Democratic Party analysts and left-leaning economists have had quite enough of their fellow Americans’ complaints. As a striking number of poll respondents express alarm, despair even, about the rising cost of living during Joe Biden’s presidency, experts shake their heads. Don’t people realize that jobs are plentiful, wages are rising, and inflation is in retreat?

Few have struck this chord more insistently than Paul Krugman, the Nobel Prize–winning economist and liberal New York Times columnist. In a February column titled “Vibes, Vegetables and Vitriol,” he suggested that inflation is no longer worrisome and backed up his view with field research.

“Now, I go grocery shopping myself, and am occasionally startled by the total at the cash register—although that’s usually because I wasn’t factoring in the price of that bottle of scotch I picked up along with the meat and vegetables,” Krugman wrote.

[Annie Lowrey: Inflation is your fault]

The modern Democratic Party, and liberalism itself, is to a substantial extent a bastion of college-educated, upper-middle-class professionals, people for whom Biden-era inflation is unpleasant but rarely calamitous. Poor, working-class, and lower-middle-class people experience a different reality. They carry the searing memories of the Great Recession and its foreclosure crisis, when millions of American households lost their home. A large number of these Americans worked in person during the dolorous early days of the pandemic, and saw its toll up close. And since 2019, they’ve weathered 20 percent inflation and now rising interest rates—which means they’ve lost more than a fifth of their purchasing power. Tell these Americans that the economy is humming, that median wage growth has nudged ahead of the core inflation rate, and that everything’s grand, and you’re likely to see a roll of the eyes.

Krugman in his column confessed that he had “no idea” what he paid for roughly the same groceries three years earlier, although he allowed that olive oil seemed costly. He and other economists talked of a “vibecession”—an admixture of gloom and worry and misinformation that prevents Americans from seeing the rosy nature of the economy. This is a common take among prominent Democrats and left-leaning economists, all of whom speak with an eye on the upcoming presidential election. In late February, California Governor Gavin Newsom appeared on NBC’s Meet the Press and declared that Biden had conducted a “master class” in economic helmsmanship. “The economy is booming; inflation is cooling,” Newsom said, adding, “All because of Biden’s wisdom, because of his temperance.”

[Gilad Edelman: The English-muffin problem]

Around the same time, the Harvard economics professor Jason Furman, who served as chair of President Barack Obama’s Council of Economic Advisers, posted on social media: “If a year ago you had told someone [that inflation] would come down to 2.5% they would be surprised & delighted.” Just before Biden’s State of the Union address last month, Senate Majority Leader Chuck Schumer predicted that “Americans will hear a clear theme: America’s economy is accelerating, inflation is decelerating.”

These commentators have been asking near as one: Where’s the problem?

Such talk of a victory lap once again appeared premature this week, with the news that the consumer price index was 3.5 percent higher in March than a year earlier, a worse reading than many economists had expected.

But even a cooling inflation rate simply means that prices are growing more slowly. Consumers—particularly those whose wages have not kept pace—still remember years of soaring price increases.

Moreover, the core inflation rate, defined by the U.S. Bureau of Labor Statistics and carefully studied by the rate setters at the Federal Reserve, excludes food and energy costs—economic indicators that affect Americans’ daily lives. As the financial analyst Barry Ritholtz long ago noted, core CPI measures “inflation ex-inflation,” meaning inflation without inflation.

[Rogé Karma: What would it take to convince Americans that the economy is fine?]

“The macroeconomy looks great, and it might appear inflation has cooled,” the University of Massachusetts at Amherst economist Isabella Weber told me. “But when you disentangle the indicators that actually matter to Americans day to day, it’s not so pretty.”

The consumer price index for food rose 25 percent from 2019 to 2023. The jump in 2022 was the highest since the late 1970s. As of two years ago, Americans spent 11 percent of their disposable income on food, the highest share in three decades, according to the U.S. Department of Agriculture.

Food-price inflation falls most heavily on the poorest 20 percent of Americans, who spent nearly a third of their income on food in 2022, the latest year for which USDA data are available. By contrast, the highest-income fifth of households spent on average 8 percent. “If you are spending 25 to 30 percent of your income on food and prices have jumped 25 percent, you are in real pain,” Weber said.

Other staples of life have also grown more expensive. Gas prices have gone up by about 50 percent in the past four years. Fuel-oil prices jumped by more than half from March 2020 to March 2024. Home prices have gone up nearly 50 percent nationwide since the start of the pandemic; the ratio of home prices to income has reached an all-time high. Once-sharp increases in average rents nationwide have slowed but not reversed. The Joint Center for Housing Studies at Harvard reports that poor and working-class renters suffer disproportionate pain. “Among renter households with an annual income under $30,000, the median amount of money left over after paying for rent and utilities was just $310 a month,” the center found, adding that affordability is at an all-time low.

According to recent data from the Census Bureau’s Household Pulse Survey, half of Americans who earn less than $35,000 a year have reported difficulty paying everyday expenses, and nearly 80 percent are “moderately” or “very” stressed by recent price increases.

