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    Companies Push Prices Higher, Protecting Profits but Adding to Inflation

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    Corporate profits have been bolstered by higher prices even as some of the costs of doing business have fallen in recent months.The prices of oil, transportation, food ingredients and other raw materials have fallen in recent months as the shocks stemming from the pandemic and the war in Ukraine have faded. Yet many big businesses have continued raising prices at a rapid clip.Some of the world’s biggest companies have said they do not plan to change course and will continue increasing prices or keep them at elevated levels for the foreseeable future.That strategy has cushioned corporate profits. And it could keep inflation robust, contributing to the very pressures used to justify surging prices.As a result, some economists warn, policymakers at the Federal Reserve may feel compelled to keep raising interest rates, or at least not lower them, increasing the likelihood and severity of an economic downturn.“Companies are not just maintaining margins, not just passing on cost increases, they have used it as a cover to expand margins,” Albert Edwards, a global strategist at Société Générale, said, referring to profit margins, a measure of how much businesses earn from every dollar of sales.PepsiCo, the snacks and beverage maker, has become a prime example of how large corporations have countered increased costs, and then some.Hugh Johnston, the company’s chief financial officer, said in February that PepsiCo had raised its prices by enough to buffer further cost pressures in 2023. At the end of April, the company reported that it had raised the average price across its products by 16 percent in the first three months of the year. That added to a similar size price increase in the fourth quarter of 2022 and increased its profit margin.“I don’t think our margins are going to deteriorate at all,” Mr. Johnston said in a recent interview with Bloomberg TV. “In fact, what we’ve said for the year is we’ll be at least even with 2022, and may in fact increase margins during the course of the year.”The bags of Doritos, cartons of Tropicana orange juice and bottles of Gatorade drinks sold by PepsiCo are now substantially pricier. Customers have grumbled, but they have largely kept buying. Shareholders have cheered. PepsiCo declined to comment.PepsiCo is not alone in continuing to raise prices. Other companies that sell consumer goods have also done well.The average company in the S&P 500 stock index increased its net profit margin from the end of last year, according to FactSet, a data and research firm, countering the expectations of Wall Street analysts that profit margins would decline slightly. And while margins are below their peak in 2021, analysts are forecasting that they will keep expanding in the second half of the year.For much of the past two years, most companies “had a perfectly good excuse to go ahead and raise prices,” said Samuel Rines, an economist and the managing director of Corbu, a research firm that serves hedge funds and other investors. “Everybody knew that the war in Ukraine was inflationary, that grain prices were going up, blah, blah, blah. And they just took advantage of that.”But those go-to rationales for elevating prices, he added, are now receding.The Producer Price Index, which measures the prices businesses pay for goods and services before they are sold to consumers, reached a high of 11.7 percent last spring. That rate has plunged to 2.3 percent for the 12 months through April.The Consumer Price Index, which tracks the prices of household expenditures on everything from eggs to rent, has also been falling, but at a much slower rate. In April, it dropped to 4.93 percent, from a high of 9.06 percent in June 2022. The price of carbonated drinks rose nearly 12 percent in April, over the previous 12 months.“Inflation is going to stay much higher than it needs to be, because companies are being greedy,” Mr. Edwards of Société Générale said.But analysts who distrust that explanation said there were other reasons consumer prices remained high. Since inflation spiked in the spring of 2021, some economists have made the case that as households emerged from the pandemic, demand for goods and services — whether garage doors or cruise trips — was left unsated because of lockdowns and constrained supply chains, driving prices higher.David Beckworth, a senior research fellow at the right-leaning Mercatus Center at George Mason University and a former economist for the Treasury Department, said he was skeptical that the rapid pace of price increases was “profit-led.”Corporations had some degree of cover for raising prices as consumers were peppered with news about imbalances in the economy. Yet Mr. Beckworth and others contend that those higher prices wouldn’t have been possible if people weren’t willing or able to spend more. In this analysis, stimulus payments from the government, investment gains, pay raises and the refinancing of mortgages at very low interest rates play a larger role in higher prices than corporate profit seeking.“It seems to me that many telling the profit story forget that households have to actually spend money for the story to hold,” Mr. Beckworth said. “And once you look at the huge surge in spending, it becomes inescapable to me where the causality lies.”Mr. Edwards acknowledged that government stimulus measures during the pandemic had an effect. In his eyes, this aid meant that average consumers weren’t “beaten up enough” financially to resist higher prices that might otherwise make them flinch. And, he added, this dynamic has also put the weight of inflation on poorer households “while richer ones won’t feel it as much.”The top 20 percent of households by income typically account for about 40 percent of total consumer spending. Overall spending on recreational experiences and luxuries appears to have peaked, according to credit card data from large banks, but remains robust enough for firms to keep charging more. Major cruise lines, including Royal Caribbean, have