According to reports, President Joe Biden is considering a plan to increase taxes on individuals and businesses to offset further increases in government spending. Preliminary analysis of the potential tax hikes shows they would send up to $ 2 trillion from the private sector to the government, which would likely cost jobs and lower wages for American workers.
That, of course, is what taxes do. Every dollar the federal government takes from the economy is a dollar that cannot be used to grow a business, cannot be used to purchase new equipment, and cannot be paid to workers or shareholders.
Biden is considering hikes in both income tax and corporate income tax, Bloomberg reports, citing unnamed White House sources. Advisors reportedly opposed ideas like raising the corporate tax rate to 28 percent (from 21 percent); Increase in personal income taxes for individuals and households who earn over $ 400,000 annually; and introduce a higher capital gains tax for individuals who earn more than $ 1 million annually. The higher taxes would come with an expected announcement from White Houe that it is likely to be a multi-trillion dollar infrastructure spending package.
We’ll have to wait to see the details of the proposal, but much of what is being considered seems roughly in line with the tax policy that the Biden campaign released last year. According to an analysis by the Tax Policy Center, a non-partisan think tank, these guidelines would increase federal revenue by approximately $ 2.1 trillion over a 10-year period. The organization says Biden’s plans would cut American GDP by 0.3-0.7 percent annually for the rest of the decade.
Just raising corporate taxes alone would cut long-term economic growth by around 0.8 percent, cut 159,000 jobs and cut wages, according to a separate analysis by the Tax Foundation, a non-partisan think tank. Raising the federal corporate income tax rate to 28 percent would raise the average U.S. corporate tax burden to 32.34 percent – the highest tax rate in developed countries.
“Income workers would bear much of the tax hike,” write Garrett Watson and William McBride of the Tax Foundation. “For example, the bottom 20 percent of the workforce would see a long-term decline in after-tax earnings of 1.45 percent.”
Politically, an increase in the corporate tax rate to 28 percent would be a symbolic win for the Democrats. The federal government charged American companies for this before the Republicans passed a package of tax cuts in 2017 to make the US more competitive with other major economies. Lifting these corporate and high income tax cuts is a top priority for Congressional Democrats.
“Biden will require corporations and the richest Americans to pay their fair share,” Treasury Secretary Janet Yellen told Senators during her confirmation hearing in January. She said the Biden administration will seek multilateral agreements to set a global minimum corporate tax rate as part of a strategy to prevent American companies from shifting profits overseas to avoid higher taxes.
On the one hand, any clear assessment of America’s financial status must leave room for tax increases as part of an overall budgetary balancing strategy. National debt now tops $ 28 trillion, and the annual budget deficit was already on the rise to top $ 2 trillion even before a $ 1.9 trillion spending bill was passed last week that was entirely with Credit is paid. Both debt and deficit are expected to increase in the coming years.
However, according to Bloomberg, Biden’s plan appears to be aimed at using that tax hike to offset even more spending. This is an approach that Congress should consider carefully, with both eyes on the growing unsustainable national debt.
Policy makers should also keep in mind that many companies are still feeling the impact of President Donald Trump’s tariffs, which continue to act as some sort of stealth tax hike for many companies. This is particularly true of manufacturing, which slipped into recession in 2019 – before the pandemic – in large part due to increased costs and uncertainty caused by the US-China trade war.
Biden was unwilling to remove these tariffs, although doing so would help stimulate economic recovery. In fact, the government seems to want to aim to make things even more difficult for American companies as they emerge from the pandemic.
Trump made it more expensive to buy goods and equipment that American companies must buy in order to make a profit. Now, Biden may be planning to take a bigger chunk of whatever profit they can make.