Opinion: Biden’s capital gains tax hike is his fourth hit to the rich

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President Biden‘s proposed 43.4% capital gains rate for taxpayers reporting income over $ 1 million, the highest rate in U.S. history, completes his fourfold hit of the highest taxes for wealthy Americans. . The first bite is a top marginal rate on household income of 39.6%, compared to 37%. The second bite is a cut in the estate tax exemption from $ 11.7 million to $ 3.5 million, and the repeal of the tiered base provision that eliminates capital gains on death. The third point is an increase in the corporate tax rate from 21% to 28%, together with measures to broaden the base, especially on foreign income.

The fourth bite, the capital gains proposal, would raise the federal rate from 23.8% to 43.4% for those with $ 1 million or more in income (the marginal rate of 39.6% plus the investment income surcharge of 3.8% on individuals with high income). Not surprisingly, Republicans abhor all four measures, while left-wing Democrats welcome them enthusiastically. The key to enactment will be the views of a handful of moderate Senate Democrats, such as Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ). The debate will focus on the alleged increase in inequality in the United States and the claim that wealthy households are better able to pay, directly and indirectly, for Biden’s US Employment Plan ($ 2.7 trillion, centered on the broadly defined infrastructure) and the American Family Plan ($ 1 trillion). , focused on child care, education and health). Read: Here’s What’s In Biden’s $ 1.8 Billion ‘Plan For American Families’ Former Deputy Commissioner of the Bureau of Labor Statistics John Early and Former Chairman of the US Senate Banking Committee, Phil Gramm, show that when transfer payments and tax burdens are taken into account, inequality has actually decreased since 1970. This fact will be of little importance in a debate in which the progressive vision is realized. Other advanced countries have programs that resemble the American Jobs Plan and the American Family Plan, but are largely funded by broad-based value-added taxes (VATs) rather than sky-high rates on capital gains or corporations. Consider, for example, that “socialist” Sweden has a capital gains tax rate of 30% and a corporate tax rate of 22%. The standard VAT rate is 25%, but the rate is reduced for many items. If Biden’s tax suite is enacted in its entirety (which seems unlikely), the United States will embark on a great natural experiment: How do extreme tax rates, compared to other advanced countries, affect innovation and productivity? Consider that the federal tax rates in our Anglo-Saxon neighbor, Canada, are roughly as follows: top marginal household income rate, 20%; maximum capital gains rate (excluding half of capital gains), 10%; maximum tax rates on wealth, the same as rates on individual income and capital gains; maximum corporate rate, 15%. (Canada has a national VAT of 5%).

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Of course, Canadian provinces add their own taxes to federal rates, but tax competition between provinces keeps them in check. The province of Alberta, like the state of Florida, has very low tax rates on income, capital gains, property, and corporations. Tax competition between provinces, like tax competition between states, will endure because some sub-federal jurisdictions will continue to have favorable rates in the future. It is no exaggeration to imagine that the creators of the American technology companies (Facebook, Amazon, Apple, Netflix and the parent company of Google Alphabet (FAANG) of tomorrow) could decide to move a few kilometers north and launch their companies in Canada instead of the United States. United. State. Or they could be even more adventurous and settle in Switzerland or Singapore, historically known for very favorable tax regimes. President Biden and his supporters will tell us that other American attributes – huge markets, great universities, the rule of law – will more than offset the high tax burdens of wealthy Americans when it comes to creating jobs and wealth through innovation. Perhaps, as they often claim, taxes don’t matter. Those arguments may be correct, but they cannot be confirmed by the experience of any advanced country. Gary Clyde Hufbauer is a non-resident principal investigator at the Peterson Institute for International Economics, a think tank in Washington, DC. The opinions expressed are yours. Now Read: If Biden Wants His Progressive Policies To Be Popular And Lasting, You Should Heed These Lessons From FDR, Obama, And The Conservative Counter-movement Also: Biden’s Plan To Increase Taxes On The Capital Gains Of The Rich Is Good politics but bad economics.