continued lifting prices as demand for cruises has increased going into the summer.Many people who are not at the top of the income bracket have had to trade down to cheaper products. As a result, several companies that cater to a broad customer base have fared better than expected, as well.McDonald’s reported that its sales increased by an average of 12.6 percent per store for the three months through March, compared with the same period last year. About 4.2 percent of that growth has come from increased traffic and 8.4 percent from higher menu prices.The company attributed the recent menu price increases to higher expenses for labor, transportation and meat. Several consumer groups have responded by pointing out that recent upticks in the cost of transportation and labor have eased.A representative for the company said in an email that the company’s strong results were not just a result of price increases but also “strong consumer demand for McDonald’s around the world.”Other corporations have found that fewer sales at higher prices have still helped them earn bigger profits: a dynamic that Mr. Rines of Corbu has coined “price over volume.”Colgate-Palmolive, which in addition to commanding a roughly 40 percent share of the global toothpaste market, also sells kitchen soap and other goods, had a standout first quarter. Its operating profit for the year through March rose 6 percent from the same period a year earlier — the result of a 12 percent increase in prices even as volume declined by 2 percent.The recent bonanza for corporate profits, however, may soon start to fizzle.Research from Glenmede Investment Management indicates there are signs that more consumers are cutting back on pricier purchases. The financial services firm estimates that households in the bottom fourth by income will exhaust whatever is collectively left of their pandemic-era savings sometime this summer.Some companies are beginning to find resistance from more price-sensitive customers. Dollar Tree reported rising sales but falling margins, as lower-income customers who tend to shop there searched for deals. Shares in the company plunged on Thursday as it cut back its profit expectations for the rest of the year. Even PepsiCo and McDonald’s have recently taken hits to their share prices as traders fear that they may not be able to keep increasing their profits.For now, though, investors appear to be relieved that corporations did as well as they did in the first quarter, which has helped keep stock prices from falling broadly.Before large companies began reporting how they did in the first three months of the year, the consensus among analysts was that earnings at companies in the S&P 500 would fall roughly 7 percent compared with the same period in 2022. Instead, according to data from FactSet, earnings are expected to have fallen around 2 percent once all the results are in.Savita Subramanian, the head of U.S. equity and quantitative strategy at Bank of America, wrote in a note that the latest quarterly reports “once again showed corporate America’s ability to preserve margins.” Her team raised overall earnings growth expectations for the rest of the year, and 2024. More

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    Billionaires Worth More Than the United States’ Cash Balance

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    The cash balance at the Treasury Department is now lower than the net worth of some of the world’s richest people.The Treasury Department said its cash balance fell to $38.8 billion as of Thursday, as the United States inched toward running out of cash to pay its bills.That was significantly lower than the $316 billion the department had in operating cash, which is held at the Federal Reserve Bank of New York, at the start of the month.Just how empty is the Treasury cash coffer? For comparison, $38.8 billion is on par with the gross domestic product of Bahrain and Paraguay and lower than the net worth of more than two dozen of the wealthiest people in the world. Of course, much of the assets of those billionaires are tied up in stocks, rather than liquid assets.Here is a list of people with higher net worths than the U.S. cash reserves, according to Bloomberg News’s Billionaire Index as of Thursday. (Under the news agency’s editorial policy, its billionaire owner, Michael Bloomberg, is not considered for the index. Forbes, though, estimates his net worth at $94.5 billion.)Bernard Arnault, chief executive of the luxury group LVMH: $189 billionElon Musk, chief executive of SpaceX, Tesla and Twitter: $179 billionJeff Bezos, founder and chief executive of Amazon: $139 billionBill Gates, co-founder of Microsoft: $125 billionLarry Ellison, co-founder and executive chairman of Oracle: $116 billionSteve Ballmer, investor and former chief executive of Microsoft: $113 billionLarry Page, co-founder of Google: $112 billionWarren Buffett, investor: $111 billionSergey Brin, co-founder of Google: $106 billionMark Zuckerberg, co-founder and chief executive of Facebook: $92.3 billionCarlos Slim, investor: $90.3 billionFrançoise Bettencourt Meyers, heir to the L’Oréal fortune and company board member: $87.2 billionMukesh Ambani, chairman of the energy group Reliance Industries: $83.7 billionAmancio Ortega, founder of the Inditex fashion group: $67.1 billionJim Walton, heir to the Walmart fortune: $66.6 billionRob Walton, heir to the Walmart fortune: $64.9 billionAlice Walton, heir to the Walmart fortune: $63.8 billionGautam Adani, founder and chairman of the Adani Group conglomerate: $63.4 billionJacqueline Mars, heir to and co-owner of the candy maker Mars: $61.7 billionJohn Mars, heir to and chairman of Mars: $61.7 billionZhong Shanshan, founder and chairman of the bottled-water company Nongfu Spring: $61.6 billionJulia Flesher Koch and family, heirs of the businessman David Koch: $60.6 billionCharles Koch, chief executive of the industrial conglomerate Koch Industries: $60.4 billionMichael Dell, chief executive and chairman of Dell Technologies: $53.4 billionAlain Wertheimer, co-owner and chairman of Chanel: $45.9 billionGérard Wertheimer, co-owner of Chanel: $45.9 billionGiovanni Ferrero, executive chairman of the chocolate and confectionery company Ferrero Group, and family: $43.6 billionZhang Yiming, founder and chief executive of the technology company ByteDance: $42.3 billionPhil Knight, co-founder of Nike, and family: $41.5 billionKlaus-Michael Kühne, honorary chairman and majority owner of the transport company Kuehne+Nagel: $40.9 billionFrançois Pinault, founder of the luxury group Kering: $39.6 billion More

