Politics Biden's confiscatory tax plans unleash class warfare
The Limits of Wealth-Tax Populism
Safeguarding democracy from inequality will require much more than soaking the superrich.All this has been apparent for a long time. But thanks to some public-spirited criminal with access to the closely guarded files of the IRS, the precise terms of the billionaire class’s sweetheart deal grew more visible this week. According to tax records leaked to ProPublica, between 2014 and 2018, the 25 richest Americans collectively grew $401 billion wealthier, while paying only 3.4 percent of that sum to Uncle Sam.
In his latest economic policy proposals, President Biden has laid out a wish list of to help pay for his administration's proposed massive . His rhetoric, which accuses "corporate America and the wealthiest 1 percent of Americans" of not paying their is a well-worn page from the class warfare playbook. Unfortunately, it perpetuates many misconceptions about the U.S. tax system and ignores the extreme negative effect that these tax hikes would have on investment, work and wages.
First, a fundamental misrepresentation in Biden's argument is the claim that the wealthy are paying an unfairly low share of taxes into the system. This kind of statement simply preys on people who feel like it would be a good idea to soak the rich or who merely think the wealthy are able to avoid taxation, but are unaware of the basic facts.
Opinion: America's tax system is rigged to protect the rich and powerful
Jeffrey Sachs writes the US tax system is designed to protect wealthy individuals and powerful corporations, and it is breaking the country in more ways than one. Much of the Republican Party lives and breathes to protect the rich and powerful from paying taxes, and Democrats like Sen. Joe Manchin of West Virginia too often side with them. Meanwhile, public opinion -- strongly supporting higher taxes on wealthy Americans and corporations -- counts for little because the rich have undue influence over the political class. © Getty Images But the severity of the problem cannot be overstated.
In 2018, the latest year for which are available, the top 1 percent of taxpayers earned 21 percent of total (adjusted gross) income in the economy, but they paid over 40 percent of total federal income taxes. The top 10 percent earned 47 percent of income, but paid 71 percent of taxes. Calls to make the individual tax code even more progressive are calls on higher-earning families to bear an even more disproportionate share of the tax burden than they already do, not to merely pay as much as everyone else.
Second, by disparately proposing a tax increase here and another there, Biden leaves taxpayers themselves to do the math, but avoids disclosing the total tax burden he is trying to impose.
For corporations, the assorted Biden tax increases would compound, significantly increasing their effect. In general, publicly traded and other large companies, which are sometimes the most economically efficient manner of doing business, are C corporations subject to two levels of tax.
An effective and politically viable option for corporate tax reform
Together with a 25 percent corporate tax rate, the Biden administration should adopt the 15 percent corporate minimum tax rate coming out of the G-7 meeting, instead of the proposed 21 percent minimum rate. The 15 percent minimum rate is likely to attract broader support from the G-20 finance ministers, who meet later this summer. Moreover, if most industrialized countries adopt a minimum 15 percent rate, then American companies would be at a competitive disadvantage with a 21 percent U.S. minimum rate. In sum, Congress should pass a 25 percent corporate tax rate with a 15 percent minimum tax on foreign profits of U.S.
Biden would increase the from 21 percent to 28 percent and the tax rate on from 23.8 percent to 43.4 percent. The (TCJA) in 2017 brought the corporate income tax rate down from 35 percent to 21 percent, which is amongst other advanced economies. But the owners of C corporations are subject to a second level of taxation on dividend distributions or sale of stock, which is after taking into account tax increases under President Obama that were left in place by the TCJA. Even under the TCJA, owners of corporations are subject to a combined income tax rate of 40 percent, contrary to claims that wealthy owners of corporations are now barely taxed.
Here is how corporate double taxation works. Suppose a company earns $100. The company under the Biden plan would pay $28 in corporate tax, leaving the company $72. But to actually obtain that profit, a shareholder under the Biden plan would have to pay an additional 43.4 percent of that $72 upon taking a dividend or selling the stock, which leaves them with only $41. So their total Federal income tax rate on investment would be nearly 60 percent.
Biden and his aviators greet queen on a sunny afternoon
WINDSOR, England (AP) — President Joe Biden and his aviator sunglasses met Queen Elizabeth II on bright Sunday afternoon. The queen hosted the president and first lady Jill Biden at Windsor Castle, her royal residence near London. Biden flew to London after wrapping up his participation in a three-day summit of leaders of the world's wealthy democracies in Cornwall, in southwestern England. He arrived at the castle aboard the presidential helicopter and was ferried to the queen in a black Range Rover.
But there are also multiple levels of state taxes to consider. Consider that in a state like California the corporate tax rate is and the individual rate is for the highest incomes. And those rates in New York City are even higher at , including city, state and MTA taxes and almost for city and state taxes for the highest earners. After taking into account all these taxes in the Big Apple, the investor is left with only 25 percent of the profit with government taking three-quarters. But even those figures don't take into account the imposed upon death for top earners, along with additional state taxes. Taken together, the Biden proposal would increase the Federal tax rate on corporate shareholders to 76 percent, and a confiscatory 87 percent when taking into account income estate taxes in some parts of the country.
The Biden proposal would also impose double corporate tax in situations under current law where that can be avoided such as when a company's owners reinvest all profits in the business during their lifetimes, instead of taking dividends, with a new level of death taxes on any untaxed appreciation in the value of the corporate stock.
Biden infrastructure plan would reduce growth: Tax group
A leading tax think tank projected President Joe Biden’s infrastructure plan would lead to a decrease in long-run economic output. © Provided by Washington Examiner The Tax Foundation, a nonpartisan group that generally prefers lower taxes, released modeling of Biden’s American Jobs Plan on Friday. The think tank examined Biden’s plan as first proposed, which clocks in at about $2.3 trillion — although that number will be significantly lower if negotiations with Republicans are successful.
Third, separate from the question of whether wholesale wealth confiscation constitutes "fair" tax policy, Biden acts as though it will have no negative impacts on the economy. But one does not need to be an economist to recognize that such confiscatory levels of taxation will before putting their money at risk. It will have a negative impact on employment, as such high taxation . And it will have a as decreased investment leads to lower productivity and harms the competitiveness of American workers.
Each of these reactions means lost resources for U.S. citizens as a whole. Confiscatory tax policies make citizens worse off overall in the name of redistributing resources from the wealthy to the poor. But they ignore the fact that the taxes are imposed on those responsible for the investment that creates jobs. The new administration and its allies in Congress are trying to use the politics of envy and class warfare to argue that low- and middle-income can get ahead only with massive redistribution by the government, instead of economic growth spurred by a dynamic private economy driven by free choice.
Joshua Rauh is the Ormond Family professor of Finance at Stanford's Graduate School of Business and a senior fellow at the Hoover Institution. Follow him on Twitter: @joshrauh
Aharon Friedman is a director and senior tax counsel at the Federal Policy Group and formerly served as senior adviser and senior tax counsel at the Treasury Department and the Committee on Ways & Means. Follow him on Twitter: @76redwhiteblue
Biden faces challenge with Democrats on infrastructure package .
President Biden faces hurdles toward getting consensus among Democrats on an infrastructure package, regardless of if it's bipartisan legislation or if Democrats pursue legislation on their own. © MANDEL NGAN/AFP via Getty Images Biden faces challenge with Democrats on infrastructure package Progressives are getting frustrated with Biden's ongoing talks with Republicans, and want the White House to start to pursue an infrastructure package that could pass without GOP support through the budget reconciliation process.