Then there’s the problem of money, which has become far more expensive to borrow. The Federal Reserve Board’s efforts to tamp down inflation by pushing up interest rates have exacted a painful toll on working- and middle-class Americans—a toll not captured by the inflation rate.

The average mortgage interest payment has increased threefold since 2021. The combination of high prices and high interest rates has shut many Americans out of homeownership altogether. High rates also hurt many people who already own homes: Interest rates on equity credit lines and loans, which many Americans use to pay for home repairs, college tuition, and larger purchases, more than doubled from January 2022 to July 2023. High interest rates punish low-income renters, too, by hampering local and state agencies from financing below-market-rate apartments.

The extra costs keep mounting. Interest payments on new cars have risen 80 percent since the pandemic began. Credit-card interest rates are another burden. In March 2022, before the Federal Reserve started raising rates in response to inflation, the average credit-card rate was 16.3 percent, according to Bankrate. Two years later, it sits above 20 percent.

All of this inflation-related misery has begun to catch the eye of the economics establishment. Recently, four researchers, including the International Monetary Fund economist Marijn Bolhuis and the former U.S. Treasury Secretary Lawrence Summers, released a National Bureau of Economic Research working paper noting that consumers are remarkably attuned to what’s going on. “Consumers, unlike modern economists, consider the cost of money part of their cost of living,” the authors write. Consumer unease about costs and borrowing, they say, is greater than at any time since the late 1970s and early ’80s. The authors developed an “alternative” consumer price index that more closely tracks actual costs felt by American consumers. The researchers claim that their preferred inflation index would explain most of why consumers feel more sour than official statistics would normally predict.

Many commentators’ eagerness to ignore inflation’s toll appears inescapably tied to Biden’s precarious reelection prospects. The president is more clear-eyed than his cheerleaders. Several months ago, he largely stopped touting the joys of “Bidenomics” and talked instead about challenging the corporations that raised prices and padded profits. During the State of the Union, Biden pledged to take on corporations that quietly shrink their products and hike prices out of greed. “Too many corporations raise prices to pad their profits, charging more and more for less and less,” Biden said that night. “That’s why we’re cracking down on corporations that engage in price-gouging.”

Mainstream economists cringe at this kind of populist rhetoric; their assumption is that the austerity that follows raising interest rates is an unfortunate but necessary medicine. Similarly, the suggestion that wealthy corporations should bear more of the pain, and the working class less of it, has come to sound radical to some economists. In late 2021, amid the rising prices and supply-chain disruptions of the pandemic, Weber, the UMass economist, proposed a once-popular and now unusual form of economic therapy: limiting what companies can charge for food and energy. “Large corporations with market power,” she wrote in The Guardian, “have used supply problems as an opportunity to increase prices and scoop windfall profits … What we need instead is a serious conversation about strategic price controls.”

Krugman and others harshly dismissed her idea—the Times columnist panned it on Twitter as “truly stupid.” He later deleted the post and apologized. The German and British governments enacted something similar to Weber’s ideas in limited form on energy prices. Weber, whose argument that corporate greed helps accelerate inflation has since been echoed by figures such as European Central Bank President Christine Lagarde, has gained acclaim as an iconoclastic thinker about inflation.

“I have been ridiculed in obnoxious ways, but people sense the injustice,” Weber told me. “Many Americans worked throughout COVID; they saw friends die; they think, I did all the things I’m supposed to do, and I still can’t afford this life.”

Perhaps the economic turmoil of Biden’s term will ease in the seven months before the election, and consumer agitation will cool in tandem with inflation. Krugman offers tart counsel to Americans: “Maybe my message here sounds like Obi-Wan Kenobi in reverse: Look, don’t trust your feelings.”

The temptation for liberal economists and politicians to deny the pain experienced by many Americans, and to condescend when they might instead try to empathize, is perhaps understandable in a fraught election year. But working- and middle-class Americans might conclude that they are wiser to trust their feelings and checking accounts than to rely on liberal economists riffing as Jedi masters.

In 2010, as California was moving forward with plans to raise taxes sharply on million-dollar earners, opponents issued dire warnings that the hike would drive away entrepreneurs and cripple the state economy. “There’s nothing more portable than a millionaire and his money,” warned the ranking Republican on the state Senate’s budget committee. The tax hike passed anyway—and California’s share of the nation’s million-dollar earners actually grew, reaching 18 percent in 2021. (Californians make up just less than 12 percent of the overall population.) And yet, when California recently considered a proposal to impose a wealth tax on mega-rich households, even some Democrats echoed the same old worry.

The idea of millionaire flight is one of America’s most persistent beliefs. Expert consensus holds that “redistributive policies should be undertaken by the most central level of government rather than state or local governments,” as one academic summary puts it. In other words, rich people can’t avoid high federal taxes, short of leaving the country, whereas if a state tries to impose a progressive tax code, its millionaires will decamp for lower-tax jurisdictions. And, indeed, state tax codes, which bring in about one-third of U.S. tax revenue, largely reflect this received wisdom. Unlike the federal system, which is fairly progressive, state and local tax systems on average shift money from poorer households to richer ones. According to a recent report by the Institute on Taxation and Economic Policy, “forty-four states’ tax systems exacerbate income inequality,” with the poorest 20 percent of households paying the highest effective tax rates.  