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    The Greatest Wealth Transfer in History Is Here, With Familiar (Rich) Winners

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    In an era of surging home and stock values, U.S. family wealth has soared. The trillions of dollars going to heirs will largely reinforce inequality.An intergenerational transfer of wealth is in motion in America — and it will dwarf any of the past.Of the 73 million baby boomers, the youngest are turning 60. The oldest boomers are nearing 80. Born in midcentury as U.S. birthrates surged in tandem with an enormous leap in prosperity after the Depression and World War II, boomers are now beginning to die in larger numbers, along with Americans over 80.Most will leave behind thousands of dollars, a home or not much at all. Others are leaving their heirs hundreds of thousands, or millions, or billions of dollars in various assets.In 1989, total family wealth in the United States was about $38 trillion, adjusted for inflation. By 2022, that wealth had more than tripled, reaching $140 trillion. Of the $84 trillion projected to be passed down from older Americans to millennial and Gen X heirs through 2045, $16 trillion will be transferred within the next decade.Baby Boomers Hold Half of the Nation’s $140 Trillion in Wealth More

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    Biden’s $6.8 Trillion Budget Proposes New Social Programs and Higher Taxes

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    WASHINGTON — President Biden on Thursday proposed a $6.8 trillion budget that sought to increase spending on the military and a wide range of new social programs while also reducing future budget deficits, defying Republican calls to scale back government and reasserting his economic vision before an expected re-election campaign.The budget contains some $5 trillion in proposed tax increases on high earners and corporations over a decade, much of which would offset new spending programs aimed at the middle class and the poor. It seeks to reduce budget deficits by nearly $3 trillion over that time, compared with the country’s current path.It reaffirms Mr. Biden’s case that he can prevent the growing debt burden from weighing on the economy while expanding spending and protecting popular safety-net programs — almost entirely by asking companies and the wealthy to pay more in taxes.But after claiming credit for a $1.7 trillion decline in the annual deficit over the past year, Mr. Biden now sees the deficit increasing again in the 2024 fiscal year, to $1.8 trillion. The jump is larger than other forecasters, like the Congressional Budget Office, have projected. It is driven by rising costs of servicing the national debt as the Federal Reserve raises interest rates to curb inflation and by new programs the president is proposing that are not fully offset by tax increases in their first year.The plan drew swift criticism from Republicans, who are locked in an economically perilous debate with Mr. Biden over the borrowing limit, which House conservatives refuse to raise unless he agrees to sharp spending cuts.Senator Charles E. Grassley of Iowa, the top Republican on the Budget Committee, said Mr. Biden’s spending blueprint was “an unserious proposal and will be treated as such by both parties in Congress.”The budget plan, he said, “is a road map for fiscal ruin.”The proposals stand little chance of becoming law because Republicans won control of the House in November. Instead, Mr. Biden’s budget request was a political statement of values aimed at winning public opinion amid the debt-limit fight and a nascent 2024 campaign.He unveiled the plan formally on Thursday in Philadelphia. His budget would “lift the burden off families in America,” the president said during a swing-state speech meant to contrast his economic vision with that of Republicans who have called for spending cuts.“My budget is about investing in America and all of America,” Mr. Biden said during a roughly 50-minute speech to scores of union workers, Biden supporters and local Pennsylvania politicians. “Too many people have been left behind and treated like they’re invisible. Not anymore. I promise I see you.”The president emphasized a message of bolstering manufacturing, an effort many of his allies believe can sway blue-collar workers who in recent years have lost faith in the Democratic Party.The proposals in the budget showcased Mr. Biden’s early success in expanding the federal government’s role in the economy, and they reaffirmed his push for more. On Mr. Biden’s watch, its numbers show, domestic spending in areas like research and support for manufacturing has grown significantly larger as a share of the economy than was considered in the budget plans of the last Democratic administration, under President Barack Obama, when Mr. Biden was vice president.An Intel semiconductor manufacturing facility in New Albany, Ohio, is part of Mr. Biden’s plan to rebuild American manufacturing.Pete Marovich for The New York TimesIn his first two years as president, Mr. Biden signed laws to expand and rebuild critical infrastructure like water pipes and highways, bolster U.S. manufacturing of semiconductors and other high-tech goods, and accelerate a transition from fossil fuels toward low-emission sources of energy to fight climate change. He delivered military aid to Ukraine in its fight against Russia and signed a bipartisan law to increase federal medical care for military veterans exposed to toxic burn pits.He also left much of his economic agenda unfinished, a fact reflected in his budget, which renewed calls for programs that failed to pass muster when his party controlled