Researchers found that President Biden’s first budget proposal would reduce economic growth by 1% over the next decade.
The Tax Foundation — a nonprofit that produces analysis to inform “smarter tax policy at the federal, state, and global levels” — concluded that Biden’s $6 trillion budget proposal would cut long-run output growth and result in fewer jobs. The budget incorporates key tenets of the American Jobs Plan and American Families Plan, as well as other discretionary spending items.
Although the construction of physical infrastructure would facilitate economic growth, the budget’s reliance upon tax hikes would create stress upon employers and employees alike.
The Tax Foundation report reads:
We estimate that Biden’s spending proposals would increase long-run GDP by 0.3 percent, due to enhanced public infrastructure. However, this positive economic effect is entirely offset by the increase in corporate and individual taxation, resulting in less work and investment, which in combination with the spending reduces GDP by 0.9 percent in the long run, reduces wages by 0.8 percent, and eliminates 165,000 full-time equivalent jobs.
Beyond direct employment and output impacts, the Tax Foundation forecasts a 2.5% reduction in the capital stock — the number of productive assets in the economy.
The Commander-in-Chief’s proposed corporate tax hikes produce the most severe economic effects:
Increasing the corporate income tax from 21 percent to 28 percent has the largest negative impact on long-run GDP, followed by imposing a 15 percent minimum corporate book tax, raising capital gains tax rates, and increasing taxes on pass-through business income.
In a similar vein, Democrats have recently unveiled multiple proposals to raise taxes for wealthy business leaders. Rep. Thomas Suozzi (D-NY) suggested a “Patriot Tax” that would force Americans to pay a 2.5% tax on wealth above $50 million and a 5% tax on wealth above $100 million.
Biden administration officials are signaling a willingness to leverage federal spending to address social ills.
Upon her confirmation, Treasury Secretary Janet Yellen told staff in a letter that policymakers ought to focus on addressing wealth inequality:
If you have listened to President Biden speak over the past few weeks, you have heard him talk about “four historic crises.” COVID-19 is one. But in addition to the pandemic, the country is also facing a climate crisis, a crisis of systemic racism, and an economic crisis that has been building for fifty years.
People worry about a K-shaped recovery to the pandemic – and that is a cause for concern – but long before COVID-19 infected a single individual, we were living in a K-shaped economy, one where wealth built on wealth while certain segments of the population fell further and further behind.
Economics isn’t just something you find in textbook. Nor is it simply a collection of theories. Indeed, the reason I went from academia to government is because I believe economic policy can be a potent tool to improve society. We can — and should — use it to address inequality, racism, and climate change.