Democrats' Tax Hikes Will Hurt Recovery
- President Biden has proposed a mammoth $2 trillion tax hike − in the midst of an economic recovery − to pay for Democrats’ spending spree.
- Biden’s tax increases would slow economic growth, reduce wages, and undermine American competitiveness.
- The pre-COVID U.S. economy was thriving due to pro-growth policies like the Republican Tax Cuts and Jobs Act. President Biden’s tax increases would cripple the economic recovery.
The 2017 Republican tax reform law helped create a strong U.S. economy and flourishing labor market. President Biden’s “Made in America Tax Plan” would increase the tax burden on workers, job creators, and retirees at a time when the country is still in early stages of recovery. It will make both our country and our businesses less competitive with the rest of the world. This mammoth $2 trillion tax hike is a spigot to pay for Democrats’ partisan spending spree. It is designed to redistribute stagnant wealth instead of giving American workers a leg up in the global economy.
Biden Tax Hikes Would Vault U.S. to Highest Combined Corporate Tax Rate
The centerpiece of the plan would raise the corporate tax rate from 21% to 28%. When combined with average state and local taxes, this would give the U.S. a combined corporate tax rate higher than every other developed country, as well as Communist China. The Biden administration concedes that the only way for the U.S. to remain competitive under its proposal is for other countries to set aside the competitive advantage they would gain.
President Biden also proposes to undermine the historic international tax reforms of the Tax Cuts and Jobs Act that raised revenue and gave businesses incentives to bring jobs and investment back to the U.S.
IGNORES economic GAINS
To make the case for their damaging policy agenda, Democrats are ignoring the economic gains that Americans across the socioeconomic spectrum saw because of the Tax Cuts and Jobs Act. This Republican-led tax reform law supported a growing, inclusive economy marked by strong job creation and rising wages. Prior to the pandemic, unemployment had fallen to 3.5%. The strong labor market benefited American workers broadly, including those without a high school diploma or college degree. In December 2019, the Atlanta Fed reported that median wage growth among the lowest-paid workers had been higher than for all workers in recent years.
The booming American economy experienced a sharp contraction as a result of government-mandated shutdowns to mitigate the spread of COVID-19. The number of unemployed Americans skyrocketed to 23.1 million in April 2020, and unemployment jumped to 14.8%. A year later, the economic outlook is promising, and the Federal Reserve expects the economy to grow by more than 6% this year while unemployment falls. In mid-March, however, Fed Chair Jay Powell cautioned that the “recovery remains uneven and far from complete, and the path ahead remains uncertain.” Even as the economy is rebounding, millions of Americans are still unemployed. Low-wage Americans have been hit especially hard, partly because they worked in jobs more affected by the government-imposed business closures and were less likely to be able to work remotely.
Democrats have chosen possibly the worst moment to call for massive tax increases that would undermine the recovery for companies, workers, and the economy.
The president’s corporate tax hike would not just harm big companies, but also nearly 1 million small businesses that are organized as “C corporations.” Democrats will take away the money these employers could have used to expand, hire, and invest in local economies still recovering from the economic shock of the pandemic-related shutdowns.
A tax hike would also hurt workers. One study found that increasing various taxes, including the corporate rate, would cause employment and GDP to decline.
Economists have found that workers bear some part of the corporate tax, and the owners of businesses shoulder the rest. These owners, of course, include every family with an IRA, pension plan, or other savings. The nonpartisan Joint Committee on Taxation estimated that workers bear 25% of the corporate income tax. Other estimates have concluded that workers bear 50% or more of the corporate income tax burden.
Researchers at the University of Pennsylvania looked at the combined effect of the policies President Biden has proposed in his tax hike and infrastructure plan. They projected it would reduce GDP and average hourly wages of workers for decades to come. The tax increases would reduce businesses’ incentives to make investments, which will lead to lower worker productivity and then lower wages. A Tax Foundation report on the plan’s central corporate tax increase to 28% found that increasing the rate would cause lower long-term economic growth, lost jobs, and lower wages.
The Democrats’ scheme to raise taxes will make U.S. businesses and workers less competitive in the global economy and send the country in the wrong direction on the road to economic recovery. To recover and thrive, American families need Washington focused on policies that grow the economy and create jobs, not an unprecedented tax increase and spending boondoggle.
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