This is good news for us non billionaires.
Biden knows his story. Democratic presidents have not done well in raising taxes. Bill Clinton raised tax rates in 1993. Although increased income from higher personal and corporate taxes helped spur the recovery, Democrats were hammered in the midterm elections that propelled Newt Gingrich to power and handed the House to Republicans until 2006.
And then the perception that the Affordable Care Act, known as Obamacare, was some kind of tax hike led to an even bigger punch the next time Democrats held the House, midway through 2010 which ushered in tea and blocked Obama. Biden legislative program for the next six years.
This time around, out of the chute and in need of funds for a slew of long-delayed infrastructure projects, the Biden administration has focused on corporate tax revenues.
And it should be so. Wages have stagnated for decades. But corporate stock returns have not languished – they have grown explosively. In the first three years of the Trump administration, wages rose 9%; the S&P 500 rose 42%. If we go back to 1964, the figures become 852% for wages, unadjusted for inflation, against 4,116% for stocks. Over the decades, wealth has exceeded wages by more than four times.
What about tax policy? Since World War II, the American tax system has increased its burden on workers, them with stagnant wages, and lowered it on companies, those of explosive growth. One of former President Donald Trump’s major legislative achievements, the Tax Cut and Jobs Act of 2017, was largely a corporate tax cut.
If we go back to 1964, we see the “big three” US taxes – individual income, business income, and Social Security / payroll taxes – combine to represent 14.3% of US GDP. In 2019, the most recent year for which we have full records, the total was 15.1%, a slight increase from the total.
But if we focus on the makeup of the Big Three taxes, we see a more dramatic story. Personal income taxes increased from 7.4% to 8.1% of GDP. Social charges, the most regressive of the lot, soared from 3.3 to 5.6%. Businesses? These big winners in economic growth saw their taxes as a percentage of GDP fall from 3.6% to 1.1%.
Corporate income tax, which provided about 40% of federal revenues in 1943, now accounts for only about 7% of total federal dollars; individual income and social charges, combined, amount to 86%. In short, America taxes labor, not wealth, which adds to the burden that life places on our middle class.
The Biden plan is smart. He’s not just raising the corporate tax rate – the proposal is to raise it to 28% from its current 21%, still below the 35% it was before Trump’s cuts – but does also what the TCJA did not do. : fill gaps. The Biden plan targets a minimum global corporate tax rate, supported by denying U.S. tax deductions to companies operating in low-tax jurisdictions.
He tries to put an end to the “reversals” whereby American companies become the children of “parents” of companies located abroad. He attacks accounting tricks by imposing a minimum tax on a company’s book value. These are very technical questions that would have a beneficial effect: it would make companies like Amazon de Bezos pay. Something.
There is a time for everything, including taxing and spending. Jeff Bezos understands. Wall Street too; Goldman Sachs and others have issued lukewarm endorsements or at least muffled criticisms of the proposed tax hike.
Most Republicans in Congress will still cry wolf, because that is the nature of Republicans in Congress. But the wolves of Wall Street know it better. If taxes are the price we pay for a civilized society, as Oliver Wendell Holmes said, it is high time to ask the richest societies in the history of civilization to pay a fair share, before our civilization collapses and collapses. Even the man with the most to lose agrees.