President Biden wants to raise federal revenues by $4.2 trillion over the next ten years by instituting “the highest top tax rates on individual and corporate income in the developed world.”
That’s according to a blog post from Erica York and Garrett Watson of the Tax Foundation that analyzes the president’s budget proposals.
The president’s budget assumes that Build Back Better becomes law, which makes the economist in a hole assuming a ladder seem reasonable by comparison. And nothing like the president’s budget will pass, either. The point here is to signal what Biden wants to happen, not what actually will happen.
And what Biden wants is borderline confiscatory taxation of corporations and wealthy individuals. York and Watson write:
The major tax proposals include:
- higher top rates for individual income, corporate income, and capital gains income;
- ending step-up in basis by making death a taxable event;
- expanding the base of the Net Investment Income Tax (NIIT) to apply to active pass-through income and making the active pass-through business loss limitation permanent;
- major changes to international taxation; and,
- a laundry list of new minimum taxes for individuals, businesses, and international corporations.
Another revenue raiser includes government-set pricing for certain prescription drugs, enforced by an excise tax of 1,900 percent on drug sales.
What would the effects of all that be? York and Watson estimate:
The tax increases in BBBA alone would reduce long-run GDP by 0.5 percent, and the tax increases in the budget, including a higher corporate tax rate of 28 percent (up from the current 21 percent) and international tax changes, would further discourage domestic investment and reduce the productive capacity of the United States. For example, raising the corporate tax rate to 28 percent would reduce long-run GDP by 0.7 percent and eliminate 138,000 jobs.
These increases go way beyond what most other developed countries do to tax wealthy individuals and corporations:
- Raising the top marginal tax rate on individual income to 39.6 percent and applying an 8 percent surtax on MAGI above $25 million would bring the combined top marginal tax rate on individual income to 57.3 percent, up from 42.9 percent under current law and above the OECD average of 42.6 percent.
- Taxing capital gains at ordinary income tax rates would bring the combined top marginal rate in the U.S. to 48.9 percent, up from 29.2 percent under current law and well-above the OECD average of 18.9 percent. Further, Biden’s proposal for a complicated “Billionaire Minimum Tax” would bring unrealized gains into the tax base on an annual basis, which is also out of step with international norms.
- Raising the corporate income tax rate to 28 percent would once again bring the U.S. near the top of the OECD at a combined rate of 32.3 percent, versus 25.8 percent under current law and an OECD average (excluding the U.S.) of 22.8 percent.
Again, none of this is likely to happen, and anything that actually does pass will be significantly toned down. But this is the tax system that President Biden wants: a much more complicated set of rates and rules that’s uncompetitive with the rest of the developed world.
Biden’s vision demonstrates an unwillingness to learn from other countries’ examples. France tried to soak the rich under socialist president François Hollande, elected in 2012. He taxed earnings above 1 million euros at 75 percent. It was a disaster. Then-adviser Emmanuel Macron warned against the move, saying France would become “Cuba, without the sun!” Some wealthy individuals moved to other countries rather than pay the tax. The international competitiveness of the French economy tanked. The government reversed course and eliminated the tax at the end of 2014.
And it didn’t even work to raise money. The Guardian reported in 2014:
Finance ministry studies showed that despite all the publicity, the sums obtained from the supertax were meagre, standing at €260m in 2013 and €160m in 2014, and affecting 1,000 staff in 470 companies. Over the same period, the budget deficit soared to €84.7bn.
That same article includes this tidbit:
Despite the backlash Hollande clung to the principle of the supertax even after it was dismissed by the country’s highest court, fearing a revolt by his leftwing allies.
That dynamic between a president and his far-left allies sounds slightly familiar, doesn’t it?