During a car campaign last week at a union hall in Toledo, Ohio, Joseph R. Biden Jr. asked viewers to beep their car horns if they earned more than $ 400,000 a year. “You will get a tax hike,” he said when a few cars honked their horns.
Mr Biden, the Democratic presidential candidate, has proposed massive tax hikes for high earners and large corporations that would allow various independent forecasting models to generate revenue of around $ 2.5 trillion or more in a decade. In a rare instance of a deal, both Mr Biden and his incumbent opponent, President Trump, attempted to increase those tax plans in the final weeks of the campaign.
Mr Biden and his advisors say tax hikes would now accelerate growth by funding a number of spending proposals that would help the economy, such as: B. improving infrastructure and investing in clean energy. At least one independent study supports these claims, finding that Mr Biden’s full range of plans would support economic growth. Researchers from some conservative think tanks believe his tax hikes would have only a marginal impact on the economy.
Mr Trump and the Republicans of Congress say otherwise, arguing that tax hikes of any kind are threatening to prevent recovery from the recession. “If he comes along and raises interest rates, all the companies that come in will leave the United States so quickly that your head will turn,” the president said Thursday during an event at NBC City Hall. “We can’t let that happen.”
A group of former Mr. Trump economic advisors published a study last week that forecast significant losses in employment, wages and economic growth due to the passing of Mr. Biden’s agenda, including significant damage from a tax proposal that received relatively little attention in the campaign hat: Mr. Biden’s plan to lift the cap on wages that are subject to the wage tax that Social Security funds. This move will raise money from high earners, but two of Mr. Trump’s former economic advisors say it will punish small business owners and reduce hiring.
Polls show that Americans broadly support the tax hike for the rich. However, Mr Biden has been asking more and more questions about whether he would delay his tax increases in the face of the pandemic. This includes increasing the business rate from 21 percent to 28 percent and increasing the investment and labor income rate for high earners.
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Most of the questions came from Republican critics, but also arose during an ABC town hall event on Thursday. When asked if it made sense to levy taxes on the rich and corporations now in the midst of a weak economy, Mr. Biden replied, “Absolutely.”
Republicans have long claimed that Democratic proposals to raise taxes would harm the economy, whether it’s booming or ailing. In recent years, including this year’s Democratic presidential primaries, Democrats and liberal economists have argued more forcefully the opposite: raising taxes on the rich to fund government spending that boosts productivity in the U.S. economy will accelerate economic growth .
Outside economists advising Mr Biden’s campaign say they remain confident that his agenda will fuel growth – and that Mr Biden shouldn’t wait if he is elected to collect taxes on businesses and the rich.
“This was an extremely uneven recession. And the high-income people and big corporations, many of whom had no recession at all, “said Austan D. Goolsbee, former head of the White House Council of Economic Advisers under President Barack Obama, who is now a professor at the Chicago Booth School of Business and an external advisor to Mr. Biden.
If you raise taxes on these groups, as Mr. Biden suggested, Mr. Goolsbee said, “And use the money on the things Joe Biden talks about that don’t reduce growth. That increases growth. “
Several independent tax modelers have been analyzing Mr. Biden’s plans over the past few weeks and estimating how much tax revenue they could generate and whether they would help or harm the economy. Some of them work together to analyze Mr Biden’s tax and spending proposals. Others only focus on taxes.
The most optimistic of these analyzes for Mr. Biden comes from Moody’s Analytics, which recently reported that the country’s real gross domestic product would be $ 960 billion higher by the end of his term if Mr. Biden wins and the Democrats win both the House and Senate than it would be at the end of a second Trump term with Republicans controlling both houses. The gains from Mr. Biden’s spending programs would outweigh the opposition from his tax hikes, Moody’s said.
Others have found that taxes have relatively little impact on growth. The tax foundation, which typically predicts big gains from tax cuts, predicts that the Biden Plan would reduce the size of the economy by nearly 1.5 percent in about 30 years. Kyle Pomerleau and Grant M. Seiter of the American Enterprise Institute note that the tax plan would shrink the economy 0.16 percent over a decade.
In an interview, Mr Pomerleau said resistance to the proposals was low as Mr Biden largely taxed the savings of high earners, who are not major drivers of economic growth, as these Americans have saved much of their wealth.
“Some tax hikes have a bigger impact on growth than others,” he said. “Biden chose taxes that don’t have a massive impact.”
Kevin Hassett, former chairman of Mr. Trump’s Council of Economic Advisers at Stanford University’s Hoover Institution, and Casey B. Mulligan, former council’s top economist, professor at the University of Chicago, along with their co-authors Timothy Fitzgerald and Cody Kallen find much greater growth damage in an analysis examining Mr Biden’s tax, health and regulatory proposals.
They believe Mr Biden’s plan to expand health insurance subsidies under the Affordable Care Act will keep Americans from working and earning more. And they predict that corporate tax increases will reduce investment, that new environmental regulations will increase energy costs, and that increased social security wage taxes will prevent the hiring of small business owners whose profits are taxed as individual income. The removal of the social security wage ceiling would make high-income owners of such businesses subject to additional taxes, which the authors believe would reduce the amount of money available.
Mr Hassett said in an interview that the study was intended to show how “implausible” it would be for Mr Biden to try to implement his plans at a time when the economy was still in trouble. “The corporate rate hike right now seems like a disaster,” he said, “given the proximity to the fringes of so many companies.”
Both Mr Trump and Mr Biden were keen to make their tax plans a campaign issue. Mr Trump often says that Mr Biden’s plans would destroy the economy and plunge the country into another world economic crisis.
During the campaign, Mr. Biden made it clear that he was committed not to levy taxes on anyone earning less than $ 400,000 a year. His campaign also highlights that promise in television commercials, including one that concludes, “Biden’s Plan: Businesses Pay More. You benefit from it. “
Mr Biden has been following the plan for the last few days of the campaign. He also recognized the potential political hurdles to implementation. “So there won’t be a delay in tax increases?” The host of the ABC event, George Stephanopoulos, asked Mr Biden on Thursday.
“No, well, I have to get the votes,” said Mr Biden. “I have to get the votes.”