Op-Ed: Now is no time to raise taxes
Just as America recovers from the worst pandemic in 100 years, President Joe Biden is itching to raise taxes. Biden is reportedly pushing for the largest tax hikes in 30 years in an attempt to pay for an infrastructure bill, prolonged trillion-dollar deficits, and a $28 trillion debt. Tax increases would likely be passed this year and take effect next year, regardless of the state of the economy in 2022. But tax hikes are an ineffective solution to “pay for” higher spending. And, tax increases have the unsurprising effect of encouraging even more spending from the drunken sailors in Washington, D.C. Onerous new rates would only succeed in tanking the economy and destroying opportunities for millions of Americans. President Biden should ditch his tax-and-spend agenda and commit to lower taxes and comprehensive fiscal reform.
From his time on the campaign trail, President Biden pledged not to raise taxes on Americans earning less than $400,000 per year. Biden and his allies on Capitol Hill seem to believe that hitting earners above this threshold with a new 12.4 percent payroll tax and raising the top marginal rate from 37 percent to 39.6 percent won’t have any wider implications for the economy. But, according to overwhelming evidence from peer-reviewed research, soaking up more money from the economy hampers growth and prosperity. According to a Tax Foundation analysis of 26 peer-reviewed studies on the relationship between tax rates and growth, higher rates hold back the economy. Corporate and income tax hikes are the most harmful policy measures for growth, followed by sales and property taxes.
It’s not difficult to fathom why this might be the case. Wealthy Americans usually tuck their earnings into the stock market where their dollars are used by companies to invest in things like new factories and new employees. As has been seen throughout the pandemic, the best-capitalized companies are able to retain staff and maintain employees’ salaries even during the most difficult times. Raising rates would blow a hole in this capital cushion, ensuring that businesses will be less prepared to deal with any future pandemic-related issues.
President Biden similarly fails to recognize the link between corporate tax rates and the wider economy. Biden has advocated raising the corporate rate from 21 percent to 28 percent, despite the proven harm of such an approach. According to extensive modelling conducted by the Tax Foundation, raising the corporate tax rate to 28 percent would destroy 187,000 jobs and axe wages by nearly 1 percent. And, 2019 research from University of Chicago, Northwestern University, and City University of Hong Kong scholars reveals that more than a third of the corporate tax burden falls on consumers. According to their estimates, “A one percent increase in the corporate tax rate leads to an increase in retail product prices of approximately 0.24 percent.” By hiking business taxes, President Biden would essentially be creating a national sales tax to punish poor Americans at the worst possible time. And unlike most sales taxes, this one would hit basic necessities such as food and toiletries.
Fortunately, it isn’t too late for the Biden administration to reverse course on these disastrous policy proposals. President Biden should commit to not raising taxes and explore the possibility of broad-based payroll tax relief. Lowering payroll taxes would put more dollars into the pockets of struggling Americans without resorting to further, poorly targeted “stimulus.” Biden must also champion across-the-board spending cuts to unwind the unsustainable status-quo of trillion-dollar deficits. Jettisoning the failed F35 fighter jet program and ditching farm subsidies to rich agribusinesses are just two steps that President Biden and Congress can take to get America on firmer fiscal footing.
By bringing the budget into balance and rolling back taxes, President Biden could truly “build back better.”
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