Democrats "Fight Inflation" with Reckless Tax Hikes

KEY TAKEAWAYS

• Since President Biden took office, price hikes have outpaced wage gains. In April, nominal wages increased by only 5.5%, compared to 8.3% inflation – a decline of 2.6% in inflation-adjusted wages.
• Democrats think the answer is to raise taxes. Senate Majority Leader Chuck Schumer has claimed that tax hikes are “the only way” to get rid of inflation.
• Their tax schemes would squeeze inflation-weary Americans even more by further jacking up consumer prices, hurting workers, and increasing the tax burden on the middle class. 

Americans are facing persistent, soaring inflation not seen in generations. In April, the consumer price index was up 8.3% from a year earlier. Inflation has now been over 5% for 12 months. Price hikes have outpaced wage gains and left Americans struggling to make ends meet. Since Democrats’ inflation blame game failed, they have landed on a new “solution” to Americans’ paycheck erosion: reckless tax hikes.

Democrats’ Policies Squeeze Americans

Since President Biden took office, inflation has averaged 5.8%, well above the 2.1% average of the previous 20 years. In 2021, Bidenflation meant the average American household had to spend $3,500 more than they did in 2019 or 2020 for the same goods and services. That number has climbed even higher this year. Moody’s Analytics recently estimated that inflation is putting U.S. households on the hook for an extra $327 each month. For a typical family, that’s like paying 2½ extra power bills each month or increasing their monthly car payment by 50%. These persistent price increases are squeezing families’ budgets, and wages for most Americans have not been able to keep up. In April, year-over-year nominal wages increased by 5.5%, compared to the 8.3% inflation rate – a decline of 2.6% in inflation-adjusted wages. Workers are earning more, but not enough to offset higher costs everywhere they turn.

Democrats think the answer is to raise taxes. On April 26, Senate Majority Leader Chuck Schumer declared that tax hikes are “the only way” to get rid of inflation.

Democrats in Congress and the White House have no shortage of bad ideas for how to raise taxes.

• The House-passed reckless tax and spending spree includes $1.5 trillion in tax increases. These include a provision to subject companies to a new parallel taxation regime based on their financial statement income and $518 billion in tax increases on pass-through entities. More than 80% of U.S. businesses are organized as pass-throughs, and they employ the majority of private sector workers.

• Some Democratic senators are advocating for the constitutionally dubious idea of taxing “profits” that only exist on paper.

• Finance Committee Democrats have advanced legislation that would use the tax code to target producers of fossil fuels.

• Senator Joe Manchin is reportedly pushing to raise taxes on corporate job creators.

• President Biden’s fiscal year 2023 budget proposed $2.5 trillion in new taxes incorporating many of these policies, along with other previously rejected ideas. His plan includes 36 tax hikes that would hit small businesses, penalize domestic energy producers, and levy a stealth tax on Americans’ retirement savings.

Democrats’ tax schemes would squeeze families already feeling the pinch from inflation. A recent study published by the National Bureau of Economic Research estimated that 31% of the corporate tax burden falls on consumers in the form of higher prices. The study found that prices rise in tandem with corporate rate increases, and “lower priced goods and goods purchased by low income households are the ones most sensitive to changes” in tax rates. The Tax Foundation has also estimated that increasing the corporate rate from 21% to 28%, as the president has proposed, would eliminate 145,000 jobs and reduce GDP by 0.7%. The economy already contracted in the first three months of this year at an annualized rate of 1.4%.

Democrats’ plans would also raise the tax burden on middle-class Americans. The House-passed reckless tax and spending spree would hit people on every rung of the socioeconomic ladder with tax hikes. According to an analysis from the Joint Committee on Taxation, 38% of Americans would have a higher tax bill by 2027 if that bill were to become law, including most Americans earning between $75,000 and $200,000. While Democrats could not seem to craft a proposal that upholds President Biden’s pledge that no one in the middle class would pay a penny more in taxes, they did manage to scrape together a $230 billion tax handout for wealthy Americans by increasing their deductions for high state and local taxes.

Last year, Democrats injected $2 trillion into a hot economy, and that reckless decision has produced skyrocketing inflation. Now they want to “fix” their monetary mess by taking productive dollars out of the economy and giving them to Washington to spend.  Their plan would leave families’ paychecks − already struggling to keep up with higher prices − squeezed even further.