Congress..css-1v2n82w{max-width:600px;width:calc(100% – 40px);margin-top:20px;margin-bottom:25px;height:auto;margin-left:auto;margin-right:auto;font-family:nyt-franklin;color:var(–color-content-secondary,#363636);}@media only screen and (max-width:480px){.css-1v2n82w{margin-left:20px;margin-right:20px;}}@media only screen and (min-width:1024px){.css-1v2n82w{width:600px;}}.css-161d8zr{width:40px;margin-bottom:18px;text-align:left;margin-left:0;color:var(–color-content-primary,#121212);border:1px solid var(–color-content-primary,#121212);}@media only screen and (max-width:480px){.css-161d8zr{width:30px;margin-bottom:15px;}}.css-tjtq43{line-height:25px;}@media only screen and (max-width:480px){.css-tjtq43{line-height:24px;}}.css-x1k33h{font-family:nyt-cheltenham;font-size:19px;font-weight:700;line-height:25px;}.css-1hvpcve{font-size:17px;font-weight:300;line-height:25px;}.css-1hvpcve em{font-style:italic;}.css-1hvpcve strong{font-weight:bold;}.css-1hvpcve a{font-weight:500;color:var(–color-content-secondary,#363636);}.css-1c013uz{margin-top:18px;margin-bottom:22px;}@media only screen and (max-width:480px){.css-1c013uz{font-size:14px;margin-top:15px;margin-bottom:20px;}}.css-1c013uz a{color:var(–color-signal-editorial,#326891);-webkit-text-decoration:underline;text-decoration:underline;font-weight:500;font-size:16px;}@media only screen and (max-width:480px){.css-1c013uz a{font-size:13px;}}.css-1c013uz a:hover{-webkit-text-decoration:none;text-decoration:none;}How Times reporters cover politics. We rely on our journalists to be independent observers. So while Times staff members may vote, they are not allowed to endorse or campaign for candidates or political causes. This includes participating in marches or rallies in support of a movement or giving money to, or raising money for, any political candidate or election cause.Learn more about our process.“This president clearly believes the way to grow this economy is investing in the middle class and working families,” Shalanda D. Young, the director of the White House budget office, told reporters on Thursday.The president’s budget proposed $400 billion to deliver affordable child care for parents, $150 billion for home care for older Americans and disabled people, and nearly $400 billion to make permanent expanded health coverage assistance through the Affordable Care Act. He would spend $325 billion to guarantee paid leave for workers and nearly $300 billion combined for free community college and prekindergarten for students. He is seeking $100 billion in additional assistance to lower housing costs for homeowners and renters.Mr. Biden would reinstate for three years an expanded child tax credit, which was included in the economic aid bill he signed in 2021 but expired last year, as a means of reducing child poverty. He would make permanent a change in the credit that allows people to benefit from it in full even if they do not make enough money to owe federal income taxes. Together, the changes would cost more than $400 billion.To help offset costs, Mr. Biden proposed a series of tax increases on corporations and the wealthiest Americans. They include a 25 percent tax aimed at billionaires (he requested a similar tax last year but at a lower rate: 20 percent). He also called for quadrupling a tax on stock buybacks and renewed his push to roll back President Donald J. Trump’s tax cuts for high earners and to raise the corporate income tax rate to 28 percent from 21 percent.Mr. Biden proposed increasing and expanding a tax on Americans earning more than $400,000 as part of efforts to extend the solvency of Medicare by a quarter-century. He is also seeking new savings for the government based on more aggressive negotiation over prescription drug prices.But for the third consecutive budget, Mr. Biden did not put forth any new initiatives to extend the solvency of Social Security — unlike during the 2020 campaign, when he sought to expand benefits and bolster the program’s trust fund by effectively raising payroll taxes on people earning more than $400,000 a year.The budget offered few paths to compromise between Mr. Biden and Republicans on fiscal issues. One potential area of common ground was responding to what both parties call a growing military and economic threat from China. The budget proposed $9.1 billion in investments next year through the Pentagon’s “Pacific Deterrence Initiative,” which includes expenditures on new weapons systems that can be used to protect allies and defend U.S. interests in the region. It also asks for $400 million to a fund dedicated to countering the influence of the Chinese Communist Party abroad, such as exposing Chinese disinformation campaigns.The budget also refers to various domestic investments, which the administration argues are needed to make the U.S. economy more competitive with China. That includes money for domestic research into agriculture, an area where it says China has become the largest funder of research, as well as major investments in the manufacturing of semiconductors, clean energy products and other technologies in the United States.Still, Speaker Kevin McCarthy of California and his lieutenants reiterated on Thursday that they intended to insist on significant reductions in spending before they would consider allowing the federal debt limit to be raised — even though a stalemate over the debt limit could shake the world economy and endanger the retirement savings of millions of Americans.