With President Joe Biden’s approval ratings in decline and his $3.5 trillion spending package losing key Democratic support, his administration has resorted to making up a new definition of income as a way to scare the public and Congress into supporting his job-killing tax hikes.
In a new report produced by the White House, the administration claims that the wealthy have only paid 8.2% of their income in federal income taxes between 2010 and 2018.
This is blatantly untrue.
How did the White House come up with this figure? It certainly wasn’t using IRS data, which show that the top 1% of earners pay an average tax rate of 25.4% and pay 40.1% of all income taxes. Instead, the Biden administration changed the definition of income to include the appreciation of unsold assets, something America has never defined as income in its history.
The Biden administration’s study treats unrealized gains as income. This means that if a person’s stock or house increased in value during the calendar year, the administration counts this as income even though nothing was ever sold and the taxpayer pocketed no money from the assets. The U.S. tax code has never recognized unrealized gains as income; assets only count as income when they’re sold for cash.
What the administration is describing is wealth, not income.
Here it becomes clear why the White House’s “study” is aimed at the wealthy alone: It’s not just the top 1% who have wealth in America. If Biden’s study were applied to the middle class, we’d see that they too are escaping their “fair share” of taxes. They have homes, retirement accounts, and traditional stocks that all increase in value every year, and they are not paying taxes on this appreciation. But noting this wouldn’t serve the administration’s purposes of trying to justify its job-killing tax plan by blaming the wealthy.
The claim that the U.S. should force taxpayers to pay taxes on increases in wealth when they may not have the cash to pay the taxes is absurd on its face and economically dangerous. This kind of taxation, which has also been proposed by Sen. Ron Wyden of Oregon, would destroy jobs by discouraging investment and encouraging people to consume rather than grow capital to boost wages and expand the economy. The incentive to invest for the future significantly decreases if people are taxed on the appreciation of their investments’ value every year.
Ultimately, the proposal to tax unrealized gains is dead in Congress. This study is just an attempt to distract people from Biden breaking his promise not to raise taxes on anyone earning less than $400,000.
Biden breaks his pledge in a number of ways. First, the Democrats’ current tax proposal in the House doubles the tax rate on cigarettes and raises taxes on other nicotine products such as vapes. Taxes on cigarettes and nicotine notoriously affect low-income earners the most. For example, a smoker in New York who smokes one pack a day and earns only $35,000 a year would pay nearly 20% of his income in cigarette taxes under this proposal. Hiking taxes on cigarettes is a blatant violation of Biden’s pledge and shows that it won’t be the wealthy who pay for his spending spree.
Second, the House’s tax proposal raises the corporate tax rate to 26.5% — an increase the public will feel through lower wages. Recent studies suggest that between 75% and 100% of the corporate tax is borne by labor through lower wages. Ultimately, businesses do not pay taxes — people do.
This corporate rate increase would make America’s corporate tax rate higher than in Communist China, which would encourage American companies to move their profits, jobs, and investments abroad.
The White House’s bogus study is just a big distraction to hoodwink the public into thinking that taxes need to be raised because the wealthy pay fewer taxes than the average, hardworking American. This is simply not true. And if the Democrats’ tax plan becomes law, it’ll be everyday people who pay in the form of fewer jobs, lower wages, and fewer economic opportunities.
Travis Nix (@tnix113) is a Young Voices contributor and a student of tax law at Georgetown Law.
