Biden’s tax hikes will hurt the ‘little guy’ and kill Trump’s ‘opportunity economy’
The American economy continues to experience a dynamic recovery, with even stronger economic activity anticipated through the rest of the year thanks to mass vaccinations, widespread reopenings and a further unleashing of pent-up demand. Getting back to normal is within sight. It would be tragic if the implementation of wrongheaded economic policies smothered the accelerating recovery.
Unfortunately it appears that President Biden and congressional Democrats are preparing to do just that — and in a way that will harm the very people they claim to want to help.
Since entering office just three months ago, the Biden administration has scored nearly $2 trillion in new spending — with trillions more planned, in spite of the nearly $1 trillion unspent from previous pandemic relief bills. To help pay for it all, they are proposing massive tax increases. Despite Democrats’ claims that such intervention will create millions of jobs, recent history shows that it tends to warp the free market, expand government power and drag the economy. It’s a spend-and-tax scheme on steroids, designed to fundamentally reshape the U.S. economy toward a collectivist model of ever-greater government control.
Aware that capital goes where it’s treated well, and that people and businesses are economically rational, the Biden team is moving to artificially redirect economic behavior by reversing the Trump pro-growth, pro-worker policies that delivered the powerhouse pre-pandemic economy and the muscular recovery.
The smorgasbord of tax hikes is central to their plan, despite it being the worst possible time to raise taxes on American consumers, businesses and investors. Democrats don’t simply wish to “soak the rich.” They also are targeting the middle class and job creators who are driving the recovery.
Biden’s proposals include raising the top individual rate to target some Americans earning $200,000 per year, even though he previously indicated the increase would not affect anyone making over $400,000.
Higher taxes on small business and a higher corporate tax rate also are in the cards, and there is talk of a wealth tax and increasing death taxes. Democrats also seek higher taxes on capital gains income, with the top rate upped to a confiscatory 43.4 percent (including the 3.8 percent ObamaCare surtax). The top capital gains rate in high-tax states such as New York and California would push 60 percent. Higher rates mean less investment, liquidity and revenue flowing into the Treasury, as capital will stay put until rates come back down.
This proposed riot of higher taxes reverses much of 2017’s Tax Cuts and Jobs Act (TCJA), President Trump’s historic tax reform, which created a true economy of opportunity.
The TCJA immediately spurred economic activity that led to strong growth and tangible economic benefits for hard-working Americans. Thanks to the tax cuts, more than 6 million American workers received wage increases, bonuses and increased benefits. The typical family earning $75,000 got a tax cut of more than $2,000. TCJA’s corporate tax policies enabled corporations to repatriate over $1 trillion, and businesses to invest more in American workers and operations.
The Trump tax cuts, along with other pro-growth policies such as regulatory relief, fairer trade deals and unleashing the energy sector, delivered a growing, inclusive economy that produced real results for all Americans.
Nearly 7.3 million jobs were added to the economy from Trump’s election through the onset of the pandemic in February 2020. Prior to the pandemic, the unemployment rate fell to its lowest level in half a century. Americans of all backgrounds enjoyed a booming labor market; the unemployment rates for African Americans, Hispanic Americans, Asian Americans, women, veterans, individuals with disabilities and those without a high school diploma all reached historic lows.
Through February 2020, the strong economy put more money into Americans’ pockets. Wage growth rose at the fastest rate in a decade. Real median household income grew by a record 6.8 percent. Americans entered the workforce in droves, and small business optimism soared to record highs.
Significantly, the TCJA and other growth policies reduced inequality in both wages and wealth, enabling more people to achieve the American dream. Middle-class and lower-income workers experienced faster wage growth than higher-income earners in 2019, helping to narrow the gap.
As a result, millions of Americans were lifted out of poverty. Poverty rates for African Americans and Hispanic Americans reached record lows in 2019, and millions left the food stamp rolls.
For decades, President Biden and the Democrats have given lip-service to reducing income inequality, poverty and unemployment. In just four years, President Trump actually did it.
Biden’s move to reverse the successful Trump policies will hurt the “little guy” he always says he’s fighting for: middle-class families, low-income workers and minorities. Combined with the threat of rising interest rates and inflationary pressure, higher taxes will slow job creation, reduce our global competitiveness and bend the future economic trajectory down. A sputtering economy would mean dimmer job prospects, lower wages and higher costs everywhere, impacting the “little guy” the most.
Trump’s tax cuts, anathema to the left, are contributing to the current robust recovery. Higher taxes will suffocate it. President Biden has an opportunity to truly support the workers he professes to champion by spurning higher taxes and instead embracing what works for all Americans.
Monica Crowley served as assistant secretary of the Treasury for public affairs from 2019 to 2021. Follow her on Twitter @MonicaCrowley.