I’m not in favor of raising any taxes, but if Biden really wanted to target extreme inequality, he would propose successively higher marginal rates on much higher levels of income—including investment income—starting at $5 million or $10 million. This discussion excludes Medicare taxes and state income taxes, which would take marginal rates well above 60%, and would easily be the highest in the world.
The chief complaint about our current tax code—that people of means pay a lower effective rate than everyone else—is a function of preferential treatment for investment income. And Biden’s tax plan does take that into account, raising taxes on long-term capital gains for incomes exceeding $1 million a year. But with Biden’s plan, billionaires would still pay lower effective rates than someone with a few restaurants that makes $400,000 a year.
Add it all up and Biden’s plan will only collect about $3.2 trillion over 10 years, after accounting for dynamic scoring, which is a pittance relative to the current $3 trillion federal budget deficit. The unfortunate thing is that if the government was really interested in boosting revenue, it would have to raise taxes on the middle class, but that is a political third rail. If Biden’s plan passes, our marginal income tax rates would become grotesque, with a hypothetical couple paying 24% in taxes on incomes up to $320,000, rising to 51% on $408,000 in income if that couple is self-employed. The U.S. has enjoyed strong rates of business formation, but that wouldn’t last very long if Biden becomes president and his tax plan becomes law.
Throughout the Democratic campaign, left-wing candidates spoke fondly of returning to the days of 90% tax rates in the 1950s. In a sense, those taxes were more fair, because they applied to extremely high levels of income. I never thought I’d say this, but I’d rather we return to those days than live under this monstrosity of a tax regime.
This article was provided by Bloomberg News.