"For four years, Trump has relentlessly pursued an economic agenda that rewards wealth over work and favours multinational corporations over small businesses", according to a Biden campaign news release, outlining that as the next US president, Biden "will require corporations and the wealthiest Americans to finally pay their fair share".
Biden "won’t ask a single person making under $400,000 per year to pay a penny more in taxes", the campaign noted, promising to enact more than "one-dozen middle class tax cuts that will finally give working families the financial support they deserve".
Biden's Tax and Retirement Plans
Though the Biden campaign election promises sound attractive for an American middle class and those who earn low wages, they should think twice before going for it, notes Michael R. Englund, principal director and chief economist for Action Economics.
"Politicians who plan to raise taxes always promote that they’ll only tax the 'millionaires', or cite a high income cut-off below which taxes won’t be raised", Englund asserts. "In practice, most tax filings for high-income individuals reflect business tax returns for LLCs, and business groups lobby considerably to avoid tax law changes that will put them out of business. It’s hard to go after tech-sector millionaires, and not end up mostly hitting laundromats and family restaurants instead".
Englund says that, while the corporate tax rate will be raised, US companies will "resume reporting their income in other countries with lower tax rates to avoid high American tax rates", and very high income individuals will follow in their footsteps.
In accordance with the Biden plan, the corporate tax rate would rise to 28% from 21%, while individuals earning $400,000 or more would see an additional payroll tax. A Tax Foundation study found that in California, those who earn over $400,000 annually could face a state and federal tax rate up to 62.6%, while in New York City and New Jersey the combined rates would amount to 62% and 60%, respectively.
"Excessively high tax rates are a silly idea because they drive people away and lower the revenues actually obtained", says Kevin Dowd, professor of finance and economics at the Business School at Durham University, UK. "Some of the big Dem states like New York and California already have a big flight problem and the last thing they need is higher tax rates to drive even more taxpayers and businesses away".
In addition to this, Biden proposes a new retirement strategy which would upend the present tax deferral of traditional retirement plans such as the 401(k) and individual retirement accounts (IRAs) and replace it with a plain tax credit estimated by some to be 26%.
"Going after retirement products would appear to reflect 'free tax money' that could be raised from 'rich people', but financial firms are behind these retirement products, and will defend them aggressively", says Englund. "Businesses will abandon providing retirement programs if there aren’t significant tax advantages, so tax hikes here will probably just kill the plans rather than generate tax revenue. Financial firms won’t want the plans to be terminated, so these tax policies will be difficult to change".
As a result, Biden campaign tax reforms could, instead of tightening the screws on the rich, backfire on everyone, according to the economist.
Biden's Climate Change Plan May Kill 4.9 Million Jobs by 2030
That's half the story, notes Dowd, as one must observe Biden’s tax proposals as part of a broader package which also proposes reforms in insurance, energy and regulation.
"Credible projections suggest that his proposals will significantly shrink the US economy and hit incomes across the board", he claims. "Similar ‘tax and spend’ programs have been tried many times in many countries and they never work out as their sponsors hope".
The Hoover Institution at Stanford University earlier published a study of Biden's ambitious economic plan and concluded that it could slash 4.9 million jobs by 2030, while the country's gross domestic product would, according to the study results, drop $2.6 trillion.
"The new regulations would affect resource usage by regulated industries while new taxes would distort the markets for capital and labor", the study suggests. "We estimate that the full Biden agenda will reduce long-run real GDP per capita by more than 8% as a result of reducing full-time equivalent employment (FTEs) per person by 3%, the capital stock per person by 15% and total factor productivity by 2%".
Will Biden's Win Pave the Way to Tax Plan Implementation?
The question arises as to whether Biden will be able to put his words into action, according to Dr. Thorsten Polleit, an investment adviser and chief economist for Degussa, suggests. It will all depend, he offers, on what party will control the House and the Senate if Biden wins.
"The Democrats control the House since November 2018, having 17 more seats than 23 seats needed to have control of the House", he says. "The past seven newly-elected presidents signed major tax legislation within a rather short period of time after taking office".
With the Democratic Party controlling the House, Senate and presidency in 2020, the likelihood that the aforementioned tax legislation could be enacted would be greatly raised, he said.
"Of course, it all boils down to whether President Trump can convince the American voters to give him a second term", Polleit remarks. "My gut feeling suggests they will".
