The House Democrats unveiled their tax plan to (partially fund) their $3.5 trillion human infrastructure plan on Monday.
The tax proposal is estimated to raise $2.1 trillion in taxes over the next 10 years.
However, this is before the Democrats gives away $1.2 trillion in tax credits to other taxpayers for housing subsidies, child care, energy and other tax credits. That means the total net revenue gained over the next decade is only $871 billion.
As I predicted might happen a month ago, part of the money is to extend the current expanded refundable child tax credit through 2025 which was scheduled to be in place for only 2021 as a Covid relief measure.
The child tax credit is supposed to revert to a $2,000 annual amount in 2022. Let's see if that happens. It is never easy taking money away from anyone. That is especially true in an election year.
Let's put those tax increase dollars in context.
The Democrats want to increase spending by $3.5 trillion.
The federal government is already facing a $3 trillion budget deficit for the current fiscal year ending September.
This proposed tax increase is the largest in several decades and yet it does not come close to matching the proposed spending increase.
Beyond that, the tax increase only covers less than 10% of the annual current deficit spending of the United States!
Isn't it great to know that we are being guided by government leaders who want to insure we are on a sound financial platform for the future of those children that they claim to care so much about?
The Democrats are saying that their proposal would target rich corporations and individuals for the new revenue.
This would include raising the top individual tax rate to 39.6%. In addition, those with incomes above $5 million would be subjected to an additional surcharge of 3%. Capital gains rates would also increase from 20% to 25%.
CNBC reporter Robert Frank highlights what the top combined federal, state and local tax rates would be in some large population centers if the Democrat proposal becomes law.
I hope the voters in New York, California and New Jersey are not surprised by this. Large majorities in those places voted for Biden and the Democrats. They are getting what they voted for.
% of vote for Biden in 2020.
NYC 76%
CA 64%
NJ 57%
It makes you wonder how many "rich" people will be left in these areas after all is said and done?
The Democrats are also proposing to raise the corporate tax rate from 21% to 25% and cut the estate tax exemption in half.
As bad as this may seem, the tax proposal is actually much less severe than Joe Biden's proposal.
The Wall Street Journal put this simplified chart together to compare current law, Biden's proposal and the House Democrat proposal.
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| Source; The Wall Street Journal |
It is important to remember, that unlike most other countries, corporations in the United States also typically bear corporate state taxes as well.
Adding in the average state taxes brings the current U.S. tax rate to 25.7%. This means that the Democrat proposal really would raise the corporate levy to 30% when you compare it to other countries around the world.
For perspective, below are the 2021 corporate tax rates for other countries that the United States competes with economically or strategically.
Ireland 12.5%
United Kingdom 19%
Russia 20%
Switzerland 21.2%
Sweden 22%
China 25%
Canada 26.7%
Korea 27.5%
Japan 29.7%
Germany 29.9%
In effect, the Democrat proposal would take the United States from about the middle of the pack in corporate taxes to again having one of the highest corporate tax rates in the world.
I understand that it is popular to dump on the rich. It is easy to argue that they should pay more.
Of course, it doesn't seem to matter how much the "rich" pay. It is never enough as far as the liberals are concerned. There never seems to be an amount that is considered "fair".
Liberals also never seem to make the connection that the "rich" they demonize are the ones who risk their money and capital in creating jobs and opportunities for everyone else. Nothing happens in a free market economy unless those "rich" have the incentive to part with their money.
I am old enough to remember previous plans to "tax the rich."
In the 1990's, an excise tax was placed on luxury items such as expensive cars, private planes, yachts, jewelry and furs. It was intended to "tax the rich".
However, within a year of enactment, yacht sales had fallen by 86%. An estimated 25,000 workers in boat building lost their jobs. Sales of planes, jewelry, furs and luxury cars also suffered. Revenues from the tax came nowhere close to matching what was projected.
The law was repealed less than three years later as thousands of workers lost their jobs in these industries. What happened? Instead of paying the tax the rich just stopped buying expensive cars, boats, aircraft, furs and jewelry. The tax did not hurt the rich. It did result in thousands of workers losing their jobs who made and sold these things to the rich.
The little revenue that was raised was more than offset by the taxes that disappeared as a result of the lost wages and the unemployment benefits that had to be paid to the workers who paid the price with their jobs.
It is the "rich" who also fund most of the philanthropic causes in the country. 55% of the charitable deductions claimed on 2018 tax returns were from those earning more than $1 million. according the IRS Statistics on Income. (2018 is the most recent year that data is available).
For example, the Metropolitan Museum of Art in New York City had its annual Met Gala fundraiser last night.
Tickets to the event were $35,000 each and tables ranged from $200,000-$300,000.
I guess it was just the perfect event for Rep. Alexandria Ocasio-Cortez to make a political statement with her dress for the evening.
A "Tax the Rich" dress at an event that has nothing but rich people attending?
Very classy.
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| Credit: CNN, Getty Images |
Of course, AOC wanted to make it clear that she did not attend because she was "rich" She only attended because she was invited as an elected official and is a dedicated PUBLIC SERVANT.
AOC is worried about haters but she shows up with a dress telling everyone there that they need to pay more in taxes?
Making a political statement at a fundraiser is an example of the civility that we are told is missing in society today?
I guess it would also be fine to have a woman show up in a "Choose Life" dress at a Planned Parenthood fundraiser or in a "Send Them Home" dress at a fundraiser for illegal immigrants.
If you think this fashion statement is questionable consider what Kim Kardashian West wore to the Met Gala.
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| Credit: CNN, Getty Images |
The theme of the Gala was "In America: A Lexicon of Fashion".
It is unclear to me where in the lexicon of American fashion this fits in?
Is she angling to be the next Bat Woman?
Is she showing solidarity with women now oppressed in Afghanistan by the Taliban?
Is she modeling a new look for personal protective equipment for the next phase of the pandemic?
What we saw at the Met Gala might be evidence that all rich people have cents in their bank account but that does not mean they all have common sense.
The reality is that most people with money got it because they have some sense and they keep their money by not doing something stupid with it. Most are not going to sit back and do nothing if someone wants to take it.
We saw it in the 1990's.
They might decide to buy a lake house and a small board rather than a luxury yacht.
They might decide their wife does need a diamond necklace or fur for her birthday. Take her to Italy instead.
They might decide they don't need to risk their money on a new business when they will share more than half of the profits with the government.
They might decide they don't need to live in New York City or San Francisco. Miami or Austin will be just fine.
The fact is that when politicians put a target on the rich it is usually everyone else that gets hit.
The great economist Walter E. Williams explained why unintended consequences are so common when the "rich" are targeted in these tax raising schemes such as the luxury tax of the 1990's.
Congress repealed the luxury tax in 1993 after realizing it was a job killer and raised little net revenue. Why did congressional dreams of greater revenues turn into a nightmare? Kennedy, Mitchell and their congressional colleagues simply assumed that the rich would act the same after the imposition of the luxury tax as they did before and that the only difference would be more money in the government's coffers. Like most politicians then and now, they had what economists call a zero-elasticity vision of the world, a fancy way of saying they believed that people do not respond to price changes. People always respond to price changes. The only debatable issue is how much and over what period.
History may not repeat but it surely rhymes.
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