“We must cut wasteful government spending,” Mr. McCarthy and the other members of his leadership team said in a joint statement issued after Mr. Biden’s budget was released. “Our debt is one of the greatest threats to America, and the time to address this crisis is now.”The budget sees the gross national debt increasing by about $18 trillion through 2033, rising to just above $50 trillion. But the administration suggests that growth will not threaten the economy. “The economic burden of debt would remain low and in line with recent historical experience over the next decade,” administration officials wrote in the proposal.Last year’s budget painted a rosy and ultimately over-optimistic picture of the U.S. economy. The administration expected gross domestic product to grow 4.2 percent after adjusting for inflation, for instance, but it ultimately climbed by a more modest 2.1 percent.The new budget’s projections were more muted, with a caveat. The White House sees the economy growing by only 0.6 percent after adjusting for inflation this year, a weak pace that is in line with outside expectations. It also predicted a substantial increase in the unemployment rate — to 4.3 percent, a notable rise from 3.4 percent in January. Alongside that slowdown, inflation is expected to moderate.But officials noted that the administration completed its projections in November and that economic data had been stronger than expected since. Administration economists said in a blog post that unemployment “would likely be lower” than the official forecast in light of that.Much of the budget’s contents were holdovers from Mr. Biden’s previous proposals. But there were also a few new plans. One of them was a tax on the energy used in creating new digital currency assets, known as cryptocurrency mining. That practice relies on large amounts of electricity and generates emissions that contribute to climate change.Administration officials want to discourage the practice, which they say impedes the country’s energy transition. So they proposed a 30 percent tax on the electricity used in it, phased in over three years, whether that comes from an electric utility or a localized source like a home solar panel, on the theory that the energy involved would be put to better purpose in another use.Reporting was contributed by More

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    Why Companies Are Pushing Premium Products With Higher Prices

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    Companies are trying to maintain fat profits as the economy changes, making “premiumization” their new favorite buzzword.Big companies are prodding their customers toward fancier, and often pricier, versions of everything from Krispy Kreme doughnuts to cans of WD-40.It’s evidence of the corporate world’s new favorite buzzword: “premiumization.”Businesses are hoping to keep the good times rolling after several years in which they seized on strong spending by consumers and rapid inflation to raise prices and pump up profit margins. Many firms are embracing offerings that cater to higher-income customers — people who are willing and able to pay more for products and services.One sign of the trend: the notion of premiumization was raised in nearly 60 earnings calls and investor meetings over the past three weeks.It is an indication of a changing economic backdrop. Inflation and consumer spending are expected to moderate this year, which could make it more difficult for firms to sustain large price increases without some justification.The premiumization trend also reflects a divide in the American economy. The top 40 percent of earners are sitting on more than a trillion dollars in extra savings amassed during the early part of the pandemic. Lower-income households, on the other hand, have been burning through their savings, partly as they contend with the higher costs of the food, rent and other necessities that make up a bigger chunk of their spending.“The pool of people willing to spend on small to large premium offers remains strong,” said David Mayer, a senior partner in the brand strategy practice of Lippincott, a consultancy.As products grow more expensive and exclusive, big swaths of the economy are at risk of becoming gentrified, raising the possibility that poorer consumers will be increasingly underserved.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    The Summer of NIMBY in Silicon Valley’s Poshest Town

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    Moguls and investors from the tech industry, which endorses housing relief, banded together to object to a plan for multifamily homes near their estates in Atherton, Calif.SAN FRANCISCO — Tech industry titans have navigated a lot to get where they are today — the dot-com bust, the 2008 recession, a backlash against tech power, the pandemic. They have overcome boardroom showdowns, investor power struggles and regulatory land mines.But this summer, some of them encountered their most threatening opponent yet: multifamily townhouses.Their battle took place in one of Silicon Valley’s most exclusive and wealthiest towns: Atherton, Calif., a 4.9-square-mile enclave just north of Stanford University with a population of 7,500. There, tech chief executives and venture capitalists banded together over the specter that more than one home could exist on a single acre of land in the general vicinity of their estates.Their weapon? Strongly worded letters.Faced with the possibility of new construction, Rachel Whetstone, Netflix’s chief communications officer and an Atherton resident, wrote to the City Council and mayor that she was “very concerned” about traffic, tree removal, light and noise pollution, and school resources.Another local, Anthony Noto, chief executive of the financial technology company SoFi, and his wife, Kristin, wrote that robberies and larceny had already become so bad that many families, including his, had employed private security.Their neighbors Bruce Dunlevie, a founding partner at the investment firm Benchmark, and his wife, Elizabeth, said the developments were in conflict with Atherton’s Heritage Tree Ordinance, which regulates tree removal, and would create “a town that is no longer suburban in nature but urban, which is not why its residents moved there.”Other residents also objected: Andrew Wilson, chief executive of the video game maker Electronic Arts; Nikesh Arora, chief executive of Palo Alto Networks, a cybersecurity company; Ron Johnson, a former top executive at Apple; Omid Kordestani, a former top executive at Google; and Marc Andreessen, a prominent investor.All of them were fighting a plan to help Atherton comply with state requirements for housing. Every eight years, California cities must show state regulators that they have planned for new housing to meet the growth of their community. Atherton is on the hook to add 348 units.Many California towns, particularly ones with rich people, have fought higher-density housing plans in recent years, a trend that has become known as NIMBYism for “not in my backyard.” But Atherton’s situation stands out because of the extreme wealth of its denizens — the average home sale in 2020 was $7.9 million — and because tech leaders who live there have championed housing causes.The companies that made Atherton’s residents rich have donated huge sums to nonprofits to offset their impact on the local economy, including driving housing costs up. Some of the letter writers have even sat on the boards of charities aimed at addressing the region’s poverty and housing problems.Atherton residents have raised objections to the developments even though the town’s housing density is extremely low, housing advocates said.