Democratic Economists Are Already Rolling Out Post-Election Tax Hikes

Even before the votes are counted in the midterm elections, Democrats are rolling out their tax increase plans for next year.  Two former Biden Treasury officials have released a paper detailing $15 trillion in tax increases, calling them substantial opportunities for raising revenue.

The size and scope of their tax increases is breathtaking and unprecedented.  They argue large tax increases are needed to address the fiscal situation, while insisting that current spending cannot be reduced and instead needs to be increased.

Their plans are not limited to just raising taxes on the wealthy and big corporations.  Rather, they are proposing substantial tax increases on virtually every segment of the economy, including all businesses big and small, and most individual taxpayers. 

On businesses, they propose $4 trillion in corporate tax increases, including raising the corporate tax rate to the highest level in the developed world.  This higher rate would reduce U.S. wages and jobs, and drive American investment and jobs overseas.  They also would raise an additional $1.2 trillion in taxes on millions of small businesses by repealing the small business pass through deduction.

On individuals, they would raise taxes by $5 trillion on most individual taxpayers by repealing the current tax rates and brackets and going back to the 1997 tax rate structure, raising every rate and returning  the top individual rate to 39.6%.  They acknowledge this change would fall “meaningfully on middle-income households.”  It would also push the top tax rates in many U.S. states to above 50%.

On investment income, they would increase tax rates on capital gains and dividends, increasing the top rate by 5 percentage points to 25%, actually 28.8% with the net investment tax.  This would be the highest capital gains rate in nearly 50 years, and one of the highest rates in the OECD.  They would end step-up basis at death and move to carry carryover basis.  And they would substantially increase estate and gift taxes, lowering the exemption and raising the rate. 

There is more, much more.  They want to increase funding for the IRS, enough to collect more than one trillion dollars in additional taxes.  They would increase “sin taxes” on Americans to “curb socially undesirable behavior.”  Excise taxes on guns, alcohol, and tobacco would be increased.  New excise taxes would be imposed on sports gambling and the prediction markets. Finally, an excise tax on carbon emissions would be imposed, raising another trillion dollars and imposing more costs on the economy. 

What is missing from this plan is any analysis or discussion of the economic harm these tax increases would have on families,  businesses, investors, and the economy.  Instead, they focus on their “twin goals” of increasing progressivity and raising revenue  to fund more spending.  Tax increases of this magnitude would have a major negative economic impact on the economy, but the economic impacts are ignored. 

Study after study has shown that increasing the corporate tax rate is the most economically damaging tax increases, shrinking the economy and depressing wages and jobs.  And if all these other tax increases are enacted, the U.S. would turn into a high-tax slow-growth country like France, Germany, and the UK. Sharply high taxes and more spending is a recipe for stagnant growth and rising unemployment. It is a path we should not go down.