“I will raise taxes for anybody making over $400,000,” Biden says over and over. “Let me tell you why I’m going to do it. It’s about time they start paying a fair share of the economic responsibility we have. The very wealthy should pay a fair share, corporations should pay a fair share.”
That thought, soak the rich, is appealing to many. But, as they say, the devil is in the details. Let’s begin with a simple question for teleprompter Joe; can you explain to Americans what you mean by “fair share”?
Background: In 2017, the top 1 percent of taxpayers paid more income taxes than the bottom 90 percent combined. Included in that bottom 90% are the folks who pay no federal income tax. Is that not a “fair share” by the rich?
According to the Tax Policy Center, approximately 72.6 million people or 43.2% did not pay ANY federal income tax in 2016. Interestingly, in 2018, AFTER President Trumps Tax Cuts and Jobs Act, the numbers of those paying nothing INCREASED to 76.4 million, 44.4%. The question remains, what do you mean by “fair share”?
August 8th, Biden goes on to say, “We’re in a situation where you have the top 1%, in fact, making — paying a lower tax rate than you do.” “You” being teachers and carpenters.
The democrats want you believe that the Tax Cuts and Jobs Act only reduced the tax rate for the highest earners. Not so. Under the previous law, there were seven brackets and there are still seven under the Trump tax cut law. The tax rates under the two laws are as follows: old percent (new percent): 10% (10), 15%, (12), 25% (22), 28% (24), 33% (32), 35% (35) and 39.6% (37).
Under the Trump tax law, here is an example of what the actual savings were for middle class and the rich, (recall the bottom 44.4% paid zero federal income tax). The average earner in the middle third of the income distribution earns about $85,000. This family saw their taxes drop from $18,378 to $15,968, a difference of $2,410, a 13% reduction.
A high-income family earning about $154,000 would experience a drop from about $41,600 to $36,900, a reduction of about $4,700, 11% reduction.
Stated another way, the middle 20% of earners, with income of $50,001 to $87,300 will pay an average federal tax rate of 12.4%, according to the Tax Policy Center analysis, that’s less than half the effective tax rate paid by the top 1%.
As explained by Mr. Gleckman, a senior fellow at the Tax Policy Center, “Do some high-income individuals pay less? Yes, you can invest all your money in tax-exempt bonds and pay no federal income tax on the interest. Investors can avoid paying tax on capital gains by simply not selling the assets. But in general, the federal tax system is very progressive. The more you make, the more you pay.”
Kyle Poneroeau, chief economist and vice president of economic analysis at the Tax Foundation, points out, “There may be cases in which specific top income earners face a lower rate than a middle-income earner, especially if all of their income is long-term capital gains, but that is not typical.
First conclusion: What we have is another political sound bite, “The Trump tax cut was a tax cut for the rich”, which does not pass the smell test. Biden and Harris are both on tape before an audience saying, “We will repeal the Trump tax cut on day one.” But, what they don’t do is finish the sentence. If they did it would go like this, “We will repeal the Trump tax cut on day one and you will all be paying more federal income taxes.”
Second conclusion: The long-suffering democrat economic policy of tax-and-spend simply does not/cannot grow an economy. Take a note America, 2019 tax revenues under Trump, EVEN WITH HIS TAX CUTS, WERE THE HIGHEST IN HISTORY! Economic policy and taxation must to be about growing the economy. When the economy grows EVERYONE wins.
CORPORATE TAXES: The Trump tax cuts reduced corporate taxes form 35% (highest in the developed world) to 21%. “The idea that we have a tax rate for corporate America at 21% is ridiculous. It should be 28 %,” Biden said.
CONSEQUENCES: First of all, corporations who manufacture a product generally sell on the world market. The cost of producing their product consists of raw materials, plant operations, wages, advertising, corporate taxes, etc. The point being, corporate tax is just another cost of producing a product. If the corporate tax goes up, the selling price to the consumer goes up. Corporations don’t pay taxes, people pay taxes.
