Joe Biden wants to raise taxes on multi-millionaires and businesses. While that sounds like a winning campaign issue, it would be a disaster.
Last week, Joe Biden unveiled a moderate economic course, designed to sound appealing in swing states. What he didn’t mention, however, would be any change in tax policy.
That’s a problem, as a poor tax policy can adversely impact and offset any positives for the economy. Looking at Biden’s tax proposals, it’s easy to see why this is the one issue where he’s being out-polled by Trump.
America’s tax system is a progressive one. That’s not a political term, but a reflection of the fact that as someone earns more, that additional income will be taxed in a higher tax bracket than lower rates of income.
Biden’s plan would make the tax system more progressive, targeting the top 2% of taxpayers.
In theory, that sounds great. After all, higher-income groups can afford to pay more, and many of those in the top 1% of income globally have already expressed a willingness to pay higher taxes.
Those individuals created wealth by starting a successful business, and most of their wealth is tied up in that business. Warren Buffett is a billionaire, but he only took home $375,000 in income from his CEO job last year.
What about targeting businesses themselves? Businesses have costs, and the higher taxes are, the more difficult it is for a successful business to stick around. When it comes to business taxes, the government essentially acts as a silent partner, taking a big slice of any profits.
Ironically, the land of the free led the developed world in corporate tax rates before the Trump tax cuts kicked in. Biden’s plan would put U.S. corporate taxes higher, moving from the current 21% to 28%.
That’s below the 35% they’re at right now. But the question begs itself: Is a global pandemic the best time to tax the few companies that can earn a profit?
Amid a global pandemic, a plan to strengthen Social Security and other government safety nets sounds like a proposal a majority of voters could get behind.
Biden once again has a tax plan that would sound good, but end up destroying the very thing it sought to protect.
His proposals to raise payroll taxes for Social Security sound like they would strengthen the program. But his plans to increase payouts to at least 125% of the poverty level would add on more costs than would come in from additional tax revenue.
The program is already on track to be bankrupt by 2035, a scant 15 years away.
In total, estimates for Biden’s tax plan are that it would shave a full 1.51% off GDP each year it’s in action. That’s a high price to pay to put Biden in the White House.
Even worse, it’s a price that will likely be borne by all with higher unemployment, lower wage growth, and depressed 401(k) values.