A Smorgasbord of New Taxes

Hold on to your wallet! The House Ways and Means Committee has begun marking up the whopping $3.5 trillion (really $5+ trillion) infrastructure bill, expected to be enacted into law later this year via the reconciliation process. Not only will your taxes skyrocket, but some of the biggest increases may be retroactive to the beginning of this year. Following are some of the tax increases democrats are seriously considering.

• Increasing the top marginal income tax rate to 39.6%
• Raising the corporate tax rate to 28% – a 33% increase
• Eliminating the step up in basis at death – more on this infra
• Doubling the capital gains tax to 43.4%
• Capping Section 1031 like-kind exchanges
• A plethora of new taxes on energy companies
• Border tax on carbon – raising prices of many imported goods
• Taxing carried interest for the first time ever
• Removing all caps from the payroll tax
• Taxing unrealized capital gains each year
• Applying the payroll tax to investment income

New taxes will be paid by ordinary Americans

President Biden vowed not to increase taxes for Americans earning less than $400,000. The naked truth is that the trillions in higher taxes will be paid by the middle class. Economists universally agree the burden of corporate taxes falls on shareholders, employees and consumers and not on companies. In August, the Joint Committee on Taxation estimated the middle class would pay 98.4% of the increased corporate taxes.

Indeed, nearly all the tax increases listed supra will be paid by the middle class. When asked why he robbed banks, Willie Sutton replied, “Because that’s where the money is.” And so it is with taxation in America. Progressives must rob – err tax – the middle class because that’s where the money is. They demagogue the wealthy in order to beguile ordinary Americans into accepting what they would not otherwise tolerate.

Progressives prefer class warfare to raising revenue

The main objective of taxation is to raise revenue and in an efficient manner. Biden has proposed doubling the capital gains tax rate to 43.4%. This would be an effective rate above 50% when adding state taxes. The CBO estimates the revenue-maximizing rate for the capital gains tax is 28% – most economists believe it is 20% to 24%. The CBO found for each 1 percentage point tax increase, there is a 1.2 point decrease in sales of assets subject to the tax. Raising the tax to 43.4% costs the government money; instead of raising revenue, the tax is hemorrhaging tax dollars. There is only one logical explanation: democrat ideology prefers class warfare that divides Americans.

The capital gains tax is arguably the unfairest tax of all because: (1) it often is double taxation such as gains previously taxed at the corporate level; (2) most gains result from inflation and are not indexed; (3) gains and losses are asymmetrical; loss deductions are limited to $3,000 per year whereas gains are unlimited; (4) it is a tax on investment that harms productivity and wage growth; and (5) taxpayers holding onto assets too long results in misallocation of resources damaging the entire economy.

The estate tax is back – and with a terrible vengeance

Just when you believed estates of less than $11.7 million were safe, democrats have found a back door to tax estate assets above $1 million – and it is a cruel and virulent tax. Democrats accomplish this by eliminating the step-up in basis at death for all gains in excess of $1 million and then taxing them as a capital gain in the year of death.

Consider the example of a farmer who bought land in 1950 for $250,000 and then dies in 2022 with the land valued at $4 million. The farmer’s heirs would be required to pay capital gains tax on $2,750,000 (the sale price of $4 million less the original basis of $250,000 and less the $1 million exemption) at 43.4%, or a tax of $1.2 million. Based on BLS data, $250,000 in 1950 would be $3 million in 2022 when adjusted for inflation. Perniciously, the entire tax of $1.2 million is attributable to phantom income from inflation. This tax will devastate family-owned farms, ranches and businesses.

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The Biden tax increases will fall on the middle class as they always must. Family businesses will become extinct. Social Security and Medicare will exhaust their reserves. The deficit will accelerate its death spiral. But those aren’t the worst things that will happen. The out-of-control national debt is (by far) the biggest threat to our national security, which is why we have a government in the first place.

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Next: The 140th birthday of the greatest social thinker of the 20th century.

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