Countries can't tax their way to long-term prosperity. President Joe Biden wants to try anyway.
A week ago, Biden released a $6.8 trillion budget plan. Spending would grow to around $10 trillion annually in a decade. It's part proposal, part politics. Before diving into the details, take a moment to consider that amount. It's all but impossible to fathom how much money that is. It's possible, however, to provide some context. Last year, total federal spending was $6.3 trillion. In 2015, the government spent $4.6 trillion. In 2000, spending was around $3 trillion. This proposal is a slight reduction from spending totals inflated by coronavirus relief packages, but it's a dramatic increase over historical norms.
There are so many goodies for key voting blocs that Biden might as well be Oprah. You get green energy subsidies. You get paid leave. You get money for child care and home care. You get help buying your first home. You get free community college. There's even more money for the Border Patrol, in case you're wondering how that issue is playing politically.
It's easy to call for more spending, especially with a re-election campaign on the horizon. It's tougher to pay for them. Washington, D.C.'s preferred method of financing -- deficit spending -- has a nasty downside, runaway inflation. The country is learning that lesson the hard way.
Biden is seeking a series of massive tax hikes, totaling more than $4.5 trillion over 10 years. That includes raising the corporate income tax rate from 21 percent to 28 percent. When combined with the average state and local corporate income tax rate, the corporate tax rate would be 32.2 percent. That would be one of the highest rates among Western countries. He wants to quadruple the tax on stock buybacks, increasing it from 1 percent to 4 percent. He's calling for higher taxes on fossil fuel companies, which isn't a great way to lower energy costs.
He wants a series of tax hikes on individuals. That includes raising the top income tax bracket to 39.6 percent for single filers earning more than $400,000 and joint filers earning more than $450,000. He's calling for higher capital gains taxes on top earners and changes to the estate tax.
He also wants to adopt an Elizabeth Warren-style wealth tax, which is an especially destructive proposal. Currently, people are taxed on income or invest gains when they're received or realized. This makes sense. Imagine you bought a house for $200,000. It's now worth $350,000, but you have no plans to sell. You would be upset if the government tried to tax you on your $150,000 investment gain. Yes, your net worth increased, but you don't have access to that money. Plus, your home price could decrease before you decided to sell.
That's analogous to what Biden wants to impose on households with a net worth of more than $100 million. He wants to level a minimum 25 percent tax on them that includes unrealized capital gains. Wealth taxes are so economically destructive even liberal France mostly repealed its in 2018.
That's where the politics comes in. This budget shows Biden is fully embracing class warfare in his re-election bid.
"My budget is going to give working people a fighting chance," Biden said in a speech announcing his plan. He continued, "We also have to ask the wealthiest and biggest corporations to begin to pay their fair share."
That can sound appealing in the moment, but in the long-term it leads to economic stagnation and decline. Just look at the outflow of people from blue states to red states. Investment and innovation are the key to economic growth and job creation. When the government takes money out of the economy, you get less of both. That's especially true when tax policy punishes people and corporations for being successful.
The road to economic malaise is paved with high taxes.