All the President's Tax Increases

The President’s $6.89 trillion proposal is a political document that sets up his re-election campaign. Its spending and tax proposals were rejected in the last Congress under Democratic majorities and have no chance of passing with a GOP House. But the budget shows where Mr. Biden wants to take the country if he wins a second term.

Bernie Sanders

would be pleased.

Start with the tax increases that far exceed even those that passed last year in the Inflation Reduction Act (IRA):

•A new wealth tax. The budget exhumes the wealth tax that Senate Democrats proposed to pay for the President’s Build Back Better plan. It proposes a 25% minimum tax on the “full income” of Americans with more than $100 million in wealth, by which it means taxing the increase in the value of assets even if no income is realized.

•Personal income and capital gains tax hikes. Mr. Biden wants to tax capital gains at the same rate as ordinary wage income for those making more than $1 million. This would effectively double the current 20% tax rate on capital gains since he also wants to raise the top rate on personal income over $400,000 to 39.6% from 37%. But wait—it’s worse.

•Surtax on the surtax. The budget extends the 3.8% surtax currently applied on investment income of couples making more than $250,000 to business income. It also raises this rate and the top Medicare payroll tax on wages to 5% for those earning more than $400,000. This 44.6% top marginal rate would hit business, investment and wage income.

Add state taxes, and many high earners would pay a combined top rate of more than 55%. This is higher than in the U.K. (45%), Germany (47.5%), Spain (54%) and even Sweden (52.3%). Is he trying to beat Europe in a race to the tax top?

Capital gains are taxed at a lower rate than wage income in part because they are eroded by inflation, and higher rates discourage people from selling stock and realizing income. Even liberal economists agree there are diminishing returns on capital-gains taxes once the rate exceeds 28%. Mr. Biden’s tax increase could reduce revenue for the Treasury.

•Corporate rate increases. The budget raises the corporate income rate to 28% from 21%, and the minimum rate on the foreign earnings of U.S. multinationals to 21% from 10.5%. This comes on top of the IRA’s new 15% minimum tax on book income of corporations with more than $1 billion profit. Last year corporations started having to amortize their research and developing expenses over five years instead of deducting them immediately. A provision in the 2017 tax reform allowing immediate 100% capital expensing is also starting to phase out this year.

All of this will raise the cost of investing and the effective federal corporate rate well above 28% for many companies and higher than before the 2017 tax reform that finally ended the flight of U.S. companies overseas. Add the average state corporate rate of 6%, and U.S. companies will be at a large global disadvantage.

•4% stock buyback tax. Mr. Biden didn’t waste time adding to the IRA’s 1% tax on corporate stock buybacks, quadrupling it a year later. The higher rate will interfere with business decisions on where to invest their capital with damaging impact on growth.

•Odds and ends. The budget includes sundry smaller tax changes to raise hundreds of billions of more dollars such as “repeal the deduction for foreign-derived intangible income,” “restrict deductions of excessive interest of members of financial reporting groups,” “modify tax rule for dual capacity taxpayers,” and “strengthen limitation on losses for noncorporate taxpayers.”

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All of these tax increases are projected to raise revenue as a share of GDP to a new higher level of 20.1% of GDP in 2033, which is far above the 50-year average of 17.4%. One reason the tax share isn’t even higher is because the tax hikes would be offset by spending increases via the tax code such as a $3,600 refundable child tax credit and making the IRA’s sweetened Affordable Care Act premium subsidies permanent.

Meanwhile, spending would climb to 25.2% of GDP, compared to a 50-year average of 21%. That’s owing to rising interest costs on federal debt and Mr. Biden’s proposals for a cavalcade of entitlements such as universal pre-K, child care, paid family leave, and housing.

Even with all the taxes, deficits over the next decade would total $17 trillion, and debt held by the public as a share of GDP would rise to 109.8% in 2033 from 97% last year. Mr. Biden’s budget is a recipe for an economically and militarily (see nearby) weaker America, but at least he’s warning voters of his intentions—unlike in 2020.