trip abroad, dining in restaurants, Taylor Swift shows. And of course new clothes, because by posting the photo of that amazing meal, you need to have a new look.”
“These trends, which are independent of wealth creation, need to be considered, as they may seem signs of shame to bear wealth, when they actually reflect changes in the standard of consumption for other reasons.”
This story was originally published by Fortune.com.
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