Americans received more unwelcome economic news yesterday as third-quarter GDP numbers fell far below expectations, marking the slowest period of the recovery to date. However, despite clear signs that their economic policies are already hampering the recovery started under President Trump, Democrats continued to press forward with their massive spending package officially titled the “Build Back Better Act,” or BBB. While the sticker price of the legislation was dropped to $1.8 trillion last night (even though many experts predict the package will end up costing far more than the advertised price) the bill still amounts to a massive expansion of the federal government’s reach that will cost taxpayers dearly. For a country still struggling to recover from the pandemic and facing new pressures from runaway inflation, supply chain woes, and a growing threat from Communist China, that’s anything but good news.
As the Democrat-controlled House Ways and Means Committee unveiled last month, Biden’s spending plan would increase the corporate tax rate from 21% to 26.5%, above the global average of 23%. According to the Tax Foundation, such an increase would also subject American companies to a higher tax rate than Communist China. There, companies pay a 25% standard corporate tax, and certain industries encouraged by the Chinese government can see rates as low as 15%.
The Democratic plan would also increase “the long-term capital gains and qualified dividends tax rate to 25%” according to the Tax Foundation, and would create “a new 3% tax on modified adjusted gross income above $5 million, in addition to the current law 3.8% net investment income tax.” This, combined with state-level taxes, would make the integrated tax rate for corporate income 56.6 percent, more than double that of China. This would give America the third-highest integrated tax rate in the developed world. The only nations with a higher rate would be Ireland and Korea. As destructive as this would be for American enterprise, some Democrats are going even further.
On Wednesday, Democratic Senator Ron Wyden proposed arguably the most radical tax proposal in history. His plan would create a tax on “unrealized” capital gains. Currently, individuals only pay a tax on investment profits, or capital gains, once an asset is sold. This plan would tax assets as income, regardless of whether they are sold, meaning individuals would be forced to pay taxes for simply owning assets. While Wyden insists this plan would only affect billionaires (hence calling it the “Billionaires Income Tax.”), once the precedent is set that all private asset ownership can be taxed by the federal government, it would almost certainly spread to all wealth groups. The proposition has divided Democrats, and some are even outright questioning its constitutionality. However, Biden Treasury Secretary Janet Yellen has also recently floated the idea, suggesting that it may not be as far-fetched as most Americans would hope.
Even the supposed “compromise” tax proposals paint a concerning picture for American businesses. In the latest framework released Thursday, Democrats would institute a 15% minimum tax on companies that earn over $1 Billion in profits. There would also be a 1% surcharge on all corporate stock buybacks. Companies often buy back shares to stimulate demand while internally controlling the supply. Qualifying companies have already bought back $609 billion of stock this year, and CNN calculates that these buybacks would have resulted in $6.1 billion in additional taxes. However, they did not outline what effect this would have on companies’ decisions on whether or not to initiate a buyback. Though the White House has suggested that this framework could likely be in the final framework, no firm decision has been reported thus far.
Regardless of how revenue is raised, Biden has failed to answer one central question about his social spending plan: does America need it? With inflation continuing to spike, a growing chorus of economists is calling on the government to reign in the money supply, not “pour gas on the inflation fire.” Similarly, many American companies are still struggling under onerous COVID restrictions, supply chain challenges, and ransomware attacks that the Biden administration has done nothing to stop. Ironically, this bill, aimed to stimulate and grow the economy, would in all likelihood cause a market contraction.
The chaos surrounding the bill’s passage does not reflect well on Democrats. The constant party infighting has revealed that the much-touted, “big tent” of the American left is far more divided and disorganized than previously thought. It has also shown how far Democrats are willing to go to fulfill their social spending priorities. These revelations and continuing questions of the competence and effectiveness of Democratic leadership do not bode well for a party facing a huge midterm cycle next year.
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