Joe Biden’s tax proposal is truly scary for American workers.
Economic Effect of Joe Biden’s Tax Plan
According to the Tax Foundation General Equilibrium Model, Biden’s tax plan would reduce the economy’s size by 1.47 percent in the long run. The plan would shrink the capital stock by just over 2.5 percent and reduce the overall wage rate by a little over 1 percent, leading to about 518,000 fewer full-time equivalent jobs.
| Gross Domestic Product (GDP) | -1.47% |
| Capital stock | -2.54% |
| Wage rate | -1.04% |
| Full-time Equivalent Jobs | -517,800 |
| Source: Tax Foundation General Equilibrium Model, January 2020. |
The economic effect of Biden’s tax proposals can be separated to show the specific impact of each proposal on long-run economic output (see Table 2).
| Provision | Long-Run Change in Economic Output |
|---|---|
| Apply a Social Security payroll tax of 12.4% to earnings above $400,000 | -0.18% |
| Tax capital gains and dividends at 39.6% on income above $1 million and repeal step-up in basis | -0.02% |
| Limit the tax benefit of itemized deductions at 28% of value for those earning over $400,000 | -0.09% |
| Raise the corporate income tax to 28% | -0.97% |
| 15% corporate minimum book tax | -0.21% |
| Total | -1.47% |
| Source: Tax Foundation General Equilibrium Model, January 2020. |
The increase in the corporate income tax from 21 percent to 28 percent and the 15 percent minimum book tax on corporations make up a majority of the economic impact of Biden’s tax proposals. Applying the Social Security payroll tax on earnings over $400,000 also reduces long-run output by about 0.18 percent. Taxing capital gains as ordinary income for those earning over $1 million, repealing step-up in basis, and limiting itemized deductions to 28 percent of value for higher earners also contribute to lower economic output for a combined reduction of 0.11 percent.
