And so it begins: taxes in the world's richest countries are rising. Perhaps this is inevitable, given the unprecedented rise in debt in the COVID era, and according to some investors it is even a good thing if it helps close the wealth gap that the pandemic has exacerbated.
Recent headlines have been about tax hikes as the UK, last year's biggest gross domestic product (GDP) borrower, raised taxes on workers and employers, potentially generating 12 billion pounds ($17 billion) a year.
According to Exness analysts, US markets are also alarmed after Democrats proposed raising tax rates on companies and businesses with annual incomes above $400,000.
Wealthy people will not welcome the taxation of higher incomes, while several investment banks have lowered Wall Street forecasts for 2022. Goldman Sachs estimates that earnings per share for the S&P 500 would be 5% lower if corporate taxes fell to the proposed 25%.
Nevertheless, most investors and economists appear unperturbed, with some even saying that a targeted tax increase that reduces rising inequality would benefit markets in the long term.
Moreover, a return to the "austerity" policies adopted after the 2008-2009 crisis is unlikely, given sluggish growth, rising poverty and socio-economic disruptions such as the 2016 Brexit vote in the UK, which is often linked to those years of belt-tightening.
So far, as investors note, efforts to raise personal taxes in major Western economies have been modest and have not necessarily undermined economic growth and equity markets .
For example, a 1.25 percentage point increase in national insurance in the UK is estimated to be half a per cent of GDP. And an increase in dividend tax would bring in just £100 a year for people earning £10,000 a year in dividends, says brokerage firm AJ Bell.
For bond markets, even modest debt reduction measures can be positive.
Kleinwort Hambros investment director Fahad Kamal sees no political appetite for cutting pandemic-era spending programmes, which "kept everyone in the economy in need of help."
Nevertheless, "the fact that there is a clear plan to deal with the huge increase in debt that we have had over the last year and a half is a good thing," he said of the UK tax hike.
Michel Napolitano, head of western European sovereign agency Fitch Ratings, said attempts to start paying down the debt were "part of the rationale" for stabilising the negative outlook for the UK's AA- credit rating this year.
"What we are seeing in Western Europe ... shows that there is no desire to sustain the growth of public debt all the time," he said recently at a conference.
It is easy to see why governments are concerned.
The Institute of International Finance estimates that global debt, including government, household, corporate and bank debt, stands at a record close to $300 trillion, with $4.8 trillion added in the second quarter of 2021.
According to Janus Henderson's research, debt is up $9.3 trillion in 2020, more than the previous eight years of borrowing.
But there is little chance that austerity will take over, as it did in Europe after 2009; using record low interest rates and central bank money-printing programmes, governments continue to spend.
European Union rules restricting government borrowing remain on hold, while giant US spending proposals and poverty reduction initiatives, such as the $1.8 trillion US Family Plan, are being implemented in full force.
The past year has actually shown how effective targeted spending can be; according to a study by the Urban Institute, pandemic relief programmes are cutting poverty rates in the US by nearly half of 2018 levels.
The crisis has also shed light on the wealth gap - figures cited by Oxfam show that the world's billionaires became $3.9 trillion richer between March and December 2020.
Analysts say this wealth is low-hanging fruit for politicians seeking to raise funds, noting the Biden administration's proposals and China's desire for "shared prosperity".
"Given the role of central banks and interest rates, there is no real pressure from the markets for governments to pay down debt. It's more about inequality," said Kiran Ganesh, head of Multi-Asset at UBS Global Wealth Management, predicting wealth. redistribution will be a theme for the coming years.
If inequality has slowed growth, as organisations such as the IMF have repeatedly warned, redistribution should support the economy and, in turn, stock markets.
According to one congressional estimate, the tax code changes sought by Democrats would reduce tax bills for Americans earning less than $200,000 a year.
"One result is that the wages of the less well-paid will go up because the better-off pay more taxes and people who have more money in their pockets tend to spend," said Tom O'Hara, portfolio manager at Janus Henderson. Investors.
A study presented at this year's Jackson Hole conference in the US found that income inequality exacerbates downward pressure on bond yields as the wealthy tend to save more of their income.
"It's easy to see higher taxes as a short-term negative for investors, but if you see people who don't have higher incomes suddenly getting more income, that can be a positive for the economy and markets," said UBS's Ganesh.