Biden Budget Proposes Record-High Taxation

P resident Biden released his FY 2024 budget yesterday, and as is said almost every year no matter the president or party, it’s pretty much dead on arrival. Still, these budgets are policy documents, almost like party platforms. They tell us what direction the president’s party would go if he were to control all the levers of power.

For the American taxpayer, that direction would not be a good one. The president’s budget contains a hodgepodge of tax increases on ordinary families (including every taxpaying American making less than $400,000 per year) and every small and big business in the country. The IRS would become super-sized, and audit rates would skyrocket. We’d have the largest tax collection in our history.

Let’s start with the big picture. According to the Congressional Budget Office (CBO), federal tax revenues in 2023 are expected to total $4.8 trillion, or 18.3 percent of GDP. This is well above the historical norm of 17.4 percent of GDP. So we are already overtaxed. A rational conversation should start with how to get taxes back down to something closer to the historical norm.

The Biden budget goes the other way. Taxes are expected to rise from $4.8 trillion in 2023 all the way to $8 trillion in 2033. As a percentage of the economy, taxes will rise from 18.3 percent today (again, much higher than the historical average) to 20.1 percent of GDP (a record high). The Biden budget, then, results in the highest taxes America has ever seen. (For Biden’s numbers on the ten-year window, they can be found on page 140 here.)

What do these tax increases look like? The top income-tax rate would rise from 37 percent today to 39.6 percent under the Biden budget. The capital gains top rate would nearly double from 20 to 39.6 percent. There would be a five-percentage-point surtax on nearly all income over $400,000, which means the top rate is actually closer to 45 percent. The top tax rate hasn’t been that high since before the 1986 Tax Reform Act, and the capital-gains tax rate has never been nearly that high (yet another record tax increase in the Biden budget).

But there’s more. The Biden budget creates a 25 percent tax on billionaire Americans. But this tax would not be just on their income — it would also be an annual tax on their property, notably unrealized capital gains and business equity. The Left realizes that it can only raise income taxes so much to pay for the government programs it wants. The next frontier is to tax property as well as income. And just like the income tax, it starts off by being levied the impossibly rich and will eventually be levied on all of us. In related tax-hike news, the 40 percent death tax’s “standard deduction” will be cut in half, from $13 million today ($26 million in the case of a married couple) to just $6.5 million.

What about businesses? The corporate income-tax rate would rise from 21 percent to 28 percent. Doing so would once again saddle America with one of the highest corporate income-tax rates in the entire world. We would only be ahead of Columbia, Malta, Brazil, and Namibia. We would be behind every single one of our major trading partners: Canada, Mexico, Japan, the United Kingdom, Germany, and France. We’d be behind China. Once again, the ugly prospect of offshoring jobs and corporate inversions would return (we haven’t heard much about those since the Tax Cuts and Jobs Act reduced our corporate rate to 21 percent). It might be even worse this time, since the Biden budget conforms our tax code to the global-minimum-tax plan being pushed by Euro-socialist tax bureaucrats. Corporations looking to buy back their own stock will see an excise tax hike on the transaction from 1 percent today to 4 percent.

Small businesses fare even worse. Their top tax rate rises from 37 percent to 39.6 percent. The five-percentage-point surtax (which today only applies to wages, investment income, self-employment income, and general-partner profits) would be expanded to include all types of mature small-business income, notably Subchapter-S and limited-partner profits. The Biden budget assumes that the Qualified Business Income deduction (functionally, a one-fifth cut in the top tax rate of a business) goes away.

What about the looming expiration of the Tax Cuts and Jobs Act’s individual provisions in 2025? The Biden budget says that it supports keeping the tax relief that applies to families making less than $400,000 per year, but that it also supports other, unnamed, tax increases to pay for it. That means there are implicit tax increases in the Biden budget above and beyond what is detailed here.

Then there is a hodgepodge of other familiar tax hikes: a dozen tax increases on fossil fuels; a cap on how big your 401(k) or IRA can get; the $600 “bank-account snooping” provision that proved so unpopular in 2021; there are dozens and dozens more. The House Budget Committee totals the tax increases in the Biden budget to $4.7 trillion over the next decade, and I’m not sure if that includes the promised tax hikes to pay for avoiding a tax increase on the middle class in 2025. It does manage to cut taxes in the form of permanent Obamacare tax-credit subsidies for the mass affluent, a backdoor universal-basic-income payment in the form of a giant, advanced child tax credit, and very large tax benefits for daycare.

Of course, if you’re going to bring tax-collection to levels never before seen in American history, you’re going to need a super-sized IRS. The Biden administration obliges by increasing the regular IRS budget by 15 percent in just one year. In addition, the budget extends the $80 billion windfall to the IRS Congress approved last summer (the one that results in 87,000 new IRS employees) by tacking on two more years of funding, at $14 billion per year. This will mean millions of new small-business audits. The IRS is likely to be put in charge of tax-return prep. But it’s not all bad: The paperwork burden will be reduced by “permanently authorizing current home to work transportation for the IRS commissioner.”

There’s much more to say, but the big takeaways from this budget are that the Biden administration wants to usher in the highest tax burdens in our country’s history, the highest tax rates in the world on capital and business income, and would like to create a federal property tax to go alongside the federal income and payroll taxes. And it wants a massive IRS bureaucracy to administer it all for us. Again, as with all budgets, this vision is just a fantasy. But it’s still a disturbing one.