Investors have finally gotten a glimpse of how Democrats intend to pay for their $ 3.5 trillion spending spree. It didn’t go well; the Dow Jones lost almost 300 points, despite slightly better than expected inflation.
Who can be surprised? When you take over $ 2 trillion from job creators and investors for income redistribution, as Democrats propose to do through huge tax hikes, the country will suffer.
President BidenJoe BidenNewsom Easily Pushes Recall Efforts In California Second Senior Official Leaving DHS In One Week Top Republican: General Told Senators He Opposes Withdrawal From Afghanistan MORE pledged he will not raise taxes for people earning less than $ 400,000 a year. But among the proposals of the House Ways and Means Committee is an increase in taxes on manufacturers of tobacco, nicotine and vapor products.
Who will ultimately pay this bill, estimated at nearly $ 100 billion? Consumers who smoke or vape, of course, the majority of whom fall below this income cap, and who will undoubtedly pay more for cigarettes and other products as manufacturers raise prices to cover higher taxes.
This is not the only questionable premise in the ways Democrats have proposed to hope to pay for their eruption of $ 3.5 trillion “social infrastructure”. Another is the astonishing claim that the legislation will stimulate the economy, contributing $ 600 billion in “budget savings resulting from faster economic growth.”
When has higher taxes already led to increased growth? Never. Taking money from investors and spenders and handing it over to bureaucrats and politicians leads to lower productivity, lower wage gains, and slower growth. Everytime.
A large-scale Tax Foundation study in 2012 found that “almost all empirical studies on taxes and economic growth published in a peer-reviewed academic journal find that tax increases hurt economic growth.”
For example, a study by economists David and Christina Romer analyzed the US federal tax burden since World War II as a percentage of GDP and found that a tax increase of 1% of GDP reduces real GDP by about 3%. after about two years.
Even President Clinton’s 1993 tax hikes, which Democrats say led to the boom of the late 1990s, actually reduced the expansion in subsequent years by about 1.5%, analysts say. of the Treasury.
The Omnibus Budget Reconciliation Act of 1993, passed by a Democratic-controlled House and Senate and enacted by Clinton, raised corporate taxes and resulted in below-average post-recession growth and near-stagnant wages. Real hourly wages increased only 2 cents to reach $ 7.43 an hour in 1996, from $ 7.41 in 1992.
It was actually Clinton’s tax cuts two years later, including a cut in the capital gains tax rate, combined with welfare reform, that encouraged workers to return to work in reducing the disincentives to do so, which paved the way for Clinton’s economic growth. second term.
There is a lesson here for Joe Biden.
Although the 1993 tax increase dampened growth slightly, the damage was partly offset by provisions in the bill that helped small businesses and encouraged workers. For example, the new law made tax exclusions permanent from employer-provided education assistance and allowed a targeted employment credit to incentivize the hiring of qualified participants in work-study programs. .
In addition, the bill allowed small businesses to receive a tax credit of 5% of their qualifying investment in depreciable property and allowed unincorporated filers to exclude 50% of the long-term gain from the sale of small business stocks from their gross income. Income.
There are no trade boosters in the plans just released by the House Ways and Means Committee. In particular, there is no help for small businesses, the main driver of job creation in the United States. On the contrary, small business owners take it on the chin. If small business owners pay taxes as individuals, they will be hit by a significantly higher top tax rate and a new 3.8% surtax on small business income; they will also lose an existing deduction of 20 percent on qualifying business income.
Small business owners will also have a harder time passing their operations on to an heir, as the death tax exemption will be cut in half to $ 5.5 million.
Businesses also face higher taxes, which will reduce wage increases for workers and once again let our businesses pay the highest taxes in the developed world. How does this help American competitiveness?
And wealthy individuals will pay more; those who live in high-tax states will pay up to about 60 percent of their income to federal, state, and local authorities.
The exodus to Florida and other low tax areas will continue.
Some Republicans say Democrats are about to pass the biggest tax hike in U.S. history. Democrats dispute this, pointing out that the tax increases enacted during and immediately after World War II were larger than the country’s total output, or GDP.
Okay, but we’re not at war. There is no economic reason for Democrats to spend $ 3.5 trillion today.
We don’t have to “rebuild our economy”; we do not have to prepare our defenses against an external threat; we don’t even need to create jobs for Americans to go to work. There are nearly 11 million job offers. If we have an economic emergency, and most would say we don’t, it’s the extreme labor shortage brought on by excessive and unnecessary federal handouts.
No, we are about to embark on a socialist experiment, creating unaffordable rights from cradle to grave, entirely for political reasons.
Americans are not stupid. They will soon see that the Democrats’ tax hikes are bad news for our country. And they will conclude that $ 2 trillion is too high a price to pay.
Liz Peek is a former partner of Wertheim & Company, a major Wall Street support company. Follow her on Twitter @lizpeek.