By Eric Boehm, Reason
President Joe Biden is reportedly considering a plan to hike taxes on individuals and corporations in order to help offset another splurge of government spending. Preliminary analyses of the possible tax hikes show they would transfer as much as $2 trillion from the private sector to the government, likely costing jobs and reducing wages for American workers.
Of course, that’s what taxes do. Every dollar the federal government drains from the economy is a dollar that cannot be used to grow a business, cannot be used to purchase new equipment, and cannot be paid to workers or shareholders.
Biden is considering hikes to both the personal income tax and corporate income tax, Bloomberg reports, citing unnamed White House sources. Advisers are reportedly kicking around ideas like raising the corporate income tax rate to 28 percent (from 21 percent); hiking personal income taxes on individuals and households that earn over $400,000 annually; and imposing a higher capital gains tax for individuals who make over $1 million annually. The higher taxes would be paired with an expected White Houe announcement of what’s likely to be a multi-trillion-dollar infrastructure spending package.
We’ll have to wait to see the specifics of the proposal, but much of what is under consideration seems roughly in line with the tax policies the Biden campaign published last year. If enacted, those policies would raise federal revenue by about $2.1 trillion over 10 years, according to an analysis by the Tax Policy Center, a nonpartisan think tank. The organization says Biden’s plans would reduce America’s GDP by between 0.3 percent and 0.7 percent annually for the rest of the decade.
The corporate tax hike alone would reduce long-term economic growth by about 0.8 percent, kill 159,000 jobs, and reduce wages, according to a separate analysis by the Tax Foundation, a nonpartisan think tank. Raising the federal corporate tax rate to 28 percent would make the average state-federal tax burden for American businesses 32.34 percent—the highest rate in the developed world.
“Workers across the income scale would bear much of the tax increase,” write the Tax Foundation’s Garrett Watson and William McBride. “For example, the bottom 20 percent of earners would on average see a 1.45 percent drop in after-tax income in the long run.”
Read more at Reason.com.