The second consequence of higher corporate taxes is much more serious. If manufactures cannot compete price wise on the world market, they will look for a way to reduce production costs and be competitive. That usually means cheaper foreign labor and that means moving manufacturing overseas. During the Obama/Biden era with 35% corporate taxes, tens of thousands of manufacturers left the US while others simply went out of business. Good idea, Joe; corporations have lots of money lets raise their taxes again.
BIDEN ON CAPITAL GAINS TAX: “So every single solitary person, their capital gains are going to be treated like real income and they are going to pay 40% on their capital gains tax.” That would double the current capital gains tax rate of 20%.
First, it is important to remember, the capital gains tax is a double tax. This is money that you already made and you paid tax on it. Then you invest that money in somebody else’s business which, in turn, creates jobs and wealth. And if your investment is successful and you make a profit, the feds tax you again.
Breaking news, wealthy folks do not put their money under their mattress. They invest it. They risk it. When the investment is successful, they make more money and invest more. Capitol is the fuel for capitalism. So, yes Joe, by all means lets take that capitol out of circulation by doubling the gains tax and let the federal government waist it.
But Biden’s doubling of the federal capital gains tax is only half the problem. Many states also tax capital gains. California, for example has a 13.3% tax on capital gains. So, Californians, for example, would be facing over 53% capital gains taxes.
What else is coming out of Joe’s basement?
ESTATES (AKA DEATH) TAXES: The most despicable tax of all. Estate taxes are currently set at 40% of the estate value above $11.6 million. It looks like the Biden/Sanders plan will lower the exemption to $3.5 million and raise the tax rate to 77%. Across the heart of America this strikes a death-blow to passing on the family farm or ranch to the kids. Farmers are habitually “land rich and cash poor.”
PAYROLLS: Apply a 12.4% Social Security tax split between workers and their employers. Currently this tax comes off after $137,700 of income. Under the Biden plan there would be no shutoff limit.
COPORATE MINIMUM: Put a 15% minimum tax on the income of businesses with $100 million in profits. All this would do is revert to Obama- economics, drain capitol and slow economic growth. Another great idea.
REGULATION IS A STEALTH TAX: Without a doubt Biden/Harris will dust off the thousands of stifling federal regulations that President Trump has eliminated, particularly those affecting small businesses and corporations. More impediments to economic growth and innovation.
A final thought about wealthy folks. Because they have means immediately at their disposal, they have options. For example, a study of the behavior of wealthy people in California who were faced with a tax hike on top earners, packed up and moved. The result was that 42% of the expected revenue gains from the tax hike never materialized. New York state is facing a financial crisis as NY residents depart in droves. Governor Cuomo points out that, “A single percent of New York’s population pays half of the state’s taxes and they’re the most mobile people on the globe”
Democrats need to study up on what happened in France a few years ago when taxes on the wealthy went through the roof. In 2013 the number of French tax payers earning over €100,000 a year and departing France rose by 40 %. And for the very, very rich who earn over €300,000 each year, the number rose by 46 %. From 2000 to 2014 France was ranked third in the world for the number of millionaires (42,000) who left their country. The unintended consequence of targeting the rich with an array of high taxes is that the tax burden eventually shifts to the middle class. Are you listening, Joe?
I am a soldier, not a tax expert so you might also want to check out the analysis by The Tax Foundation, American Enterprise Institute, Tax Policy Center, Committee for a Responsible Federal Budget, and Wharton Business School. They have all come to the same conclusion: Biden’s plans will INCREASE TAXES ACROSS THE BOARD.
BOTTOM LINE: Biden/Harris openly plan to replace a tax plan that has reduced many Americans’ tax burdens with one that would raise everyone’s taxes while slowing the economy. To quote teleprompter Joe, “Come on man.”
Marvin L. Covault
Lt Gen, US Army, retired