Biden is about to propose that we raise taxes on the rich and corporations to help fund his spending bill on education and infrastructure.
I’m all for education and infrastructure. We can discuss those topics if you’d like (how do we hold schools accountable, how do we prevent government funding from further lining the pockets of elite colleges, is going green more important than fixing bridges…) but for this post, I would prefer to discuss the major flaw in our tax revenue model and one that greatly impacts everyone.
Democrats want to raise taxes on the rich to provide better services for the poor.
Republicans want to keep taxes low to allow a path for everyone to become wealthy.
Now let’s run down what has been and appears to be the likely path:
Congress and Biden will likely raise taxes on Cap Gains and Corporations. Elite corporations will continue to avoid both via Delaware laws that allow them to move money to tax havens overseas. Thus, the legal bill is very high to avoid getting caught BUT they avoid almost ALL FED taxes. Smaller companies will pay the taxes making it much harder for them to compete with the Elite international corporations. Janet is asking all G20 countries to have a corporate tax to prevent this but think of the hundreds of other non-G20 countries that are tax-havens.
Thus, tax revenues will not reach the target needed to pay for the new spending let alone pay down debt. Biden being from Delaware makes this all the more interesting as Delaware (and sometimes Nevada) is the primary state that hurts IRS revenue.
Now if you could imagine for one minute that we LOWER corporate taxes to 5%, block the loopholes for Delaware (and Nevada). We would not have Elite’s making trillions and paying $0. Instead, we would have a massive new increase in revenue AND it would also stimulate the economy via lowered taxes on the smaller main street companies. Elite companies would also be stimulating the economy as they stop shipping jobs overseas just to avoid corporate taxes.
As for Cap Gains, I’m fine with increasing these but think it won’t impact revenue as people will wait until the next cycle when cap gains are dropped. The new Cap Gains would only impact someone selling millions in one year. With Qualified Small Businesses, the main street business owner that sells wouldn’t pay these taxes and Elite’s would either use the Delaware loophole, pay, or Wait.
Let’s walk down this road 3 years. Taxes have gone up which means Elite companies aren’t likely paying and small companies are. Less small businesses will get (re)started, income will get cut to those employees, and the best upside is being potentially taken away (if it isn’t a Qualified Small Business) which is a big exit for employee-shareholders. Government Debt will continue to increase as our tax revenue won’t increase much. I believe 2025 is when most tax changes from 2017 expire which means we all start to pay for these changes while the Elites continue to avoid taxes. This is when we likely could see a breakeven year for the government but GDP would take as everyone would be paying the government more and spending less.
All to say that Biden’s home state is one of the biggest issues we have in this country. Biden is going to kick off massive spending and tax increases without addressing the ELEPHANT in the room.