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%.
That’s right: Biden wants to raise taxes far beyond the rate at which they raise the most revenue.
“Tax rates above the revenue-maximizing rate are punitive: The government is giving up revenue simply to punish the rich,” economist and former Federal Reserve governor Lawrence B. Lindsey explains in the Wall Street Journal.
“It is shocking that this policy got past the economists in the administration, many of whom have had long and distinguished careers,” Lindsey continues. “The Biden administration is blowing up one of the key concepts that has united the economics profession: maximizing social welfare. It now believes in taxation purely as a form of punishment and is even willing to sacrifice revenue to carry it out.”
At this point, the Biden administration is pushing tax policy that prioritizes punishing success and antagonizing the successful even if it means less government revenue. Raising capital gains taxes this high is the definition of a “lose-lose” scenario.
With this reality in mind, Biden’s latest move looks like a stark departure from his “moderate” facade. When it comes to tax policy, a Bernie Sanders-esque class warfare mentality is seemingly driving this White House.
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