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, used to say, only half jokingly, “Liberals love jobs, but they hate employers.” That axiom was never more on point than today, with President Biden and Democrats in Congress preparing to roll out their $2 trillion tax plan. This tax behemoth comes at a time when we still have at least 8 million fewer Americans working today than a year ago.
The idea that the largest tax increase in at least three decades is going to create more jobs here in America is only accurate if every law of economics is suspended. Taxes simultaneously suck demand and supply of services out of the economy and are the financial equivalent of bleeding a patient to bring him back to life.
The Biden tax plan, as currently being discussed, will be especially contractionary because it would raise tax rates on American small businesses, corporations and investors. The Biden plan reportedly would raise the corporate tax from 21 percent to 28 percent, the combined highest income and payroll tax rom 37 percent to 52 percent, the small business tax from 31 percent to 40 percent, the capital gains tax from 20 percent to 40 percent, and t estate tax on appreciated assets from 0 percent to 40 percent.
There also is talk of a carbon or energy tax to reduce climate change, of a 2 percent wealth tax on households with assets of more than $5 million, and of a new international tax on corporations. If it moves, tax it. Biden’s press secretary, Jen Psaki, defended the tax plan earlier this week by saying that “those at the top” — the wealthy and big corporations — “are not doing their part” and should be made to pay their “fair share.”
Good luck with that. According to the latest numbers from researchers and the latest IRS data, the share of federal income taxes paid by the richest 1 percent of Americans went up to between 37 percent and 41 percent of the total in 2018, after the Trump tax cut. The lower tax rates incentivized more work, investment and business activity, which translated into higher tax payments by the rich.
I helped draft one of the earliest versions of the Trump tax cut. The centerpiece of that plan was to lower the American corporate tax rate from almost 40 percent, the highest rate in the world at the time, to 25 percent, bringing us below the international average. The goal was simple: Stop putting American companies at a 15 percentage point tax disadvantage when they compete against China, Germany and other global rivals.
Trump also wisely lowered the tax on “repatriated capital” brought back to the U.S. from overseas, down to 10 percent. These cuts were like a magnet for some $1 trillion of capital and, eventually, jobs flowing back to our shores. The result: More jobs, the lowest unemployment rate in 50 years, and the biggest wage gains in at least 20 years. Income inequality fell after the Trump tax cuts, because this rising tide lifted almost all boats. Why reverse a successful policy?
Tax rates of 50 percent or more on the highest-income Americans may seem like an equitable way to “sock it to the rich.” But most Americans in the highest income tax bracket own, invest in or operate small businesses. According to the Small Business Administration, small companies create 1.5 million jobs annually and account for 64 percent of new jobs created in the U.S.; Bloomberg News puts the number of Americans employed by the nation’s 30 million small businesses at roughly half the total workforce, while noting that small business revenue fell 32.4 percent since January 2020 as a result of the pandemic. As Dick Armey might say, punishing employers, especially now, is no way to produce more jobs.
The media also obsesses over the massive wealth of Americans like Jeff Bezos and Elon Musk, who now have tens of billions of dollars and more wealth than some entire countries. Does anyone really believe that Bezos, or Mark Zuckerberg or Warren Buffett, are suddenly going to start paying a 50 percent tax rate, or a yearly 2 percent wealth tax? That’s about as likely to happen as Vice President Harris blowing a kiss to Donald Trump.
For as long as we have had an income tax, the ultra rich have lined up tax accountants, lawyers, overseas bank accounts, tax shelters and all sorts of other tools to legally hide their income and wealth from the tax collector. You don’t get rich by being stupid. The main impact of the Biden tax plan will be to advantage our foreign competitors because, all other things being equal, the factories, capital and jobs tend to flow to where taxes are low. It is a reason all the money is now leaving New York, with its 13 percent income tax, and finding a new home in Florida, with no income tax.
We all want to lower these gargantuan amounts of deficit spending in Washington. The way to do that is by growing the economy, not shrinking it. History proves again and again that higher taxes only invite more spending — for example, Biden’s $1 trillion “green” infrastructure bill — not lower deficits. As Ronald Reagan used to say, never give a drunkard a bigger allowance.
The other day a Biden official said that these tax hikes will create a new system of tax fairness in America that will create millions of new jobs. That’s right, it will — but the jobs are going to be in places like China, Japan, and Mexico.
Stephen Moore is an adviser at FreedomWorks and former member of the White House economic recovery task force. He tweets at @StephenMoore.