President Joe Biden at the White House last week.


Photo:

LEAH MILLIS/REUTERS

Many investors wonder if the Federal Reserve can successfully control inflation without sending the United States into recession. Perhaps they should be more concerned about the continued efforts of the White House to goad Sen. Joe Manchin (D., W. Va.) into raising taxes. The president’s ambitions to increase public revenue are not small.

Appearing before the Senate Finance Committee on Tuesday, Treasury Secretary Janet Yellen spoke about President Joe Biden’s fiscal year 2023 budget proposal and his plans to raise taxes for businesses and individuals. The goal, Ms Yellen said, is to build “a fair and stable tax system“.

But what is most striking about Biden’s fiscal agenda is not its fairness or stability, but rather its sheer size. Erica York and Garrett Watson of the Tax Foundation write today:

Combined with tax increases in the Build Back Better Act (BBBA), which the budget says becomes law, President Biden would increase revenue by $4 trillion on a gross basis over the next decade.

Ouch. How big is the projected tax increase on a net basis? There are a slew of new tax credits in the Biden plan — including a range of green energy credits totaling around $300 billion — but even taking each one into account, the tax increase desired by the president is still massive. Ms York says that “across BBBA and the fiscal year 2023 budget, the administration is proposing approximately $3.5 trillion in new revenue on a net after tax credits basis.”

What is particularly troubling is that while the green credits are aimed at reviving politically privileged and economically questionable activities, the tax hikes are aimed right at the heart of productive work and investment. The Tax Foundation estimates:

BBBA’s tax increases alone would reduce long-term GDP by 0.5%, and tax increases in the budget, including a higher corporate tax rate of 28% (from 21% currently) and changes in international taxation, would further discourage investment and reduce US production capacity. For example, raising the corporate tax rate to 28% would reduce long-term GDP by 0.7% and eliminate 138,000 jobs.

The scale of tax and revenue increases on the table is unprecedented…

The budget proposes several new tax increases for high-income individuals and businesses, which, combined with the BBBA, would give the United States the highest personal and corporate income tax rates in the developed world. …

It’s not just that the corporate tax rate in the United States would be higher than that of our competitors — it wouldn’t even come close. The Tax Foundation finds that when combined with state taxes, the combined U.S. rate would be nearly 10 percentage points higher than the average seen in other industrialized economies:

Raising the corporate tax rate to 28% would put the United States again near the top of the OECD with a combined rate of 32.3%, compared to 25.8% under current legislation and a OECD average (excluding the United States) of 22.8%.

Even President Barack Obama has realized that high corporate tax rates are bad for investment and workers’ wages. President Obama’s 2015 Economic Report noted:

When effective marginal rates are higher, potential projects must generate more revenue if the company has to pay the tax while providing investors with the required return. Companies will therefore limit their activities to more profitable projects. Thus, all other things being equal, a higher effective marginal rate for firms will tend to reduce the level of investment, and a lower effective marginal rate will tend to encourage additional projects and a larger stock of capital. Increases in capital available for the use of each worker, also known as capital deepening, boost productivity, wages and output.

Why can’t Joe Biden learn this lesson?

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Speaking of painful lessons

Presidents are often expected to appear in areas affected by major disasters. But such presidential visits can be difficult when disasters are not entirely natural.

Leah Romero of the Las Cruces Sun-News reports:

President Joe Biden will visit New Mexico this week following multiple record-breaking wildfires that have burned hundreds of thousands of acres of forest land in the state this year.

Biden will meet in Santa Fe on Saturday, June 11 at the New Mexico State Emergency Operations Center with Governor Michelle Lujan Grisham, first responders and emergency personnel…

Lujan Grisham has slammed the federal government, calling on the Biden administration to take responsibility for triggering a natural disaster that destroyed at least 330 homes and left a financial toll of hundreds of millions of dollars.

The Democratic governor will certainly want to offer a courteous welcome to the president, but the facts could stand in the way. Morgan Lee and Cedar Attanacio recently reported for The Associated Press:

Two fires that coalesced to create the largest wildfire in New Mexico history have both been attributed to planned burns by U.S. forest managers as a precaution, federal investigators said Friday.

The findings shift the blame more squarely to the US Forest Service… the flames raged through nearly 500 square miles (1,300 square kilometers) of high-altitude pine forests and grasslands. The wildfire also displaced thousands of residents of rural villages with Spanish colonial roots and high poverty rates, while causing untold environmental damage.

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James Freeman is the co-author of “The Cost: Trump, China and American Revival”.

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