“Atherton talks about multifamily housing as if it was a Martian invasion or something,” said Jeremy Levine, a policy manager at the Housing Leadership Council of San Mateo County, a nonprofit that expressed support for the multifamily townhouse proposal.Read More About AppleSustained Growth: The tech giant reported a rise in sales of 2 percent for the three months that ended in June, though the company’s profits fell 10.6 percent.The End of a Partnership: Three years after Apple promised to continue working with Jony Ive, its former design leader, the two parties appear to be through. Here is what the change could mean for Apple.Union Effort: Apple employees at a Baltimore-area store voted to unionize, making it the first of the company’s 270-plus stores in the United States to do so.Upgrading: At its annual developer conference in June, Apple unveiled a range of new software features that expand the iPhone’s utility and add more opportunities for personalization.Atherton, which is a part of San Mateo County, has long been known for shying away from development. The town previously sued the state to stop a high-speed rail line from running through it and voted to shutter a train station.Its zoning rules do not allow for multifamily homes. But in June, the City Council proposed an “overlay” designating areas where nine townhouse developments could be built. The majority of the sites would have five or six units, with the largest having 40 units on five acres.That was when the outcry began. Some objectors offered creative ways to comply with the state’s requirements without building new housing. One technology executive suggested in his letter that Atherton try counting all the pool houses.Others spoke directly about their home values. Mr. Andreessen, the venture capitalist, and his wife, Laura Arrillaga-Andreessen, a scion of the real estate developer John Arrillaga, warned in a letter in June that more than one residence on a single acre of land “will MASSIVELY decrease our home values, the quality of life of ourselves and our neighbors and IMMENSELY increase the noise pollution and traffic.” The couple signed the letter with their address and an apparent reference to four properties they own on Atherton’s Tuscaloosa Avenue.The Atlantic reported earlier on the Andreessens’ letter.Mr. Andreessen has been a vocal proponent of building all kinds of things, including housing in the Bay Area. In a 2020 essay, he bemoaned the lack of housing built in the United States, calling out San Francisco’s “crazily skyrocketing housing prices.”“We should have gleaming skyscrapers and spectacular living environments in all our best cities,” he wrote. “Where are they?”Other venture capital investors who live in Atherton and oppose the townhouses include Aydin Senkut, an investor with Felicis Ventures; Gary Swart, an investor at Polaris Partners; Norm Fogelsong, an investor at IVP; Greg Stanger, an investor at Iconiq; and Tim Draper, an investor at Draper Associates.The mayor of Atherton said the townhouse plan wouldn’t have met California’s definition of affordable housing.Jim Wilson/The New York TimesMany of the largest tech companies have donated money toward addressing the Bay Area’s housing crisis in recent years. Meta, the company formerly known as Facebook, where Mr. Andreessen is a member of the board of directors, has committed $1 billion toward the problem. Google pledged $1 billion. Apple topped them both with a $2.5 billion pledge. Netflix made grants to Enterprise Community Partners, a housing nonprofit. Mr. Arora of Palo Alto Networks was on the board of Tipping Point, a nonprofit focused on fighting poverty in the Bay Area.Mr. Senkut said he was upset because he felt that Atherton’s townhouses proposal had been done in a sneaky way without input from the community. He said the potential for increased traffic had made him concerned about the safety of his children.“If you’re going to have to do something, ask the neighborhood what they want,” he said.Mr. Draper, Mr. Johnson and representatives for Mr. Andreessen, Mr. Arora and Mr. Wilson of Electronic Arts declined to comment. The other letter writers did not respond to requests for comment.The volume of responses led Atherton’s City Council to remove the townhouse portion from its plan in July. On Aug. 2, it instead proposed a program to encourage residents to rent out accessory dwelling units on their properties, to allow people to subdivide properties and to potentially build housing for teachers on school property.“Atherton is indeed different,” the proposal declared. Despite the town’s “perceived affluent nature,” the plan said, it is a “cash-poor” town with few people who are considered at risk for housing.Rick DeGolia, Atherton’s mayor, said the issue with the townhouses was that they would not have fit the state’s definition of affordable housing, since land in Atherton costs $8 million an acre. One developer told him that the units could go for at least $4 million each.“Everybody who buys into Atherton spent a huge amount of money to get in,” he said. “They’re very concerned about their privacy — that’s for sure. But there’s a different focus to get affordable housing, and that’s what I’m focused on.”Atherton’s new plan needs approval by California’s Department of Housing and Community Development. Cities that don’t comply with the state’s requirements for new housing to meet community growth face fines, or California could usurp local land-use authority.Ralph Robinson, an assistant planner at Good City, the consulting firm that Atherton hired to create the housing proposal, said the state had rejected the vast majority of initial proposals in recent times.“We’re very aware of that,” he said. “We’re aware we’ll get this feedback, and we may have to revisit some things in the fall.”Mr. Robinson has seen similar situations play out across Northern California. The key difference with Atherton, though, is its wealth, which attracts attention and interest, not all of it positive.“People are less sympathetic,” he said. More

