OPINION:
The Biden economy is weak. Inflation is surging, wages are stagnant, and jobs remain unfilled.
So what is the Democrat solution to this problem? Tax increases on American families and businesses that will only make these problems worse.
The economy contracted by 1.4% in the first quarter of 2022 and inflation hit 8.5% in March on an annualized basis, setting a 40-year high for the fifth consecutive month.
As noted by the Bureau of Labor Statistics, this marks a more than sixfold increase from when President Biden took office, when annual inflation was just 1.4%. American families are seeing the price of key products drastically increase in the past year: Energy has increased by 32%, gasoline by 48% and airfares by 23.6%. Beef has increased by 16%, fresh fruit has increased by 10.1%, and furniture has increased by 15.8%.
Wages are failing to keep pace with inflation — real average hourly earnings have decreased by 2.7% over the past year.
The U.S. economy has still not created a single new job relative to pre-pandemic levels in February 2020. There are over 11.2 million job openings, a record high.
After claiming that weak economic conditions and inflation were “transitory” for months, the Democrat response now is to claim that trillions in tax increases would somehow fix this struggling economy.
Senate Majority Leader Chuck Schumer has said that his plan to fix inflation — which he is discussing with key Democrat holdout Sen. Joe Manchin — is to raise taxes by repealing the Trump tax cuts and raising rates.
Mr. Biden’s budget — which he pitches as a plan to fight inflation and reduce costs for American families — includes 36 tax increases totaling $2.5 trillion over the next decade. This includes 11 tax increases on the oil and gas industry at a time when the price of gasoline is at record highs.
Mr. Biden’s proposal includes massive tax hikes on businesses, like increasing the corporate income tax rate to 28%, a rate higher than Communist China. This would reverse a key part of the Trump tax cut which reduced the corporate tax rate from 35% — the highest in the developed world — to 21%, a rate in line with foreign competitors.
Tax increases will not help fight inflation or reduce costs for working families but will raise prices by causing businesses to increase the price of goods and services. A 2020 study by the National Bureau of Economic Research found that 31% of the corporate tax falls on consumers.
These tax increases will also harm workers in the form of lower wages and fewer jobs. As noted in a 2017 report by Stephen Entin of the Tax Foundation, 70% of corporate taxes are borne by labor. Other economists argue that anywhere from 20% to 50%, to even 100% of the tax hits workers.
In addition, these tax hikes will threaten the life savings of families by reducing the value of publicly traded stocks in brokerage accounts or in 401(k)s. Individual investors opened 10 million new brokerage accounts in 2020 and at least 53% of households own stock. In addition, 80 million to 100 million people have a 401(k), and 46.4 million households have an individual retirement account.
Tax increases on corporations are not the only proposal pushed by Biden and Democrats that will exacerbate inflation and cause more harm to the economy.
Their plan to raise the top individual income tax rate will hit millions of small businesses organized as pass-through entities, harming main-street businesses across the country. They have called for raising capital gains taxes, giving the U.S. a higher rate than foreign competitors and causing investment to flee from the U.S.
In addition, they are pushing tax increases on energy like repealing the deduction for intangible drilling costs. This would cost high-paying manufacturing jobs, reduce new investment and increase energy costs.
Some on the left even want to impose a $450 billion windfall profits tax on the difference between the current price of a barrel of oil and the average price per barrel between 2015 and 2019. This would be used to finance a new welfare payment that, in combination with other Democratic policies, will pay people not to work and drive inflation.
The Democrats’ claim that tax increases will solve inflation and help middle-class families is laughable. Far from helping the American people, these tax hikes will harm jobs, wage growth and American competitiveness. Moreover, at a time when inflation is at a 40-year high, these tax increases will only make this problem worse by further increasing the cost of goods and services.
• Alex Hendrie is director of tax policy at Americans for Tax Reform.
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