What is the real Biden tax plan? Early in this presidential campaign, Joe Biden unapologetically said he would raise your taxes. That was back when he was competing with other progressives to win the nomination. But now that he’s got that nomination, he wants to walk back his tax plans. Now he wants you to believe you won’t be affected if you earn less than $400,000 per year.
The Hoover Institution just released a study of the real cost of the Biden tax plan. The Wall Street Journal editorial board says the study reveals the Biden plan will have a damaging impact on growth, job creation, and household income. WSJ doesn’t see the depression Trump predicts with a Biden win, nor do they see the need for trillions of dollars of new government spending as the Biden team insists. The latest data show the U.S. economy is recovering faster from the pandemic than most economists predicted.
There are positive signs throughout the economy. The housing market is booming, small business sentiment is bullish, and manufacturing is on the rebound. The only things holding back faster economic growth are Democratic governors willing to re-open their states and the need for a Covid-19 vaccine. Both are likely to become available shortly after the election.
The real issue is whose tax plan will best stimulate the economy, Trump’s or Biden’s? We know how effective Trump’s economic plan was before the pandemic. We saw record economic growth, unprecedented low unemployment for blacks and Hispanics, and record highs in the stock market. But what about Biden?
The Hoover study gives us some insights. The authors estimate that the Biden plan, if fully implemented, would reduce full-time equivalent employment per person by about 3%, lower the capital stock per person by some 15%, and reduce real GDP per capita by more than 8%. Comparing these numbers to current Congressional Budget Office estimates for these variables in 2030, there would be 4.9 million fewer working Americans, $2.6 Trillion less in GDP, and $6,500 less in median household income. That’s a far cry from the $15,000 increase in average income and tax cut Biden is promising the middle class in his campaign ads.
The study goes on to estimate Biden’s changes in the ACA (ObamaCare) would increase the average marginal tax rate on labor by 2.4 %. That’s nearly half as much as the 6 % from the original ACA, which is part of the explanation for the slow labor recovery in the Obama/Biden era. Biden is also proposing substantial increases in business tax rates that will raise the cost of capital. Biden likes to say he’d only raise the top corporate tax rate to 28% from the current 21%. But so-called pass-through entities (usually small businesses like mine) employ more than 40 million Americans, and most pay taxes at the individual tax rate.
The authors state, “Biden’s plan to raise personal income and payroll tax rates would push their federal rates from below 40% to, often, above 50%, and these are on top of state income taxes.”
But what if you make less than $400,000 per year?
Biden wants you to relax and think you’re getting a pass in his tax plan. But Andrew G. Biggs, resident scholar at the American Enterprise Institute and former deputy commissioner of the Social Security Administration, calls attention to Biden’s hidden trap. He tells us the Biden plan would retain the $137,700 payroll-tax ceiling but impose the 12.4% tax on earnings above $400,000. However, the Biden plan isn’t indexed for inflation. That means that over about three decades the payroll-tax ceiling would be eliminated.
Biggs explains, “But with time and wage growth, the Biden plan would raise the tax for employees earning above $137,700 by the same 12.4% of income.” In other words, everyone earning over $137,700 would see an increase in their taxes eventually. This might seem justified if it makes Social Security solvent, but Biggs says a study by the liberal Urban Institute concludes the Biden plan would only add 5 years to the life of the Social Security trust funds. Social Security would become insolvent in 2040 instead of 2035. In other words, higher taxes would be needed down the road.
The Washington Examiner also points out that Biden wants to return the Individual Mandate tax to ObamaCare. When this was last applied, 3.7 million Americans earning less than $200,000 paid mandate taxes according to IRS data. About 2.6 million of these, or about 69% who paid the taxes earned less than $50,000. They also note Biden’s plan to overhaul the way tax breaks work for retirement savings. The Tax Foundation concluded that, on net, his “plan would reduce the tax benefit of traditional retirement accounts for those earning above $80,250 but under $400,000, again violating Biden’s tax pledge not to raise taxes on earners below the $400,000 threshold.”
If you find all this tax discussion confusing, let’s simplify for a minute. You don’t have to be an economist to realize that expensive government spending to provide free college tuition, free healthcare for illegal immigrants, increased government subsidies of healthcare insurance and electric vehicles will cost trillions of dollars. That doesn’t even include the cost of Medicare for All, the complete takeover of healthcare that progressives demand and Biden will deliver in time. The cost of Medicare for All has been conservatively estimated at $32.6 Trillion over ten years or about $3.2 Trillion per year!
Anyone that believes the cost of these programs can be financed by simply raising taxes on “millionaires and billionaires” is living in a fantasy world.