President Biden made his perspective on the upcoming debt crisis clear in his newly-released budget proposal: there’s no need to cut spending when you can just tax Americans more.
The President proposed dozens of tax hikes, totaling nearly $4.7 trillion, including the following:
- Raise the corporate income tax rate to 28%, higher than Communist China’s 25% corporate rate.
- Raise the top personal income tax rate to 39.6%, for a combined federal tax rate of about 45%.
- Double the capital gains tax rate for investment to 39.6% from 20%.
- Create an unconstitutional wealth tax, imposing a 20% minimum tax on unrealized gains for individuals with assets exceeding $100 million.
- Quadruple the tax on stock buybacks, from 1% to 4%
- Numerous tax hikes on American energy, totaling $31 billion
- 32% increase to medicare taxes, from the current NIIT rate of 3.8% to 5%
These are just a few of the tax increases the President proposed last week. While there are hundreds of pages detailing how the government will find new ways to collect money from Americans, there are virtually no cuts to spending included in Biden’s plan.
The Administration’s marketing of its budget has largely focused on how it “cuts the deficit by nearly $3 trillion over 10 years.” This is unsurprising, as both parties gear up for a fight over the debt ceiling.
Presumably, the President will be looking to include some of these tax hikes in upcoming debt limit legislation since the GOP won’t—and shouldn’t—give them a blanket debt ceiling raise.
Raising taxes, of course, would be an unacceptable way to reduce the deficit.
Not only is it an ineffective and dangerous way to reduce the deficit, but it’s a slap in the face to the American people.
GMU’s Mercatus Center conducted a cross-country analysis comparing the effectiveness of fiscal adjustments (tax hikes vs. spending reductions) in 26 different democracies from 1995 to 2018. Their analysis found that reducing spending is far more effective in lowering the debt than tax-based adjustments:
We perform a cross-country analysis of fiscal adjustments in 26 democracies for 1995–2018 and find that expenditure-based fiscal adjustments are notably more successful at lowering debt levels than tax-based adjustments, with successful adjustments focusing around two-thirds on the expenditure side. Expenditure-based adjustments tend to cause small contractions, not significantly different from zero, while tax-based adjustments cause deep and long-lasting recessions.
Tax hikes are ineffective at reducing the deficit because tax hikes, by their nature, contract the economy. If companies are making less money, they will not have as much to send to the government. As Mercatus explained, tax-based adjustments cause recessions. This is especially concerning, as most economists in the U.S. are already predicting a recession.
Further, many of the tax hikes President Biden proposed would be passed on to retirees and consumers, would reduce wages, and would eliminate jobs. For example, roughly 30% of the corporate tax rate is passed on to consumers through higher prices. Labor (or workers) bear an estimated 70% of the corporate income tax in the form of lower wages and fewer jobs.
To be clear, the federal government put the U.S. in a position to default on its debt. Lawmakers, and executives, have spent recklessly on things the federal government has no business being involved in. When spending on the programs/duties it does have a legitimate role in, the government still spends as inefficiently as humanly possible.
For once, Democrats should take responsibility for Washington’s reckless spending and find creative ways to cut it. Taxpayers are not an unlimited source of new revenue, and we are certainly not responsible for the government’s lazy, reckless mistakes that got us into a debt crisis.
Bail yourselves out. We are not cash cows.