President Biden has put forward a series of tax hikes aimed at corporations and wealthy Americans. However, according to the Tax Foundation, a group advocating for lower taxes, these steeper levies could hurt the already fragile US economy.
The Tax Foundation’s findings indicate that the higher taxes outlined in Biden’s budget blueprint for federal spending in fiscal 2025 would result in a 2.2% reduction in economic output in the long run, a 1.6% decrease in wages, and the loss of approximately 788,000 full-time equivalent jobs.
The policies proposed in Biden’s plan would not only make the tax code more complicated, unstable, and anti-growth, but they would also expand the amount of spending in the tax code for various policy goals unrelated to revenue collection, as stated in the report.
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Some of the key measures in the proposal include a 25% minimum tax rate on households worth more than $100 million, an increase in the capital-gains tax rate, a quadrupling of the corporate stock buyback tax to 4%.
A raise in the corporate tax rate to 28%, an increase in the Medicare tax paid by wealthy Americans, the implementation of a global minimum tax on multinational corporations, and the closure of the carried interest loophole used by private equity and hedge fund managers.
Collectively, these tax increases would reduce the federal deficit by approximately $3 trillion.
The revenue generated from these tax hikes would also be used to fund expensive new programs suggested by the president. These programs include a monthly tax credit to assist homeowners in offsetting steep mortgage payments, subsidies for child care, and lower prescription drug costs.
One of the proposed changes that has drawn attention is the capital gains tax. The Tax Foundation report suggests that these changes would place the United States beyond international norms.
By taxing wealthy Americans’ capital gains as ordinary income, Biden would ultimately raise the top tax rate paid on capital gains to 49.9% – the highest level among the 38 member countries of the Organization for Economic Co-operation and Development (OECD).
However, the Tax Foundation analysis identifies the corporate income tax proposal as the most detrimental to economic growth.
The budget proposal aims to increase the corporate tax rate from 21% to 28%, effectively reversing a significant aspect of former President Donald Trump’s 2017 tax law.
Biden’s tax-hike plan also calls for an increase in the taxes owed by US companies on their foreign earnings to 21%, nearly double the current rate of 10.5%.
The study shows that higher taxes on corporations would have the largest negative impact, resulting in a 0.9% reduction in the nation’s GDP, a 0.8% decrease in wages, and the loss of 192,000 full-time equivalent jobs.
The report points out that their economic estimates may underestimate the effects of the budget since they do not include two significant tax increases on high earners and multinational corporations.
These include a new minimum tax on unrealized capital gains and an undertaxed profits rule (UTPR) aligned with the OECD/G20 global minimum tax model rules.
Despite the proposals put forth by President Biden, it is unlikely that they will garner support in a deeply divided Congress. Furthermore, these proposals are almost certain to face rejection from Republicans who currently control the House of Representatives.
Given the potential negative impact on the US economy, the complexity and instability of the proposed tax changes, and the opposition they are likely to face, it remains to be seen whether President Biden’s tax-hike plan will come to fruition or undergo significant modifications.
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