Joe Biden’s Misguided Tax Proposal Hurts Small Businesses While Protecting the Democrats’ Coastal Base

Just as Americans are beginning to recover from the economic devastation caused by the COVID-19 pandemic, Joe Biden is proposing tax hikes on both individuals and corporations. If passed, this would put U.S. businesses at a severe competitive disadvantage when compared to other developed countries.

The Biden administration is aiming to pursue a tax hike package that would follow his campaign proposal, which the Tax Foundation estimated would lead to a “1.9 percent decline in after-tax income for all taxpayers on average,” eliminate 542,000 jobs, and reduce GDP by 1.62% by 2030. 

The tax hike would wipe out parts of the tax cut legislation passed by Republicans in 2017 that helped lead to an acceleration in economic growth prior to the pandemic, and according to Tax Foundation, helped many businesses retain jobs during the pandemic and start to bounce back after the pandemic due to increased liquidity as a result of a lower tax burden.

Tax Foundation: “Perhaps as important to the economic recovery this year has been the TCJA’s boost to corporate after-tax earnings and liquidity leading up to the pandemic. This was largely due to the lower corporate tax rate and changes to the international tax system that reduced the incentive to keep earnings abroad, leading to a sharp increase in repatriation, the process by which companies bring overseas earnings back to the United States.”

The increased rate for $400,000 earners would hurt small businesses as they recover and look to reverse the economic damage from the pandemic. Many small businesses pay taxes through the individual tax system.

As noted by The Wall Street Journal, the proposal ensures protections for the “coastal professional class” that Democrats rely on to win elections.

WSJ: “The dividing line is no accident: It was intentionally set to far exceed any definition of the middle class. And it spares much of the coastal professional class that is an important part of the Democratic coalition.”

Axios: “Democrats, including Senate Majority Leader Chuck Schumer (D-N.Y.), are pressing the White House to repeal the $10,000 limit for deducting state and local taxes — the so-called SALT cap — from their federal tax bill…

“But many voters in high-tax (and Democratic) states — like New York, New Jersey, Connecticut, Maryland and California — hate the limit. The provision is scheduled to expire in 2026.”

Bottom Line: Raising taxes on American workers and businesses would sabotage any chance of an economic recovery following the COVID-19 pandemic. Democrats should focus on growing the economy and creating jobs rather than scoring cheap political points with their radical base.