Most of us agree that tax law should be fair and equitable and that government spending should stay within fiscal means. But when the spending wish list grows, the reflexive response is to find someone or something to tax.
The Biden administration’s $3.5 trillion domestic spending package is a prime example of taxes chasing spending. The plan is too expensive, and they know it, and the proof rests in the many ways the Democrats want to pay for it.
A tax plan from House Democrats proposes to raise $2.9 trillion to pay for the spending, in part by hiking the corporate tax rate from the Trump-era 21% to 26.5% for big businesses and slapping a surcharge on individuals who make more than $5 million.
The top tax rate for capital gains also would climb to 25%, up from 20%, and the top marginal income tax rate would increase to 39.6% from 37% for households with taxable income over $450,000 and for unmarried individuals with taxable income greater than $400,000.
Surely that pays for the president’s spending, right? No, it doesn’t. Revenue from these measures doesn’t pay for the entire $3.5 trillion package.
We know what that means. Money is going to be borrowed, the search will continue for other things to tax or the gap will be artfully explained away through budgetary gimmicks like dynamic scoring to assert that economic activity generated by this federal spending will produce the additional revenue. Moreover, the real cost likely will be substantially greater than the projection and will be an anvil on future generations.
It’s a bit of a misrepresentation to suggest that these tax changes only negatively impact the uber-rich. It’s much broader.
Under current tax law, the top rate kicks in at taxable income of $523,600 for individuals and $628,300 for married couples. The Democrats’ plan not only is at a higher rate but kicks in at a level that is $123,000 lower for individuals and $178,300 lower for married couples. These folks are financially better off than most Americans, but it is clear that Democrats are willing to dip deeper and deeper into the tax brackets for revenue.
The looming threats of debt, deficits, big spending, heavy taxing and inflation make for a generational witch’s brew. Debt saddles future generations with crushing obligations. Inflation and taxes erode the spending and investment opportunities of individuals and businesses and slow overall economic growth.
Inattentiveness to rising debt and postponing investments in the nation’s future have been a bipartisan failing for decades. Regardless of whether a portion of the spending is paid for with new taxes and revenue from the expiration of the Trump-era tax cuts, or put on the national tab as a massive IOU, the overall trajectory is unsustainable.
The Biden administration and Democrats could use some realism. While investments must be made in the nation’s future, taxing and spending schemes have limits. Raising more money for future investments is not as simplistic as raising taxes. The goal should promote opportunities for personal and collective economic growth, too.
