I&I Editorial
Joe Biden’s massive $2 trillion “infrastructure plan” is in fact another giant tax hike disguised as a jobs program. Even worse, the Bidenites pretend that the taxes will hit wealthy people and big corporations hard, while the spending will provide jobs for struggling workers. Don’t believe any of it.
First, a reality check. Spending was up sharply last year, and will likely be up at least 50% this year. Yet, even the tax hikes now being discussed won’t come close to covering the spending increases.
Let’s review: During the pandemic year, the U.S. spent $6.5 trillion, a 47% surge in just one year. This year, we’ve already added about $4 trillion in new spending. Debt is now an unimaginable $30 trillion, and headed much higher. And yes, we have to pay it off, even if we “owe it to ourselves,” as some like to say.
With a deficit of $3 trillion last year and perhaps even higher this year, Americans are soon going to feel the pinch. Yes, the Fed can print more money by buying government bonds. But eventually, it all has to be paid back. And when that happens, the taxes will hit the economy hard, forcing the government to spend more (while crowding out private sector spending and investment), and jack up taxes at the same time.
The Biden administration’s great lie is that it will “go after” big companies and the rich to pick up the tab for the infrastructure spending.
Not true. It’s really going after you. The administration grudgingly handed out $1,400 in “COVID Relief” checks in exchange for years of higher taxes from you. Americans got snookered.
Just this week, Treasury Secretary Janet Yellen “called for countries around the world to adopt a global minimum corporate tax as part of the Biden administration’s push to hike rates and fund the $2.3 trillion infrastructure bill,” the British online Daily Mail wrote.
Some 140 countries are involved in the tax-hike talks, which will result in U.S. corporations paying a 28% top tax rate, a 33% rise from the current 21%.
Synchronized global recession, anyone?
Yet, in unveiling his infrastructure plan at a union hall in Pittsburgh last week, Biden said he would create “the strongest, most resilient, innovative economy in the world,” along with millions of “good-paying jobs.”
Uh-huh. The $2.3 trillion “Infrastructure” bill only spends $921 billion on what most people would agree is infrastructure. The remainder — $1.38 trillion by our calculation — would go to pet Democrat projects, payoffs to unions and left-wing groups, squirrelly climate change projects, money for misgoverned and impecunious Blue States, and other waste.
Because you think corporations pay for it, you might also ask, “why not?”
For one, “taxes on the companies” inevitably become “taxes on all.” Americans, you should know that by now, as we pointed out here recently.
One recent study by the Congressional Budget Office reviewed reams of past economic research and concluded that by saddling the U.S. with new taxes and enormous deficits for 10 to 15 years or even longer, we’ll destroy our economic vitality with these gigantic new spending packages.
“The general finding is that increasing taxes leads to lower GDP and personal consumption,” the CBO study, The Economic Effects of Financing a Large and Permanent Increase in Government Spending, found, adding that “deficit financing leads to higher interest rates, a lower capital stock, lower GDP, and a greater risk of a fiscal crisis.”
It also called the current trend “unsustainable.”
It could also be called “fraudulent.”
“The plan represents a huge power grab for the federal government, potentially the largest in decades,” David Ditch, a budget expert at the Heritage Foundation, told The Epoch Times. “The infrastructure portion alone would mean federal involvement in projects that are at the heart of local governance, such as school construction and water systems.”
Will a tax hike on corporations be enough? In a word, no. Last year, the U.S. collected about $212 billion in corporate taxes, well below the average $246 billion annually since 2000. Corporate taxes are highly cyclical. They don’t just keep growing.
As a simple calculation, if taxes come in at about their recent average, you’ll get only $80 billion more a year with Biden’s corporate tax hikes. But because companies are experts at tax avoidance, it’s doubtful it’ll even be that much.
That’s $1.2 trillion in corporate tax revenues over 15 years. Not $2.3 trillion.
That means the other $1.1 trillion comes from you (we’re not even counting interest). Maybe it’ll come as part of a huge, broad tax hike, already in the works. Or higher inflation. Or higher interest rates, causing prices of homes and other asset prices to fall. Or all of the above.
And don’t forget: Corporations will be raising prices, hiring less, handing out fewer bonuses and lower pay hikes, and trimming back their dividends to make up for the Biden tax hikes.
It’s a recipe for economic disaster, with trillions in lost output while we’re all paying higher taxes. Write your senator and tell him or her not to say yes to this mess. Raise hell. If not, when economic disaster comes and you start looking for someone to blame, start with the mirror.
