By Richard Stern The Heritage Foundation
Sixty-four cents out of every wage and salary dollar Americans earn in a year. That’s how much it would take for President Joe Biden to fund his planned $6.4 trillion spending spree.
But wait, you may be thinking. Won’t only the super-rich have to pay? Biden has even promised to raise taxes only on those making over $400,000 a year.
That’s what they want you to think will happen.
Despite this promise, Biden has called for the repeal of the Trump tax cuts that saves an average Florida family well over $1,300 a year. Not very reassuring, is it?
What’s more, even if he kept to his $400,000 pledge, many of those tax filers are really pass-throughs — small and midsized businesses, the businesses that employ most Americans (63.8% of Florida’s businesses have fewer than 10 employees). Biden is coming for your paycheck.
Keep in mind that before the government can spend this $6.4 trillion, it first has to get its hands on it. While you may earn your income through honest work, the government’s income isn’t so meritorious.
Governments can only get money by three different methods: taking it directly from the people who earned it through taxation, crowding out job and wage growth by running up large deficits, or by devaluing your savings and paycheck by printing new cash.
Make no mistake, a federal spending spree always comes, directly or indirectly, at the expense of hardworking American families. A quick sampling of the tax increases proposed by Biden and his congressional allies demonstrates this reality.
Biden has promised a new death tax, largely affecting small businesses — a repeal of Step-Up in basis — forcing families to pay an enormous extra death tax when a family business passes from one generation to the next. The real effect of this policy would be to force the destruction of these businesses to get the cash the IRS would require.
As if the tax code weren’t complex enough, Biden wants to introduce a new corporate tax, side by side with the current one, where many businesses won’t know which tax they are paying until Tax Day.
This would require impacted companies to keep track of two different tax structures with two different definitions of income to figure out their actual tax bill. Then the major increase in taxes from the new tax (a minimum tax on book income) would likely fall squarely on job opportunity-expanding investments.
Generally speaking, book income (usually the day-to-day profit of a company) tends to understate the cost, in a given tax year, of investments in expanding operations and employment. As such, the principal effect of this proposal could be to introduce an overly complex new tax aimed at penalizing economic growth.
Biden has proposed to increase U.S. corporate taxes from 21% to as much as 28% — more than the average European rate of 19.99% or the world average rate of 23.85%. Shockingly, he wants to tax businesses at a higher rate than even China does (25%).
Almost all of this burden would fall on workers. The consensus is that at least 70% of this tax hike would come out of paychecks. In fact, the most likely outcome is that wages would fall more than the value of the tax because of how much it would distort and stunt the economy.
Ultimately, taxes on businesses of all sizes manifest as: 1) diminished purchasing power for Americans through reduced pay or increased prices, or 2) slower economic and job growth through reduced investment.
Florida has been known for decades as a dynamic and prosperous state that is great for growing businesses and families. How long can that last with such a burdensome tax system?
We are still in the first year of Biden’s presidency. This gigantic spending and tax spree may be only the beginning of what he and his congressional allies have planned.
Richard Stern is a senior policy analyst for budget policy at The Heritage Foundation.
