The leading Democratic presidential candidates would do serious damage to savings and investment in the United States if elected. They have proposed a long list of tax changes that would destroy savings and investment, and with them, the economy.
These proposals would reduce the incentives to save and invest and would reduce the total amount of savings and investment in the economy. These proposals would have an extremely negative effect on the economy, reducing growth, jobs, and wages.
The candidates all claim their tax proposals are aimed at the wealthiest 1%, and that average middle-income taxpayers would not be affected. Nothing could be further from the truth. The harm on the economy of trillions of dollars of new taxes would be felt by all. And once Washington imposes a new tax, it is almost always expanded to hit more taxpayers.
Here is a brief summary of the proposed tax increases on savings and investment.
Wealth Tax: Sens. Bernie Sanders and Elizabeth Warren have proposed similar wealth taxes of between 1% and 8% to be imposed annually on people’s net worth, raising between $2.6 trillion and $4.4 trillion over ten years. According to a study by the American Action Forum, a wealth tax would affect the entire economy, costing workers between $1.2 trillion and $1.6 trillion in lost wages over ten years.
Capital Gains Taxes: Joe Biden, Sanders, Warren, and Pete Buttigieg have all proposed substantial increases in the capital gains tax, taxing capital gains at the same rate as ordinary income. Biden and Buttigieg would nearly double the capital gains rate, increasing it from 23.8% to 43.4%. Sanders would increase the top capital gains tax to 55.8%, while Warren would increase the top rate to 58.2%. Virtually every economic study and historical experience shows that higher capital gains rates reduce savings and investment in the economy.
Mark-to-Market: Warren and Buttigieg also support a proposal to impose the new higher capital gains tax on the appreciated value of people’s publicly traded assets each year, taxing them as if they had been sold. They also want to impose a look-back fee on the sale of other assets. They estimate this proposal would raise $2 trillion over ten years.
Financial Transaction Tax: All of the major presidential candidates support a financial transaction tax on the sales of stocks and bonds, a tax that would be imposed on savings and investments in mutual funds, retirement accounts, and pension funds. A study by Modern Markets Initiative called it “a retirement tax on American savers.”
Corporate Tax Rate: All of the presidential candidates want to raise the corporate tax rate from the current 21% rate to between 28% and 35%. Warren has proposed a maximum corporate tax rate of 42%. According to the Tax Foundation, raising the corporate tax rate would cut capital formation and reduce economic growth, wages, and jobs.
Retirement Savings Accounts: Both Biden and Sanders are proposing to reduce the tax deduction for popular middle-class savings incentives such as IRAs and 401Ks. They want to limit itemized deductions to 28%, thus reducing the tax deduction for IRAs and 401Ks for millions of savers.
These tax increases would all reduce savings and investment, and impose great harm on our economy, reducing economic growth, productivity, wages, and employment. These are all direct taxes on savings and investment. Trillions of dollars of savings and investment would have to be sold every year and sent to the federal government, putting downward pressure on the value of financial assets, and reducing the amount of money available for job-creating investments.
These tax increases would have a devastating effect on our economy, ending our economic expansion and likely causing a massive sell-off in financial markets. These are all terrible ideas and should be rejected out of hand.
Bruce Thompson is a contributor to the Washington Examiner’s Beltway Confidential Blog. He is a Washington consultant. During the Reagan administration, he was assistant secretary of the Treasury for legislative affairs.