Things don’t have to be this way. The notion that rich taxpayers will flee if the state comes for their money is mostly fiction. The most obvious clue comes from the existence of the small number of states, including California, New Jersey, Minnesota, and New York, that buck the overall trend by taxing rich people at higher rates. If the conventional wisdom were accurate, you would expect those states to be devoid of wealthy people. Instead, they are among the richest in the country.

[Annie Lowrey: If you soak the rich, will they leave?]

A number of international studies from the past decade further undermine the idea of millionaire flight. In 2011, for example, Spain reintroduced its wealth tax. Crucially, the exact rate varied from place to place within Spain. In Madrid, the rate was zero percent, whereas in other places, it exceeded 3 percent—equivalent, under certain assumptions, to an income tax of more than 60 percent. Skeptics suggested that the measure would cause so much capital flight that it would actually cost the government money. Yet very few households moved to Madrid—hardly an undesirable destination!—in response to the tax, and the government raised $19 in new revenue for every dollar lost to relocations. A study of the Swiss wealth tax, which varies among cantons, found broadly similar results, as did studies of Scandinavian wealth taxes.

In this regard, Europe and America don’t appear to be too different. An analysis of confidential IRS data on earnings and relocations reported that “millionaires are not very mobile and actually have lower migration rates than the general population.” Researchers at the Stanford Graduate School of Business found that, much as in Spain, relocations sapped only about a nickel out of each new dollar in revenues from the 2010 California tax increase.

It makes sense, when you stop to think about it. Wealthy people tend to be more deeply embedded in their community and local institutions than the average person. And when it comes to the ultra-wealthy, we really aren’t talking about people who can do their job over Zoom. Whether it’s a public-company CEO, a private-equity manager, or the owner of the local car dealership, top-level managers and entrepreneurs are usually closely tied to their headquarters and the site of their business’s operations.

Even so, designing an effective, progressive state tax system isn’t as simple as just raising rates on top earners. Wealthy families, especially those whose money comes from investments rather than from a salary, have many ways to slash their tax bill without physically relocating. In a recent paper, David Gamage, Darien Shanske, and I explore the various “money moves” that wealthy households in the U.S. use to delay income until retirement (or death), when they are no longer tied to their business and can redirect their income to a low-tax jurisdiction such as Florida.

The simplest example is what we could call “the Musk.” Build your billion-dollar business in California but never sell any of the stock. If you find yourself in need of funds—say, to buy and destroy a social-media company—you can always borrow against the value of the unsold shares. Don’t sell until you’re somewhere with a lower rate.

What makes the Musk work is what tax wonks call the “realization” rule: the principle that we tax property only when it’s sold. This is supposed to make it easier to know how much the property is worth and to ensure that the taxpayer has cash on hand to pay the bill. For related reasons, the U.S. system has traditionally not treated borrowed funds as taxable income. Combining these two policies gives taxpayers a powerful option: the right to choose not just when but also where to pay taxes.

[Read: The golden age of rich people not paying their taxes]

The federal tax base is mostly safe from these kinds of moves. The United States taxes its citizens’ income no matter where they live. A person who gives up their citizenship is taxed immediately on all of their property, as if they had sold it on the date of their expatriation. This kind of “exit tax” would probably be unconstitutional at the state level, however. Somewhat counterintuitively, then, states’ best answer to money moves is to impose a wealth tax on the extremely wealthy. A well-designed wealth tax could reach any asset a taxpayer owns, whether it’s stowed in an out-of-state pension account or held in a foreign corporation. Another approach would be to modify the realization rule for the wealthiest state taxpayers and to track changes in the value of their property annually; tax mavens call this “mark to market” taxation.

But what if millionaires really do start uprooting their life once the money-move loopholes get closed? As we’ve seen, a wealth tax didn’t cause mass migration in Spain. And Norway’s crackdown on wealth-tax avoidance didn’t lead to any big changes in mobility either, despite anecdotal reports of a few billionaires pulling up stakes. To see why that makes sense, consider Elon Musk again. If California had put a mark-to-market tax in place in time, he would have already paid taxes on his Tesla billions and had little to gain from moving to Texas.

Of course, if a state wants to tax annual value or changes in value, it has to figure out how much things are worth. In our academic work, my co-authors and I explain how to pull that off. For example, states can just wait until taxpayers actually sell, then charge interest. That would also help resolve the discomfort some voters seem to have with taxing assets before they’re sold.

Another objection might be that, even if established business owners don’t move, maybe the next generation of entrepreneurs will tend to prefer states where they can be assured that their lifetime tax burden will be low. There’s no current evidence that this is true. But supposing it were, the best response wouldn’t be to keep our current, broken system. A better compromise would be to lower the official top tax rates but close up the loopholes so that everyone is paying what they’re supposed to. That’s a classic of good tax policy: The more income there is subject to taxation, the lower tax rates need to be.

Whatever the precise solution, state fiscal systems badly need to be repaired. We shouldn’t let the myth of millionaire mobility prevent that from happening.