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    In an Unequal Economy, the Poor Face Inflation Now and Job Loss Later

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    For Theresa Clarke, a retiree in New Canaan, Conn., the rising cost of living means not buying Goldfish crackers for her disabled daughter because a carton costs $11.99 at her local Stop & Shop. It means showering at the YMCA to save on her hot water bill. And it means watching her bank account dwindle to $50 because, as someone on a fixed income who never made much money to start with, there aren’t many other places she can trim her spending as prices rise.“There is nothing to cut back on,” she said.Jordan Trevino, 28, who recently took a better paying job in advertising in Los Angeles with a $100,000 salary, is economizing in little ways — ordering a cheaper entree when out to dinner, for example. But he is still planning a wedding next year and a honeymoon in Italy.And David Schoenfeld, who made about $250,000 in retirement income and consulting fees last year and has about $5 million in savings, hasn’t pared back his spending. He has just returned from a vacation in Greece, with his daughter and two of his grandchildren.“People in our group are not seeing this as a period of sacrifice,” said Mr. Schoenfeld, who lives in Sharon, Mass., and is a member of a group called Responsible Wealth, a network of rich people focused on inequality that pushes for higher taxes, among other stances. “We notice it’s expensive, but it’s kind of like: I don’t really care.”Higher-income households built up savings and wealth during the early stages of the pandemic as they stayed at home and their stocks, houses and other assets rose in value. Between those stockpiles and solid wage growth, many have been able to keep spending even as costs climb. But data and anecdotes suggest that lower-income households, despite the resilient job market, are struggling more profoundly with inflation.That divergence poses a challenge for the Federal Reserve, which is hoping that higher interest rates will slow consumer spending and ease pressure on prices across the economy. Already, there are signs that poorer families are cutting back. If richer families don’t pull back as much — if they keep going on vacations, dining out and buying new cars and second homes — many prices could keep rising. The Fed might need to raise interest rates even more to bring inflation under control, and that could cause a sharper slowdown.In that case, poorer families will almost certainly bear the brunt again, because low-wage workers are often the first to lose hours and jobs. The bifurcated economy, and the policy decisions that stem from it, could become a double whammy for them, inflicting higher costs today and unemployment tomorrow.“That’s the perfect storm, if unemployment increases,” said Mark Brown, chief executive of West Houston Assistance Ministries, which provides food, rental assistance and other forms of aid to people in need. “So many folks are so very close to the edge.”America’s poor have spent part of the savings they amassed during coronavirus lockdowns, and their wages are increasingly struggling to keep up with — or falling behind — price increases. Because such a big chunk of their budgets is devoted to food and housing, lower-income families have less room to cut back before they have to stop buying necessities. Some are taking on credit card debt, cutting back on shopping and restaurant meals, putting off replacing their cars or even buying fewer groceries.But while lower-income families spend more of each dollar they earn, the rich and middle classes have so much more money that they account for a much bigger share of spending in the overall economy: The top two-fifths of the income distribution account for about 60 percent of spending in the economy, the bottom two-fifths about 22 percent. That means the rich can continue to fuel the economy even as the poor pull back, a potential difficulty for policymakers.The Federal Reserve has been lifting interest rates rapidly since March to try to slow consumer spending and raise the cost of borrowing for companies, which will in turn lead to fewer business expansions, less hiring and slower wage growth. The goal is to slow the economy enough to lower inflation but not so much that it causes a painful recession.Officials at West Houston Assistance Ministries said its food bank served 200 households on Friday.Meridith Kohut for The New York TimesBut job growth accelerated unexpectedly in July, with wages climbing rapidly. Consumer spending, adjusted for inflation, has cooled, but Americans continue to open their wallets for vacations, restaurant meals and other services. If solid demand and tight labor market conditions continue, they could help to keep inflation rapid and make it more difficult for the Fed to cool the economy without continuing its string of quick rate increases. That could make widespread layoffs more likely.“The one, singular worry is the jobs market — if demand is constrained to the point that companies have to start laying off workers, that’s what hits Main Street,” said Nela Richardson, chief economist at the job market data provider ADP. “That’s what hits low-income workers.”8 Signs That the Economy Is Losing SteamCard 1 of 9Worrying outlook. More

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    Carried Interest Is Back in the Headlines. Why It’s Not Going Away.

