Biden’s Tax Plans: A Broader Reach Than Advertised

D emocratic presidential nominee Joe Biden is very committed to the narrative that if elected, he will raise taxes only on the rich. In one television interview, he promised that “nobody making under 400,000 bucks would have their taxes raised. Period. Bingo.”

The specifics of Biden’s claim are disputable. But a new analysis from the Wharton School of Business does find that the top 1 percent would shoulder 80 percent of the burden from Biden’s tax increases.

So, yes, it is at least largely true that the Biden campaign’s proposed tax increases are nominally focused on the rich. But whatever Biden may say, the tax hikes he wants to see would still hit “regular” people.

Why? Well, there is a big difference between who officially has to pay for a corporate tax and who actually ends up bearing its real costs. And when it comes to Biden’s support for hiking the corporate tax, it is workers and consumers, not rich executives, who would suffer the most.

Let me explain.

The GOP’s 2017 tax-reform bill reduced the U.S. corporate tax rate from 35 percent to 21 percent. This made our tax environment more competitive internationally, as our 35 percent levy was significantly higher than those of most other developed countries.

Biden, however, wants to mostly undo this reform and raise the corporate tax rate back to 28 percent. The Democrats’ narrative here is that they simply want businesses to “pay their fair share.” Who could oppose that?

There is just one problem: Corporations don’t actually pay the corporate tax. You do.

Yes, the government can technically send the tax bill to the corporate boardroom. But big businesses largely respond to higher taxes by increasing prices, holding back their wage bills, and reducing job creation, rather than eating the cost themselves.

Corporate-tax increases also incentivize off-shoring. It’s easy to see why: The more expensive the government makes it for multinational corporations to do business in the U.S., the more likely they are to move operations overseas — taking economic activity and jobs with them.

“The elementary fact is that ‘business’ does not and cannot pay taxes,” Nobel Prize–winning free-market economist Milton Friedman once explained. “Only people can pay taxes. Corporate officials may sign the check, but the money that they forward to Internal Revenue comes from the corporation’s employees, customers or stockholders.”

This isn’t just theoretical; it’s confirmed by ample research.

“Studies appear to show that labor bears between 50 percent and 100 percent of the burden of the corporate income tax, with 70 percent or higher the most likely outcome,” the Tax Foundation’s Stephen J. Entin wrote in a 2017 review of the research on this subject.

There are plenty more examples. The authors of a 2015 paper by economists from the American Enterprise Institute concluded that “higher corporate tax rates depress wages. . . . Estimates suggest that a 1 percent increase in corporate tax rates leads to a 0.5 percent decrease in wage rates.”

William C. Randolph of the Congressional Budget Office found that “domestic labor bears slightly more than 70 percent of the burden of the corporate income tax.” Research from the Kansas City Federal Reserve concluded that a 10-percentage-point increase in corporate taxes “reduces mean annual gross wages by seven percent.”

So while it may be true that Joe Biden’s tax plan wouldn’t nominally target the less wealthy for tax for tax hikes, his increases would still impose costs on many Americans dearly. This isn’t speculation: The Tax Foundation analyzed Biden’s tax proposals and concluded that they would reduce the size of the economy by 1.51 percent over the long term. That might sound like a small fractional change, but it translates to trillions of dollars in wealth that never gets created. More specifically, the Tax Foundation finds that Biden’s tax plan would over time lead “to 585,000 fewer full-time equivalent jobs.”

Suggesting that these proposed tax increases would affect only “the rich” looks a lot like malarkey to me.