USA 2020 Elections: Thread

grarpamp grarpamp at
Tue Apr 27 03:24:19 PDT 2021

> Keynesian brain-washed DemLeft can't do economics math...

Three Reasons Why The Biden Tax Increase Makes No Sense

Authored by Daniel Lacalle,

Anyone who believes the “rich” and large corporations will pay for $28
trillion in debt or the $2 trillion in new deficit has a real problem
with maths...

Biden’s announcement of a massive tax increase on businesses and
wealthier segments of the population simply makes no sense. The tax
hikes will have a significant impact on economic growth, investment
and job creation and do not even scratch the surface of the structural
deficit. Even if we believe the Gross Domestic Product growth and
revenue estimates announced by the Biden administration, the impact on
debt and deficit is negligible. So, what is their response? That debt
and deficits do not matter because the key now is to spur growth and
the cost of borrowing is low despite rising debt.

Furthermore, the Biden administration has been inundated by MMT
(Modern Monetary Theory) proponents who passionately believe that
deficits are good because they attend to the rising global demand for
US dollars. Additionally, the Biden administration argues that the
deficit increase is not a problem because the Federal Reserve
continues to purchase government bonds, keeping yields low and debt
costs stable.

Nice, so why the tax hikes then? If debt and deficits do not matter
and growth and jobs is what we need to focus on, then why increase

The entire tax increase argument crumbles. There is absolutely no
rationale for such massive hikes either from the revenue perspective
or the growth objective. If growth will take care of the rising
deficit, the Biden administration should use all the tools to support

There are three main reasons why the tax increases make no sense:

    First, estimated real revenue impact is negligible. In 2018, the
federal capital gains tax revenue was $158.4 billion. A
five-percentage point increase in the current regime would provide an
additional $18 to $30 billion according to Princeton University
estimates in an optimistic scenario where there would be no negative
impact of the tax increase. The estimates of revenues of the corporate
and personal tax increase assume $691 billion from corporate taxes,
$495 billion from global minimum tax, and $271 billion from so-called
“repeal tax loopholes”, end fossil fuel tax breaks and anti-inversion
deals. Obviously, these estimates are optimistic and in many cases
science fiction as they consider a perfect world where these taxes
will not have any negative impact on the economy and a GDP growth that
will not be affected at all. Even if we accept the estimates, these
revenues are spread throughout a decade (yes, ten years), so the
net-present-value impact is even worse.

    These do not even start to address the rise in mandatory spending
that drives the structural deficit above 2.5% of GDP.

    Second, the impact on the economy will be larger than what the
Biden administration estimates. These tax increases do not affect only
“the rich”. Such high capital gains tax stifles innovation and reduces
capital flow into private equity which is essential to boost start-ups
and new high-productivity businesses. This is the reason why Europe
has reduced capital gains taxes and even eliminated them. Belgium,
Luxembourg, Switzerland do not have capital gains tax. Of the
countries that do levy a capital gains tax, Greece and Hungary have
the lowest rates, at 15 percent. European countries average is 19.3
percent. The same happens with the corporate tax rate. The United
States would have the highest corporate tax rate in the OECD under
Biden’s plan (28%). Many argue that effective corporate tax rates are
lower and that in other countries firms pay VAT, and the arguments are
only partially correct. The European Commission showed that the
effective average tax rate of United States companies was 36.5%
compared to 21.1% in the average of the European Union. When comparing
effective rates, many United States analysis play the trick of adding
loss-making companies or averaging what a Tech giant pays in the U.S.
with the rest of the sectors. However, none of these arguments matter
if you look at the Tax wedge that United States companies pay relative
to other OECD companies. According to PWC, the total tax wedge and
contribution of United States businesses was 43.8% (profit, labour,
and other taxes) compared with a region average of 38.9%

    The risk of outflow of capital from the United States to other
countries with more competitive taxation is evident to anyone that has
run a business or a financial firm.  These tax increase may have
little impact on multinational corporations, but they do have an
exceptionally large negative effect on medium-sized businesses. That
is why these measures are regressive.

    Even Yellen knows this tax increase is damaging. That is why she
wants a global tax. If she saw no negative impact, she would let other
countries manage their taxes as they wish.

    Third, the problem of mandatory spending is not even addressed.
Mandatory spending in the United States has ballooned to $2.9 trillion
in 2020 from $1.8 in 2008 and estimated to rise another trillion in
the next ten years. The main cause of the United States deficit comes
from the rise in mandatory spending as receipts cannot match the
unstoppable increase in spending that no government can touch.
Economies grow and enter recessions. It is impossible to cut the
deficit via tax increases when the pace of growth of the expense side
exceeds the economic output and receipts even in growth periods.

    No serious economist can believe that tax increases will generate
sustained annual revenues in any economic cycle, be it growth,
stagnation, or recession to cover more than $200 billion every year in
spending increases over a trillion deficit.

So why does Biden do it?

To please the most socialist part of his administration and voter
base, who do not worry about the economic implications, they only want
to make the rich poorer.

If making money in capital markets is so easy, why don’t the
politicians facilitate things to allow everyone to do it? Furthermore,
if they believe making money in capital markets or in a business is so
easy, why don’t they do it themselves?

Biden’s tax increase plan does not make sense from a growth, revenue
or deficit perspective. Furthermore, it does not make sense from a
Republican or Democrat perspective. It simply does not add up and does
not address the United States problem: Ballooning mandatory spending.

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