President Joe Biden has just proposed the biggest federal budget request in U.S. history—with the exception of his nearly $7 trillion spent last year. When I came to Washington in 1985, the federal budget hit $1 trillion. Now we’re in the $6 trillion to $7 trillion range, and we wonder how it is that the debt has rocketed to $30 trillion.
The obvious solution—given the hundreds of billions of dollars of waste and fraud in the budget and the end of special spending needs to combat COVID-19—would be to put the government on a strict spending diet. Not only would this lower our deficit, but it would also mean a lower inflation rate.
Instead, Biden wants one of the largest tax increases in many years. All of this, he says, is aimed at millionaires and billionaires, but hopefully voters aren’t gullible enough to fall for that gambit. That’s what they said about the original income tax, which everyone now pays, and the alternative minimum tax, which was supposed to be paid by a few hundred of the richest families, but soon applied to more than a quarter of all taxpayers.
Biden says the rich need to pay more because they only cough up 8 percent of their income in taxes, which is a smaller percentage than a firefighter or a secretary pays.
That would be an outrage, but it isn’t even in the same zip code as the truth. The top 1 percent of Americans in income pay 40 percent of the income tax—more than the bottom 90 percent. That’s a pretty progressive tax system.
A major proposal in the Biden tax plan is to tax “unrealized capital gains.” This is the buildup in the value of stock holdings, which isn’t “income” because the stock hasn’t been sold. It’s like saying you should pay more tax because your house appreciated in value—even though you still live in and own the house.
How can you pay tax on something that you haven’t gained any income on? Are shareholders—which includes almost all of us—supposed to take out a loan to pay the taxes on unrealized capital gains?
Biden conveniently forgets to mention that there’s already a tax on corporate earnings of 21 percent. The capital gains tax is applied after that tax is paid. Think of it as the U.S. government being a one-fifth shareholder in every company. The combination of the corporate and capital gains tax brings the effective tax rate on this income of millionaires and billionaires to above 35 percent.
That’s a far cry from the 8 percent that Biden complains that Daddy Warbucks is paying.
We should also remember when we’re talking about profits from buying and selling stocks that stocks go up and they go down in value. Right now, if you make money on a stock, you have to pay a full capital gains tax on the rise in valuation. But if the stock goes down in price, you’re limited in how much of those losses you can deduct. Heads, the government wins; tails, you lose. How is that fair?
Then there’s the inflation issue, which is back, front, and center. Inflation is now running at 8 percent. So if a company’s value rose by 7 percent or less last year, you lost money if you owned the stock.
But the capital gains tax isn’t indexed for inflation. (That’s the main reason the statutory capital gains tax is lower than the income tax rate.) So, under Bidenomics, you can pay a tax on the sale of a stock even if you lost money because of inflation. Your effective after-inflation tax rate isn’t 8 percent or 23.8 percent: It’s more than 100 percent.
Does that seem fair to you?
All of the Biden tax proposals seem to be driven not by putting America First, but by greed and envy. The rich have the money, so seize it from them. But the experience of the Trump tax cuts in 2017 proved yet again that lower tax rates bring capital and jobs back to the United States and make all U.S. workers better off. Remember, the middle class and minorities saw record income gains and record low unemployment after the Trump tax cuts.
The Biden plan would reverse many of those successful policies, and the people who are going to get shafted are the middle class—once again.
