Joe Biden was elected on promises of moderation and “unity,” but he has wasted no time early in his presidency advancing multiple huge tax hikes. The latest example is the White House’s plan almost to double the top capital gains tax rate, the tax applied on investment growth when assets are sold.
Economists warn this hike would hurt the economy and reduce investment in small businesses. But economic downsides from taxation are nothing new. What differentiates Biden’s latest tax push is that it would punish investors without actually raising much tax revenue. You know, the ostensible purpose of taxation.
Here’s why: Past a certain point, higher tax rates don’t necessarily guarantee more total tax revenue because peoples’ behavior changes in response. For example, a 10% income tax will always raise more revenue than a 100% income tax because no one would work if they had to give up their entire paycheck to Uncle Sam.
In expanding the top capital gains rate to 43.8%, Biden would actually far exceed the capital gains tax rate that raises the most revenue. According to the Tax Policy Center and Congress’s Joint Committee on Taxation, the revenue-maximizing capital gains tax rate is closer to 28%.
Republicans criticized the agency repeatedly in the Obama administration for targeting conservative political groups, including several affiliated with the Tea Party, for tax scrutiny. A federal watchdog concluded in 2017 that I. R.S. officials had also targeted liberal groups, not just conservative ones, in questioning their claims of tax-exempt status.
Many economists and tax experts welcomed the proposal, which they said would help reverse years of declining enforcement actions against companies and the rich at the agency.
“The plan is good news for honest filers and businesses, the budget, and the rule of law,” said Chye-Ching Huang, the executive director of the Tax Law Center at N. Y.U. Law. “Stopping tax cheats from having an unfair advantage helps honest businesses to compete and thrive.”