Commentary: Biden’s tax policies would hurt investment, jobs and innovation | Comment
President Joe Biden has big plans to create jobs and raise wages by spending more on infrastructure and industrial policies and to improve conditions for ordinary people by funding preschool education, free community colleges and family allowances with higher taxes on corporations and on the income and capital gains of wealthy Americans.
These taxes may seem fair and politically attractive, but they could prove to be job killers.
The increase in federal corporate tax from 21% to 28%, combined with higher personal income taxes for those earning over $ 400,000 and state taxes, would increase effective taxes on profits distributed in the form of dividends of approximately 47.5% to 62.7%.
This would encourage companies to move manufacturing, patents, and research and development overseas and perform behind-the-scenes services in India and similar locations. And those taxes would dramatically reduce after-tax payments from IRAs and other retirement savings for seniors.
Raising capital gains rates for those earning more than $ 1 million from 24.8% to 43.4% would increase their combined federal tax levy in California and New York to at least 53%.
In the decade leading up to COVID, the prices of stocks held for 10 years reflected an 18% loss due to inflation. Taking this into account, the maximum effective capital gains tax rate in the Golden State and the Big Apple would be at least 70%.
For family businesses, the bite would be particularly onerous. Biden wants to both tax capital gains on death and levy inheritance tax. This would impose a death tax on many businesses of over 70%.
In most cases, it would be simply too expensive to purchase enough life insurance on the founder and his or her spouse to cover these taxes. This in turn would force the sale of many car dealers, general contractors, and other decent-sized businesses. Their kids might find themselves out of work in family businesses and might wonder why mom and dad worked so hard to build a legacy.
In the high-tech industry, venture capitalists are betting on startups that promise to solve tough engineering problems. Often the goal is a big gain on an initial public offering or selling the business to a giant like Google, Amazon or General Motors, with the proceeds taxed at preferential rates on capital gains. .
Entrepreneurs are good at spotting consumer interests and solving difficult design problems. They lack Elon Musk’s flair for marketing or Tim Cook’s skills in government and international diplomacy. Higher taxes on capital gains would encourage founders to keep their businesses longer than their broader management skills warrant.
At the same time, this foreclosure effect would reduce the value of startups to venture capitalists, discourage investment in new high-risk, high-yield companies, and slow the diffusion of new technology into the U.S. economy and sales. in foreign markets. These would reduce the aggregate contributions of new firms to US productivity growth, higher wages, and international competitiveness.
The U.S. economy increasingly relies on high-tech entrepreneurs to drive the modernization of traditional manufacturing such as automobiles and create whole new industries such as cloud computing and collaboration software that power the virtual workplace. .
Biden’s capital gains taxes would stifle many American inventions in the cradle and send engineering entrepreneurs seeking funding in China and innovation-friendly European countries such as the Netherlands, Switzerland, Germany and the United Kingdom
Simply put, Biden’s corporate taxes and capital gains would stifle jobs and lower wages for both high-tech workers and more ordinary service workers in San Francisco, New York, Boston and other high-tech centers.
This would reduce tax revenues for states and municipalities. Vital public services would be hard to finance in these central cities, leading to more crime, poorly performing schools and a host of other social problems.
Progressive political analysts who populate the Biden administration and receive a lot of media time read from a particular economics book. They are campaigning for a carbon tax – after all, raising the price of emissions would make Americans use less fossil fuels. But raising the price of capital would have no impact on risk taking or investment?
It seems that the laws of supply and demand only apply when they support progressive political goals.
All in all, Biden’s taxes are an attack on US-based manufacturing and high-tech innovation and would worsen the plight of low-income Americans working in our wealthier cities and middle-class suburbs.
Pierre Morici is an economist and professor emeritus of commerce at the University of Maryland, and a national columnist.