Here Come the Biden Taxes The middle class will pay for the largest tax increase since 1968.
https://www.wsj.com/articles/here-come-the-biden-taxes-11617231225?mod=opinion_lead_pos1
So much for the illusion of cost-free spending blowouts. The bill for President Biden’s agenda is coming due, starting with Wednesday’s proposal for the largest corporate tax increase in decades. Can we finally drop the pretense that any of this is moderate or unifying or bipartisan?
Mr. Biden’s corporate tax increase alone is more than $1.5 trillion over 10 years, with another $1.5 trillion coming soon on individual income and investment. That’s about $300 billion a year, or 1.36% of GDP each year, assuming U.S. GDP of $22 trillion. Dan Clifton of Strategas Research Partners compares that to Bill Clinton’s 1993 tax increase of 0.4% of GDP, making the Biden increase the largest since 1968.
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Mr. Biden’s corporate increase amounts to the restoration of the Obama-era corporate tax burden, only much more so. The GOP tax reform of 2017 was designed to fix a corporate tax system that was uncompetitive and convoluted. Companies paid taxes in countries where they earned the income, but then again if they returned the money to the U.S. Trillions of dollars piled up overseas. Remember the string of corporate “inversions” when CEOs moved their headquarters overseas?
Those inversions all but ended after 2017 as reform lowered the top corporate rate to 21% from 35% and moved the U.S. closer to a territorial tax system in which income is taxed where it is earned. Mr. Clifton calculates that companies repatriated $1.6 trillion from overseas to the U.S. from 2018-2020, which they deployed for a variety of useful economic purposes. The repatriation total three years before reform: only $495 billion.
Mr. Biden wants to raise the corporate rate back up to 28%, but that’s the least of his proposals. He also wants to add penalties that would make inversions punitive, and he’d impose a global minimum corporate tax of 21%. This would shoot the tax burden on U.S. companies back toward the top of the developed world list. At least nine major countries have cut their corporate tax rate since 2017, including France, Sweden and the Netherlands.
The larger Biden goal is to end global tax competition, much as its ban on state tax cutting seeks to end income-tax competition among the 50 states. “The United States can lead the world to end the race to the bottom on corporate tax rates,” says the White House fact sheet. Mr. Biden says he wants “other countries to adopt strong minimum taxes on corporations” so nations like Ireland can no longer compete for capital with lower tax rates.
This has long been the dream of the French and Germans, working through the Organization for Economic Cooperation and Development. But even the OECD has been discussing a global minimum tax of about 12%, while Mr. Biden wants 21%. Only in Washington would the left punish American employers in the hope that the rest of the world will be as self-destructive.
All of this is in addition to the looming Biden tax increases on dividends, capital gains and other investment income. The lower 2017 corporate rate was intended to reduce the double taxation of corporate income that is built into the U.S. code. Mr. Clifton calculates that if the Biden plan becomes law the U.S. would have the highest overall tax burden on corporate income—62.7%—in the OECD.
The great political fakery here is that corporate taxes merely fall on CEOs and rich shareholders. But as everyone knows, corporations don’t really pay taxes. They are vehicles for collecting taxes that are ultimately paid by some combination of customers in higher prices, workers in lower wages, and shareholders in lower returns on investment.
The economic literature is clear on this point. Kevin Hassett, Aparna Mathur, Laurence Kotlikoff and other economists have done extensive work showing how lower corporate tax rates result in higher wages. Higher after-tax profits mean more corporate investment, which means more productive workers, whom companies can afford to pay more.
In other words, Mr. Biden’s corporate tax increases will hit the middle class hard—in the value of their 401(k)s, the size of their pay packets, and what they pay for goods and services. This damage won’t show up immediately, especially as the economy booms as Covid eases this year, but the corrosive impact will compound in the coming years.
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How much of this will pass Congress? The tax increases are so extreme that they seem intended to give Democrats like Joe Manchin and Kyrsten Sinema room to demand changes and then claim victory before voting for increases that would still be enormous. Note that the White House increased the magnitude of the increases at the insistence of the Congressional left, and with no input from Republicans.
Once again the plan is to use budget reconciliation to jam $4 trillion more in spending and $3 trillion in tax increases through Congress on a partisan vote. And to do so with the narrowest majorities in decades.
Joe Biden wants to pass an FDR agenda on a Donald Trump mandate. We hope he gets the furious resistance he’s inviting.
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