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After confirming the third multi-billion-dollar aid package proposed by Biden in his first 100 days in the White House, the new president’s next “ingenuity” could only be to appeal to the classic recipe of socialist demagogy: raising taxes on the highest incomes.
The enormous social spending envisaged by the new executive —which will largely be used to cover the budget deficits of states such as New York and California, which authoritarianly paralyzed the economy during the COVID-19 pandemic— has forced Biden to resort to tax increases in order to respond to the need to raise revenue.
According to Fox Business, specifically, the White House is considering raising the capital gains tax to a rate of 39.6% for individuals earning $1 million or more per year, nearly two points higher than what Barack Obama set during his administration and double the current rate of 20% implemented by Trump.
Those 19 points above the current rate equate to $230 billion, which is roughly double the estimate made by the Tax Policy Center.
Experts close to Bloomberg noted that a tax on investment income could be added in this tax reform package, meaning that wealthy individuals could see their federal tax rates climb to 43.4%.
One of the biggest lies of leftist politicians is to claim that raising tax rates on higher incomes will increase government revenue to achieve greater tax fairness and distribute wealth to those lower on the economic ladder.
But the data are not misleading. With an unprecedented trade deficit —year-on-year inflation in April rose to 2.6%, with CPI up 0.8% in April— and a debt of $30 trillion, pursuing a contractionary fiscal policy with such a tax hike will only result in a significant reduction in funding for small businesses, leaving them severely constrained from hiring more workers.
In other words, both the rich and the poor are actually used by leftist politicians as antagonistic subterfuges in political battles for the design of government budgets.
Regulations: more poverty and inequality
It is worth bearing in mind some real statistics, especially when politicians often pull romantic solutions out of their hat in an attempt to demonstrate gimmicky results that serve their political agendas.
In that sense, one of the silliest tax hike bait used by the left is to promise that the tax axe will only be reserved for higher income taxpayers. How nice that sounds. No wonder so many unsuspecting people vote for them, year after year.
But what politicians who often call themselves “progressives” don’t say is that there are not the number of rich people in America with enough money to fund the Democratic Party’s excessive spending plans. So. in order to get a large enough revenue effect to fund their delusional political agenda, it also requires emptying the pockets of the middle and lower classes.
Democrats —and the useful fools who are fascinated by their rhetorical skills— believe that the vast fortunes of citizens like Bill Gates, Mark Zuckerberg, LeBron James and many more who behave like endorsers of the current administration will be the first to be taxed to satisfy the radical campaign of the left. No one believes that.
Economics is not a linear science. It is enough to analyze the fiscal nooks and crannies of the State to understand that tax burdens on higher incomes become more lax as the economic fabric becomes more complex. Investing huge sums of money in securities exempt from declaration is one of the most common techniques.
I’m not talking about tax fraud but about subtle tax and financial engineering mechanisms with which many rich people defend themselves from the confiscatory actions of the Internal Revenue Service (IRS). During the Obama administration, and within the framework of the idyllic commercial relationship with the Chinese, the American rich invested their money opportunistically taking advantage of the lower tax rates guaranteed by Beijing’s communist economy.
This is not unique to the United States. In Europe, almost always with social-democratic administrations, after applying the recipe of penalizing the highest incomes, they have discovered that they were collecting less taxes than before. Worse still, the measure almost always results in the loss of a significant number of skilled jobs, generating a brain drain to other countries with better tax rates.
Nothing is more seductive for a demagogic politician than promising tax reforms and public benefits that have nothing to do with reality. The tax poison that Biden is preparing on the highest incomes will only contribute to transgress the market, reduce competition, encourage tax avoidance techniques, raise prices, increase unemployment and make the most vulnerable sectors of society poorer.
Economic gurus —among them Joseph Stiglitz, champion of state interventionism— speculate with volatile economic terms such as the fiscal mutualization of public debt to end social inequality. What is really worrying, however, is that the more markets are continually regulated and taxes are raised, the more revenue collection risks coming to a standstill.
That is probably where we are today. What experts call the Laffer curve dixit, which states, among other warnings, that a rise in tax rates does not necessarily lead to an increase in tax revenue. What would happen then with the umpteenth tax hike by the Democrats in power? We could end up in a vicious circle, in which an increase in tax burdens will be followed by a reduction in tax collection which, in turn, will force the government to raise taxes again, with the consequent destruction of the productive fabric.
This is the dead end into which they have got themselves with their populist policies. The opposite would be to encourage the celebrated virtuous circle —we had a period of unprecedented prosperity during the Regan administration— in which controlling the equation —reducing government spending and taxes— helps tax revenues increase as tax burdens are reduced. But with the Biden-Harris administration and its boys, this scenario seems unthinkable to me. Let’s hope I’m wrong.
Juan Carlos Sánchez, journalist and writer. His columns are published in different newspapers in Spain and the United States. He is the author of several books and is preparing the essay "Nación y libertad en el pensamiento económico del Conde Pozos Dulces" // Juan Carlos es periodista y escritor. Sus columnas se publican en diferentes diarios de España y EE.UU. Autor de varios libros, tiene en preparación la obra de ensayo “Nación y libertad en el pensamiento económico del Conde Pozos Dulces”