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    Changes demanded by Senator Kyrsten Sinema will preserve a tax loophole that Democrats have complained about for years.For years, Democrats and even some Republicans such as former President Donald J. Trump have called for closing the so-called carried interest loophole that allows wealthy hedge fund managers and private equity executives to pay lower tax rates than entry-level employees.Those efforts have always failed to make a big dent in the loophole — and the latest proposal to do so also faltered this week. Senate leaders announced on Thursday that they had agreed to drop a modest change to the tax provision in order to secure the vote of Senator Kyrsten Sinema, Democrat of Arizona, and ensure passage of their Inflation Reduction Act, a wide-ranging climate, health care and tax bill.An agreement reached last week between Senator Chuck Schumer, the majority leader, and Senator Joe Manchin III, Democrat of West Virginia, would have taken a small step in the direction of narrowing carried interest tax treatment. However, it would not have eliminated the loophole entirely and could still have allowed rich business executives to have smaller tax bills than their secretaries, a criticism lobbed by the investor Warren E. Buffett, who has long argued against the preferential tax treatment.The fate of the provision was always in doubt given the Democrats’ slim control of the Senate. And Ms. Sinema had previously opposed a carried interest measure in a much larger bill called Build Back Better, which never secured the 50 Senate votes needed — Republicans have been unified in their opposition to any tax increases.Had the legislation passed in the form that Mr. Schumer and Mr. Manchin presented it last week, the shrinking of the carried interest exception would have brought Democrats a tiny bit closer to realizing their vision of making the tax code more progressive.What is carried interest?Carried interest is the percentage of an investment’s gains that a private equity partner or hedge fund manager takes as compensation. At most private equity firms and hedge funds, the share of profits paid to managers is about 20 percent.Under existing law, that money is taxed at a capital-gains rate of 20 percent for top earners. That’s about half the rate of the top individual income tax bracket, which is 37 percent.The 2017 tax law passed by Republicans largely left the treatment of carried interest intact, after an intense business lobbying campaign, but did narrow the exemption by requiring private equity officials to hold their investments for at least three years before reaping preferential tax treatment on their carried interest income.What would the Manchin-Schumer agreement have done?The agreement between Mr. Manchin and Mr. Schumer would have further narrowed the exemption, in several ways. It would have extended that holding period to five years from three, while changing the way the period is calculated in hopes of reducing taxpayers’ ability to game the system and pay the lower 20 percent tax rate.Senate Democrats say the changes would have raised an estimated $14 billion over a decade, by forcing more income to be taxed at higher individual income tax rates — and less at the preferential rate.The longer holding period would have applied only to those who made $400,000 per year or more, in keeping with President Biden’s pledge not to raise taxes on those earning less than that amount.The tax provision echoed a measure that was initially included in the climate and tax bill that House Democrats passed last year but that stalled in the Senate. The carried interest language was removed amid concern that Ms. Sinema, who opposed the measure, would block the overall legislation.Why hasn’t the loophole been closed by now?Many Democrats have tried for years to completely eliminate the tax benefits private equity partners enjoy. Democrats have sought to redefine the management fees they get from partnerships as “gross income,” just like any other kind of income, and to treat capital gains from partners’ investments as ordinary income.Such a move was included in legislation proposed by House Democrats in 2015. The legislation would also have increased the penalties on investors who did not properly apply the proposed changes to their own tax filings.The private equity industry has fought back hard, rejecting outright the basic concepts on which the proposed changes were based.“No such loophole exists,” Steven B. Klinsky, the founder and chief executive of the private equity firm New Mountain Capital, wrote in an opinion article published in The New York Times in 2016. Mr. Klinsky said that when other taxes, including those levied by New York City and the state government, were accounted for, his effective tax rate was between 40 and 50 percent.What would the change have meant for private equity?The private equity industry has defended the tax treatment of carried interest, arguing that it creates incentives for entrepreneurship, healthy risk-taking and investment.The American Investment Council, a lobbying group for the private equity industry, described the proposal as a blow to small business.“Over 74 percent of private equity investment went to small businesses last year,” said Drew Maloney, chief executive of the council. “As small-business owners face rising costs and our economy faces serious headwinds, Washington should not move forward with a new tax on the private capital that is helping local employers survive and grow.”The Managed Funds Association said the changes to the tax code would hurt those who invested on behalf of pension funds and university endowments.“Current law recognizes the importance of long-term investment, but this proposal would punish entrepreneurs in investment partnerships by not affording them the benefit of long-term capital gains treatment,” said Bryan Corbett, the chief executive of the association.“It is crucial Congress avoids proposals that harm the ability of pensions, foundations and endowments to benefit from high-value, long-term investments that create opportunity for millions of Americans.”Jim Tankersley More