Joe Biden and his $2 trillion tax plan would crush the economic recovery
My old boss Dick Armey, the Texas Republican and former House majority leader, would say half jokingly that “liberals love jobs but hate employers.” That axiom was never more on point than today, with President Biden and Democrats in Congress preparing to roll out their new $2 trillion tax plan. This fiscal behemoth comes at a time when we still have at least 8 million fewer Americans with the labor market versus one year ago.
The idea that the largest tax increase in at least three decades is going to create more jobs here at home is only accurate if every law of economics is suspended. Any sort of levies suck the demand and supply for services and products out of the economy. They are really the financial version of letting a patient bleed out in order to bring him back to life.
The tax plan, as being discussed, will be especially contractionary since it would raise tax rates on small business, companies, and investors. The tax plan would reportedly increase the small business tax to 40 percent, raise the corporate tax to 28 percent, boost the capital gains tax to 40 percent, raise the estate tax on earned assets to 40 percent, and then increase the combined highest income and payroll tax above 50 percent.
There is also talk of the carbon tax to reduce climate change, a 2 percent wealth tax on households with assets of more than $5 million, and a new international corporate tax. Press secretary Jen Psaki evidently defended the tax plan earlier this week, telling the public that “those at the top are not doing their part” and should be made to pay their share.
Good luck with that. According to the latest data from researchers and the Internal Revenue Service, the share of federal income tax that was paid by the top 1 percent of Americans rose to 40 percent of the total paid in 2018 after the tax cuts of President Trump went into effect. Such lower tax rates fueled more work, investment, and business activity, which translated into higher tax payments to the federal government by the rich.
I helped to draft one the earliest versions of the tax cuts. The idea was to lower the corporate tax from almost 40 percent, the highest in the world back then, to 25 percent to send us below the international average. The goal was to stop putting our companies at a bad tax disadvantage when they compete against China and several other global rivals.
Trump also wisely lowered the tax on capital brought back for the United States from overseas down to 10 percent. These tax cuts were like a vital magnet for some $1 trillion of capital and jobs flowing back to our shores. The result was the lowest unemployment rate in 50 years, and the largest wage gains in at least 20 years. Income disparity fell after the tax cuts as the rising tide lifted most boats. Why reverse this success?
Tax rates of 50 percent or more on those at the top may seem like a fair way to sock it to the rich. But most of these Americans own and operate small companies, which create over 1 million jobs annually and account for the majority of the new jobs created in the United States. Bloomberg has estimated the number of Americans who work with these 30 million small firms in the country at around half the total labor force. Punishing employers, as Armey might say, is no way to produce jobs.
The media obsesses over the wealth of Americans like Jeff Bezos and Elon Musk, who now have tens of billions of dollars and more than some entire countries. Does anyone really believe they will suddenly pay a 50 percent income tax or a 2 percent wealth tax? That is about as likely to happen as Kamala Harris blowing a kiss to debate enemy Mike Pence.
For as long as we have had an income tax, the rich have lined up lawyers, tax shelters, overseas bank accounts, plus all kinds of other legal tools to hide their vast wealth from the tax collector. You do not get rich by being stupid. The main effect of the proposed tax plan will be to advantage our foreign competitors because, with other things the same, the capital and jobs tend to head where tax rates are low. It is the reason all the money is now leaving New York and securing a new home in Florida.
We all want to reduce the incredible amounts of spending in Washington. The way to do that is by growing the economy rather than not shrinking it. History shows higher tax rates actually invite more spending. They do not lower federal budget deficits. As Ronald Reagan used to say, never give a drunkard a bigger allowance. An official said these tax hikes can create a fair system that will create millions of new jobs. But the prosperity will be unfortunately sent to China and the rest of our global rivals.
Stephen Moore is an adviser at Freedom Works and former member of the White House economic recovery task force. He tweets at @StephenMoore.