President Joe Biden has been saying that his tax and spending increase plans are “going to cost nothing.” His spending agenda, he claims, “costs zero dollars” because he is going to raise taxes to pay for it.
It should be obvious that paying for something does not make it cost-free. Rather than costing zero, the Biden tax increases would actually impose enormous costs on the economy. The real costs of the proposed tax rate increases on savings and investment in the House bill are staggering.
The higher corporate tax rate and the higher tax rates on capital gains and dividends would raise the cost of capital and reduce the incentive to work, save, and invest. These higher tax rates would reduce investment and productivity, leading to lower economic growth, lower wages, higher prices, and fewer jobs. These tax increases would cost everyone, not just the rich.
Under the House bill, the United States would have the third-highest corporate tax rate in the world at a combined average federal-state rate of 30.9%. That would put us behind only Portugal and Colombia. Companies in 21 states would be forced to pay tax rates higher than any other country in the developed world. The cost to our competitiveness would be steep.
The House bill also would increase the maximum tax rate on capital gains to a combined average federal-state rate of 37%, one of the highest rates in the world and far above the average Organisation for Economic Co-operation and Development rate of 19.1%. Only Denmark and Chile would have higher rates on investment. Investors in 42 states would face higher rates than France and 33 other OECD countries. The cost to U.S. venture capital would be significant.
The higher tax rates on savings and investment are not going to “cost nothing.” According to a Tax Foundation analysis, the economic costs of the House bill would be exorbitant in terms of reduced economic output, lower wages, and lost jobs. The higher rates would reduce long-term economic growth, lower household income, and eliminate hundreds of thousands of full-time jobs.
Put simply, the economic costs of the Biden tax increases would be real and substantial. This plan would derail our economic recovery and lead to a lower standard of living for everyone.
Bruce Thompson was a U.S. Senate aide, the assistant secretary of the Treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
