Joe Biden’s tax hikes would eliminate one million jobs in the first two years, according to a new study by economists John W. Diamond and George R. Zodrow. The study, which was commissioned by the National Association of Manufacturers also found that the tax hikes would eliminate 600,000 jobs per year over the first decade and reduce GDP by $117 billion in the first two years.
The study assumed several Biden tax hikes would go into effect include raising the corporate tax rate to 28 percent, reinstating the corporate alternative minimum tax, eliminating most expensing of depreciable assets, repealing the 20% deduction for pass-through businesses, doubling the tax rate on capital gains and dividends, taxing unrealized capital gains at death, and increasing the top individual tax rate to 39.6 percent.
Biden’s tax hikes will reduce new investment and decrease capital in both the short and long term. As the study notes:
Investment in ordinary capital declines initially (two years after enactment) by 1.9 percent, by 1.3 percent ten years after enactment, and by 1.6 percent in the long run; this effect is only modestly affected by imports of ordinary capital into the United States, which increase in the long run by 0.2 percent.
The increase in the statutory corporate income tax rate results in a reallocation abroad of FSK, which declines initially by 2.7 percent, by 3.5 percent 10 years after enactment, and by 2.9 percent in the long run.
This reduction in investment and capital will not only have detrimental effects on the U.S. economy, it will also harm workers due to a decrease in household wages. As the study notes:
The decline in the stocks of ordinary capital and FSK gradually reduce the productivity of labor over time and thus real wages, which fall by 0.6 percent in the long run, while labor compensation falls by 0.6 percent initially, by 0.3 percent ten years after enactment, and by 0.6 percent in the long run…
These effects translate into a reduction of $638 in wage income per household…
The study also notes that Biden’s tax hikes will cost jobs each and every year after enactment:
The declines in hours worked would be equivalent to declines in employment of approximately just over 1.0 million FTE jobs two years and five years after enactment, and a decline of 0.1 million FTE jobs ten years after enactment.
In terms of the duration of the reduction in employment over the first ten years after enactment, the average annual reduction in employment would be equivalent to a loss of roughly 600,000 jobs, or 5.7 million total “job years” lost over the ten-year interval.
Other studies, on average, show that labor (or workers) bear an estimated 70 percent of the corporate income tax in the form of wages and employment, as ATR notes here.
At a time when American workers are still trying to regain employment and lost wages, it is hard to imagine a more harmful set of policies to enact. To have a strong economic recovery, it is imperative that we incentivize job creation, investment, and wage growth. Biden’s tax hikes do precisely the opposite.