The Worst of the Biden Tax Increases
What is the worst of President Biden’s latest proposed tax increases? It’s hard to say. There are many strong candidates. So rather than choose the worst, I’ll choose what I think are the two worst: the increase in the corporate income tax rate from 21 percent to 28 percent and the increased tax rates on capital gains.
Consider first the corporate tax rate. Seventy years ago, economists believed that the burden of the corporate income tax fell largely on corporations. But the increasing globalization of capital in the last 40 years has changed that. Because people can set up corporations in other countries, they have an incentive to choose countries where their income is taxed lightly or even not at all. The late Walter Wriston, former chairman and CEO of Citicorp, put it well: “Capital goes where it’s welcome and stays where it’s well treated.” One main way to treat capital well is not to expropriate it; another is not to tax it heavily.
These are the opening two paragraphs of David R. Henderson, “The Worst of the Biden Tax Increases,” IPI TaxBytes, March 23, 2023.
Biden also proposes to increase capital gains tax rates. Under the current law, the top federal and state tax rate on capital gains is 29.1 percent, which, the Tax Foundation points out, is already well above the 18.9 percent average for OECD countries excluding the United States. Biden would raise that top rate to a whopping 49.8 percent making it 163 percent higher than the non-US OECD average. That would also discourage investment in capital.
Read the whole thing.
Mar 27 2023 at 4:26pm
The rate of increase on corporate income tax alone is 33.33%. Part of that increase is paid by the consumer as corporations pass on their costs. Part of the increase is paid by employees with either lower wages or no increase in current wages. Investors pay some of increase with lower returns. How do these estimates escape Joe? I suspect Giuliani was correct when he said, “He just isn’t very bright.”
Mar 27 2023 at 4:44pm
There’s a simple solution to the problem of corporate taxation and the related problem of double taxation. Dividends are taxable to the shareholder. Allow the corporation a dividend deduction.
Suddenly, accountants, lawyers, their clients, the IRS, and judges can spend time on more productive issues instead of tax manipulations.
Knut P. Heen
Mar 28 2023 at 11:08am
Corporations do not pay taxes, people do.
The only reason to tax corporations is to create a confusion about who is actually paying those taxes. I suspect employees and customers are paying more of it than they understand.
Mar 28 2023 at 11:17am
Knut, YUP!!! See my comment above.
Thomas Lee Hutcheson
Mar 29 2023 at 10:11pm
Well, business income taxes are a way of taxing owners who are non-resident for US income tax purposes. Otherwise I agree. Just impute business income to shareholders and tax it as personal income.
Mar 28 2023 at 9:16pm
Totally agree on the corporate income tax. It should be eliminated.
Thomas Lee Hutcheson
Mar 29 2023 at 12:10pm
You may very well be correct. Which taxes raising the same amounts of revenue should have been increased instead?
My #1 choice is a tax on net emissions of CO2 but that’s a bit of a cheat as to get that it may need to be paired with a rebate making it revenue neutral or nearly so. #2 is a VAT to more than replace the capped wage tax that is currently earmarked for the SS and Medicare trust funds. But again that is partial cheat as it would not raise much revenue net of the wage tax it replaces. So I’m down to # 3, increases in the personal income tax by enough to remove the corporate income tax entirely, and for which purposes I’d include indexed capital gains as ordinary income, maybe with some averaging of tax rates of gains over multiple years. If we want to make is friendlier to savings out of income, we could increase the deductions for long-term “retirement” savings to make the progressive personal income tax more of a progressive personal consumption tax.
I assume that you DO have something in mind as deficits are in effect just a “tax” on investment, which is presumably NOT your favorite.
Mar 29 2023 at 4:47pm
I find taxing corporate stock buybacks to be the silliest one. The arguments politicians use against stock buy backs have such a cargo cultist feel to them. I wonder if anyone can make an economic argument that stock buybacks are a *bad* thing? I seem to recall the basic argument being we wanted corporations to return cash they did not have a high return use for to shareholders.
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