Judd Gregg: The Biden tax plan — recipe for recession

It will be difficult for our nation to dig itself out from the economic mess that the coronavirus has put us into.

By the beginning of next year, when we start up the government with a presidential inauguration, we will have added over $5 trillion of additional debt to the national ledger.

The total federal debt will be closing in on $25 trillion dollars, which amounts to our entire gross domestic product.

{mosads}The fiscal hole is very deep.

A robust economic recovery will be a true challenge for our market economy.

It will not be a good time for the government to push forward a major tax increase that will further chill productivity and job growth.

But a major tax increase is exactly what Joe Biden has put on the menu.

He is not suggesting his massive tax explosion as a way to address the federal deficits or debt.

He is offering his taxing juggernaut for two purposes.

First, his party wants to justify spending dramatically more tax dollars on government programs that support the constituencies that elect them.

Second, the new taxes are aimed at fulfilling the social justice needs of what is now the socialist base of the Democratic Party.

These folks hold a deep antipathy toward those who are financially successful. They, the Democratic Party elites, deem our market-oriented system of economic growth to be inherently unfair.

There is some irony in this jihad pursued against our entrepreneurial system by the Democratic Party’s self-anointed intellectuals who stream forth from places like Harvard and Berkeley.

No socialist society has every produced prosperity for such a high percentage of its people as the American free market has produced for our people.

Socialism is inherently regressive for most who are subject to it.

It gives the few who govern a chance to exercise the heady power of redistribution and dominance as they purport to work in the name of the many.

At the same time, it mutes the incentives that drive productivity, which is the force that creates good jobs and higher standards of living.

In addition it needs to be pointed out that the American tax system is already exceptionally progressive.

The top 20 percent of earners pay 87 percent of income taxes.

Sixty percent of all income taxes are paid by the top five percent of earners.

The tax revenues of the federal government, rather then contracting during the last year prior to the coronavirus, were actually expanding at a rate that exceeded the historic average of the last three decades.

The Biden plan says this is not enough.

It raises the overall tax burden on the top one percent by approximately another 18 percent.

The Biden plan also raises taxes dramatically on the assets of people when they die.

The death tax is an unusual tax since it has no relationship to economic activity but rather to bad luck, such as getting hit by a truck or contracting cancer. It is a tax that is especially harmful to the survival of family businesses or farms.

The Biden plan raises taxes on corporations, thus taking us backwards in our efforts to be competitive in a world market. It will put American corporations at a huge disadvantage compared to the tax burden of other major industrialized nations with which we compete.

Once again under the Biden plan, there will be a strong incentive for businesses that are mobile to move their investments (which generate jobs) and their income to other places in this world market.

The Biden plan penalizes investments that generate economic activity and in turn generate good jobs. It does this with a special new tax treatment of capital gains income.

Capital gains are the income that comes from investing. These are the investments that make money available to people who are willing to take risks and seize new opportunities in our market economy.

Under the Biden plan, the tax on capital gains will almost double.

The current top rate is 20 percent. Under Biden’s plan, capital gains would be taxed as regular income, meaning that people whose overall income is above $1 million would be taxed at a 39.6 percent rate on their capital gains as well.

The practical effect of this will be that people who have seen considerable appreciation in their investments will be less inclined to sell those investments. If they don’t sell, the money stays where it is, rather than being invested in new activities that aid growth.

Thus, funds will become stagnant. The engine of growth, which is capital, will be stilted.

Most would call this a ‘cut off your nose to spite your face’ tax plan unless you happen to buy into its two main goals.

First, spend money on constituencies whose votes you want, even if in the long run it damages the nation’s standard of living.

Second, pursue a socialist dogma that has a track record of failure but makes for great soundbites in a political culture driven by the university elites.

It is estimated that the Biden tax plan will produce approximately $3.5 trillion of revenue over ten years.

What is not estimated is how much damage it will do to the forces of economic growth and opportunity — or to the majority of Americans who still work in the private sector and who want to better their lives.

It will limit the availability of capital to those who are willing to take risks, especially in the technology and health arenas, which are some of our nation’s most attractive industries.

{mossecondads}It will make those who have higher incomes less likely to be incentivized to make additional investment and take risk. What incentive is there, if 60 or 70 cents of the next dollar one earns (depending on where one lives) goes to the government for use in the redistributive politics of social justice?

It will cause the premature sale or liquidation of family businesses and farms that are suffering the trauma of an unexpected loss of the individual who built the business or worked the farm.

A serious tax reform bill is needed but only if it is coupled with a serious adjustment in spending, especially in the large entitlement arenas.

Such an approach would mitigate the impact of our federal debt binge and show the world that our government is capable of effective governance.

The Biden plan is not such a serious effort.

It will have the consequence of using, and wasting, resources that are needed for a comprehensive approach to right our fiscal dilemma.

Equally important, it will generate more debt and more difficult times for Main Street at a time when the economic shock caused by the pandemic is still reverberating.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.