House Democrats have put forward a worst-of-both-worlds tax proposal: punishing enough to do real damage to the U.S. economy and individual households, but not nearly enough to pay for the trillions upon trillions of dollars of new spending Joe Biden and his congressional allies have put into play.
In theory, the point of tax bills is to raise revenue to support necessary government spending. The spending has for a very long time now been far in excess of what is necessary, while our tax system, complex and burdensome though it is, fails to produce enough revenue to avoid permanent budget deficits. But revenue here seems to be an afterthought.
Democrats propose to raise personal income taxes (to 39.6 percent plus a new 3 percent surcharge on incomes more than $5 million), corporate taxes (to 26.5 percent), and taxes on investment income (to 25 percent); impose higher taxes on “pass-through” income from business partnerships; and hike estate taxes. All told, the Joint Committee on Taxation estimates that the tax increases would add up to nearly $2.1 trillion, though the final number could be higher or lower. Though the changes are all meant to target high-income taxpayers — who already pay a share of federal income tax that is far in excess of their share of income — according to the JCT, less than half of the new taxes collected would come from high-income individuals. The rest would come mainly from businesses, which invariably pass those costs on to their employees, customers, and business partners as far as they are able.
Democrats here are pulling their usual stunt of assuring lower-income people that higher taxes won’t fall on them, but only on their employers, their landlords, and their grocers, as though their finances were unconnected. In the past, that has been good politics, but it is bad economics.