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Read Joe Biden’s Lips: New Taxes
More than $3 trillion in new levies on incomes, payrolls and more.
Joe Biden is a heavy favorite to be the next President, yet the media have barely paid attention to what he will do if he wins. We’ll try to fill that knowledge gap in the coming weeks, and a good place to start is his proposal for tax increases of more than $3 trillion over a decade. Let’s examine the unfine print:
• Individual incomes: Raise the top marginal rate to 39.6%, from 37%. Repeal the $10,000 cap on the deduction for state-and-local taxes, giving a bigger break to places like San Francisco and New York. But limit the tax benefit of itemized deductions to 28% of face value, hitting higher earners.
• Payrolls: Apply a 12.4% Social Security tax, split between workers and their employers, to all income over $400,000, with no cap. The current payroll tax comes off after $137,700 of income, but under Mr. Biden’s plan the levy would be limitless. No more polite fiction of Social Security as an “earned” benefit.
Economists say the payroll tax falls mainly on workers, even though half is purportedly “paid” by employers. All together, including Mr. Biden’s 39.6% rate on income, the federal government’s top marginal tax on labor would be higher than 50%. Factor in state income taxes—California’s 13.3% top rate or New Jersey’s 10.75%—and the marginal rate would hit the 60s.
• Capital gains: For those earning more than $1 million, tax capital gains and dividends as regular income, at the new top rate of 39.6%. That’s almost double the current top rate of 23.8%, including the ObamaCare surtax. Capital gains haven’t been taxed as heavily as Mr. Biden proposes since the bad old 1970s.
Who knows if it’ll stop there. Last year the ranking Democrat on the Senate Finance Committee, Oregon’s Ron Wyden, suggested taxing unrealized gains, before the investor sells, using a mark-to-market scheme. The wealthy would pay taxes each year on their paper gains, though there are a host of problems, like how they’d value illiquid assets and if they’d get a refund when the market subsequently fell (don’t count on it).
• Estates: Repeal stepped-up basis at death. This could mean slapping capital-gains taxes on the dearly departed. Or the property received by heirs would arrive with taxable capital gains hidden inside, and no adjustment for inflation. Mr. Biden hasn’t said what he’d do to the estate tax, currently set at 40%, above an individual exemption of about $11.6 million. But his new pal Bernie Sanders wants to lower the exemption to $3.5 million and lift rates up to 77%.
• Corporate incomes: Raise the rate to 28%, from 21%. To see how this would compare globally, add America’s state taxes on corporate income: up to 8.84% in California or 9.5% in Illinois. Last year the European Union’s average top statutory rate was 21.8%. Don’t be surprised if U.S. companies return to the pre-Trump pattern of moving their headquarters overseas.
• Corporate minimum: Put a 15% minimum tax on the “book income” of businesses with $100 million in profits. Mr. Biden’s campaign said last year it would affect about 300 companies, though draining their capital could slow down America’s economic dynamos.
• Foreign earnings: Since Mr. Biden’s other tax increases would raise the business incentives to shift income abroad, double to 21%, from 10.5%, the minimum tax on “global intangible low tax income.”
• Tax credits: Create or expand a plethora of tax credits: a new refundable and “advanceable” $15,000 “down payment tax credit for first-time home buyers”; $8,000 for “child and dependent care”; $5,000 for “informal caregivers”; $5,000 for “hiring a person with a disability”; a low-income renter’s tax credit “designed to reduce rent and utilities to 30% of income.”
Also: the Earned Income Tax Credit; a Manufacturing Communities Tax Credit; the Low-Income Housing Tax Credit; the New Markets Tax Credit; the Work Opportunity Tax Credit; the solar Investment Tax Credit; “tax credits for residential energy efficiency”; and a restoration of “the full electric-vehicle tax credit.” Mr. Biden would lard the IRS code with spending and subsidies for favored businesses and behavior. This would allocate investment based on politics rather than economic returns, as companies look for ways to reduce their overall tax rates.
***Mr. Biden has said he won’t raise taxes on anybody making under $400,000 a year. In 2016 Hillary Clinton made that pledge at $250,000. Either way, it’s a mirage. Higher corporate taxes are inevitably paid by workers in lower wages, or by shareholders (including pension funds) in lower returns on their investments.
Revenue estimates for Mr. Biden’s tax agenda vary, from $4 trillion over a decade to $3.2 trillion, after accounting for how it would shrink the economy. But analysts confirm the phoniness of Mr. Biden’s pledge. Over the long run, the Tax Foundation said in April, his main tax proposals would lower after-tax incomes for every quintile, including 1.4% for the middle class.
An American Enterprise Institute study from June assumed that a fifth of the higher corporate tax would fall on workers “in the form of lower compensation.” If so, taxpayers in the 80% to 90% decile, earning around $170,000 to $248,000, would carry an additional $725 tax burden in 2021, on average. For those in the 90% to 95% range, earning less than $353,000, the figure would be $1,368. “Overall,” the report says, “24.7 percent of new tax revenue in 2021 would come from the bottom 99 percent of taxpayers.”
That’s before Mr. Biden has to figure out how to pay for the full spending agenda he is laying out for the left. He claims his tax proposals will soak only the affluent, but they won’t raise nearly enough money to finance all of his plans. In the end everyone will pay.