On Thursday, President
Joe Biden
will introduce his proposed budget for the federal governmentâs fiscal year 2024, which begins Oct. 1. These budget documents are largely political rhetoric without formal substance. Still, it will highlight Bidenâs political priorities and outline his campaign strategy for 2024.
Biden will propose to reduce federal spending by about $200 billion a year. That may sound like a lot, but it is actually pennies in the context of the
federal deficit crisis
. Interest on the debt alone is projected to cost over $10 trillion over the next ten years. Biden will also promise to protect the solvency of both the
Social Security
and
Medicare
trust funds even though both of these entitlement accounts are scheduled to run out of money within ten years. Biden will repeat his pledge to reduce the deficit and maintain the integrity of Social Security and Medicare without raising taxes on Americans
making less than $400,000 a year
.
THE RICH CAN’T CLOSE THE DEFICIT GAP
Biden will propose to raise corporate taxes, but the President surely knows that corporations donât pay taxes. Shareholders and workers pay corporate taxes. By proposing to raise taxes on corporations, Biden is breaking his pledge not to raise taxes on households earning less than $400,000 a year. But as the saying goes, never let honesty and transparency get in the way of a good campaign slogan.
Biden will also propose a tax on the wealth of the most affluent Americans. But again, Biden knows that his proposed taxes would run afoul of a Supreme Court decision that income must be “realized” to be taxable.
In 1913, the Sixteenth Amendment to the Constitution authorized an unapportioned tax on income “derived from a source.” In the Supreme Court decision Commissioner v. Glenshaw Glass (1955), the court said that an income tax had to constitute a tax on “accession to wealth, clearly realized.” A tax on unrealized paper appreciation in securities, property, collectible art, or rare automobiles would be unconstitutional. For a wealth tax to be constitutional, the tax would have to be apportioned. California constitutes about 12% of the U.S. population; therefore, residents of California would be required to pay 12% of a national wealth tax, and so on for the residents of each state.
Equally important, even if the current Supreme Court were to overturn precedent and deem a wealth tax on billionaires as a form of income tax, Bidenâs proposed wealth tax would not be administratively feasible. Legal issues aside, a wealth tax would also be a constant negative weight on the share prices of many of the countryâs greatest companies. The founders of Alphabet, Amazon, Meta, Microsoft, and Tesla would be forced sellers. Expected annual returns from investing would fall. Investing and saving would be disincentivized. Lower savings would eventually lead to a poorer economy.
To avoid a wealth tax, some portion of a billionaireâs assets would be reallocated to hard-to-value assets such as rare art or a collectible vehicle. Capital would be redirected to non-productive assets.
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Biden is a strident populist, apparently uninterested in the long-term well-being of the nation. His tax proposals are nonsense.
James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes
a daily note
on finance and the economy, politics, sociology, and criminal justice.
