Despite having a majority in both houses of Congress, Joe Biden’s plan to raise taxes on the rich will still have a rough go of it in the nation’s legislature.
For some Democrats, no tax bill will go far enough in stripping the rich of their wealth. For others, it will go too far. And with a solid phalanx of Republicans adamantly opposed to any tax hikes — which they rightly point out would be suicidal in a pandemic with the economy tipping into recession — Biden’s path to success is narrow and strewn with rocks.
Biden’s campaign tax proposals included rolling back President Trump’s 2017 tax-cut law for taxpayers with income above $400,000, taxing capital gains at the same rates as ordinary income for people with income above $1 million and raising the corporate tax rate from 21 percent to 28 percent.
Democrats broadly think that wealthy people and corporations are not paying enough in taxes. A debate over how best to raise taxes on the rich was front and center during the Democratic presidential primary, with some Democratic candidates, such as Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.), taking more aggressive positions than Biden and calling for a wealth tax.
The Tax Foundation analyzed Biden’s tax proposals and their effect on the economy. It’s not a pretty picture.
According to the Tax Foundation General Equilibrium Model, Biden’s tax plan would reduce the economy’s size by 1.62 percent in the long run. The plan would shrink the capital stock by about 3.75 percent and reduce the overall wage rate by a little over 1 percent, leading to about 542,000 fewer full-time equivalent jobs.
The corporate tax hike would be devastating. Once again, the United States will have the highest corporate tax rate in the developed world — higher than the socialist countries in Europe.
The increase in the corporate income tax from 21 percent to 28 percent and the 15 percent minimum book tax on corporations make up a majority of the economic impact of Biden’s tax proposals. Applying the Social Security payroll tax on earnings over $400,000 also reduces long-run output by about 0.18 percent. Taxing capital gains as ordinary income for those earning over $1 million, repealing step-up in basis, and limiting itemized deductions to 28 percent of value for higher earners also contribute to lower economic output for a combined reduction of 0.11 percent. Biden’s plan to increase the estate and gift tax would reduce long-run output by 0.15 percent.
The plan envisions a revenue gain of $3.3 trillion over 10 years. But the Foundation says this is based on “conventional” analyses, which is no good when seeing the effects of raising taxes in the real world. There, expected revenue projections from tax increases never match what actually comes into government coffers.
A recent example was the “super tax” imposed in 2012 in France that taxed earnings over 1 million euros at 75 percent. The tax was supposed to bring in billions. Instead, a meager 260 million euros was raised.
Then finance minister, now President Emmanuel Macron, quipped that the super tax was “Cuba without the sun.”
There are many arguments against raising taxes on anyone or anything with the economy teetering on the brink. Biden may want a tax bill in the first few months of his presidency but even his radical leftist allies have to see the futility. They will probably be able to force a vote in the House on some kind of plan, but it will be dead on arrival in the Senate.
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