— Written by the I&I Editorial Board
Globalization of corporate tax payments is something the European Union (EU) is famous for attempting (within the EU). Ireland has prospered tremendously by flouting it, and offering much lower corporate tax rates. Biden and the Dems are “crying wolf” to spend trillions, and are primarily interested in attaining “absolute power”. Negative economic consequences are secondary, acceptable collateral damage. Of course, Dems will argue otherwise to make the political sale (no different than selling Obamacare). Biden can rally the socialist base against the capitalist enemy whose small USA businesses they allow to be looted, burned and locked down. Thus, higher business taxes seem like an attack on the enemy.
In California, I watch the tax hikes on gasoline play out in ways “invisible” to many: Namely higher prices on every item we buy at supermarkets, hardware stores, etc., as the trucking industry learned to pass on tax hikes via their contracts, so that tax hikes are simply passed on as higher wholesale and retail prices. Principle is similar with Biden corporate tax hikes: Consumers will pay higher prices, in addition to companies cutting back on hiring, investment, R&D, dividends, etc. Of course, Yellen and the Fed love higher prices, as price inflation (currency devaluation) allows federal debt, social security, pensions, etc. to be repaid with cheaper dollars. If the USA has a real emergency (something currently unforeseen, a black swan event), the country will be overextended and in dire straits. Bad for national security.
Psst, the government doesn’t create jobs. Kill jobs, in the private sector, yes, create jobs, not so much. Government “investing” is simply picking winners, in this case failure prone alternative energy companies, (Solyndra) and losers, everyone else, especially independent small businesses.
Our children and grandchildren will be forced to pay off this massive boondoggle, and they will blame us for allowing this to happen.
First, there is no research that ties increased deficits to higher interest rates. In reality, the opposite has become true. We have lower global interest rates now despite higher debt. The Republicans are responsible for cutting tax rates whenever we start to get close to balancing the budget claiming “it’s your money we are giving back”. The US lost nearly 1/3 of its corporate tax revenue between 2017 and 2019 due to the corp rate reduction, so NO, corp income tax revenues did not go up as a result of the Trump tax cut. Also, US corps would not pay a net 28% tax, that is the TOP rate. There are so many deductions that the net rate is much lower. AND US corps don’t have to pay VAT, which happens in most other countries, so the effective US corp tax rate will still be far below the rest of the world, even at 28%. Finally, US corp tax accounts for 7% of US tax revenue. US corporations are NOT overtaxed.
Saying that “US corp tax accounts for 7% of US tax revenue” vastly understates corporate tax contributions. Corporations also pay state, county, city and all sorts of other taxes and fees. By the time you get done in a high-tax jurisdiction like metro California, the real total corporate tax rate is often closer to 40%. There are also additional layers of taxes flowing from corporate activities. For example, workers pay additional income, sales and property taxes on revenues derived from businesses. Also keep in mind the widely reported (World Bank) statistic that 90% of all jobs are created by the private sector.
As we saw with the Obamacare tax on medical equipment, those businesses cut employment by the same percent as the tax increase. So a general 8% tax increase on all businesses would be expected to decrease employment by perhaps even more than 8% as downstream businesses also suffer reduced economic activity. Higher business taxes are in effect like a partial permanent COVID-19 lockdown of business activity. This could translate into lower government collections of income, sales and other taxes and fees. A vicious spiral could follow, as governments necessarily revise upwards their measures of “fair share” and raise taxes (e.g. income, sales, property) on the other 93% of direct tax payers. Thus, raising business taxes is but a prelude to raising personal, sales and property taxes on all.
When Reagan dramatically lowered taxes, there was at first a dip in tax revenue, then revenues went up. When Trump lowered tax rates, tax revenues did not even dip, it went up to a record amount.
When we look at the details of the Trump revenues, we see that corporate tax revenue did go down, but it was the increased economic activity that resulted in much higher individual tax revenue. This was not due to rates, as personal tax rates went down too, but because of increased individual income.
The reason is simple. When companies and individuals have less money, they spend less. When they have more money, they spend more. More spending means increased economic growth.
Biden’s plan has nothing to do with increasing revenue. He is strictly about taking money from those he doesn’t like and giving money to those who voted for him. There is a complete disconnect between revenue and outlays. Raising taxes will not bring in more tax revenue. Only a bigger economy can do that. By printing money, Biden is injecting inflation which creates artificial income that he can tax. But people are actually worse off.