President Joe Biden has proposed $3.5 trillion in new and higher taxes. While Biden claims these taxes will be paid by large corporations and “the rich,” they will also harm working families and small businesses in the form of fewer jobs, lower wages, higher costs, and a weaker economy.
Biden has proposed raising the corporate tax rate from 21% to 28%, which would give the U.S. a corporate rate higher than China. He has also called for a 21% global minimum tax and a 15% minimum tax on “book income.” Biden has also proposed creating a second death tax by repealing the step-up in basis and has called for raising income taxes and capital gains taxes.
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Let’s start with the corporate rate increase. This will harm working families due to a significant portion of this tax being borne by workers in the form of wages and jobs. This is not a point of contention. In a 2017 report, Stephen Entin of the Tax Foundation argued that 70% of corporate taxes are borne by labor. Other economists argue that anywhere from 20%, 50%, to even 100% of the tax hits workers.
These tax hikes will also harm families by increasing the costs of household goods and services. A 2020 study by the National Bureau of Economic Research found that 31% of the corporate tax falls on consumers.
Given that an estimated $2 trillion of the Biden tax plan falls on corporations, workers and families will collectively be hundreds of billions of dollars worse off in the form of lower wages and higher prices.
On that point, this tax increase won’t just hit large businesses. One million corporations are classified as small employers, defined by the Small Business Administration as any independent business with fewer than 500 employees.
A corporate tax increase will also threaten the life savings of families by reducing the value of publicly traded stocks in brokerage accounts or in 401(k)s. Individual investors opened 10 million new brokerage accounts in 2020 and at least 53% of households own stock. In addition, 80 million to 100 million people have a 401(k), and 46.4 million households have an individual retirement account.
This is not the only harmful tax hike proposed by Biden.
He also calls for creating a second death tax by repealing a provision known as step-up in basis. This tax hike would apply a 43.4% capital gains tax to unrealized gains of every asset owned by a taxpayer when they die. This will disproportionately fall on family-owned businesses and could force them to downsize and liquidate assets. It will create new complexity by forcing taxpayers to determine the cost basis of assets, many of which may have been owned for decades. According to a study by Ernst and Young, this second death tax will cost 80,000 jobs each year for the first 10 years, increasing to 100,000 jobs each year thereafter. For every $100 in new federal revenues, workers will see $32 in lower wages due to these negative effects.
Biden’s plan to raise the top individual income tax rate will also raise taxes on small businesses, including LLCs, S corporations, and sole proprietors that pay taxes through the individual side of the code. These businesses account for 58% of all business income, so this could be a significant tax hike on businesses across the country.
Biden will also double the capital gains tax to 43.4%. Inclusive of state taxes, the average top capital gains rate will be 48.8%, a rate significantly higher than China’s 20%. The capital gains tax is really a tax on investment, so raising the tax will see a reduction in new investment and could dry up new capital for startups, innovators, and entrepreneurs.
Biden’s tax hikes will not just harm “the rich.” His corporate tax hike will fall on workers in the form of lower wages and fewer jobs. His plan to enact a second death tax will disproportionately hit family-owned businesses, while his capital gains tax hike will deprive small businesses of new capital.
Alexander Hendrie is the director of tax policy at Americans for Tax Reform.
