President Biden speaks at Germanna Community College February 10, 2022.jpg by the Office of the President of the United States is licensed under Public Domain

While Tax Day is already a bleak day for many Americans, it is about to get far worse under President Biden.

President Biden’s recent budget proposal calls for a total of 36 new tax hikes totaling $2.5 trillion. In a time of four-decade high inflation where consumers are seeing their purchasing power reach record lows, President Biden’s tax increases will only hurt consumers and US economic growth.

Biden’s budget also fails to account for the tax increases in Democrats’ Build Back Better Act. Instead of detailing these tax increases, the Biden budget simply asserts that any new spending will be fully offset. According to Bloomberg, the administration’s proposed spending plan would cost $1.75 trillion and include $2 trillion in tax increases.

Below are six of President Biden’s proposed tax increases that will negatively affect low- and middle-income workers, consumers, and small businesses across America.

1. Raise the corporate income tax rate to 28 percent

President Biden’s budget calls for an increase in the federal corporate tax rate from 21 to 28 percent, equivalent to a $1.3 trillion tax increase. A recent poll by HarrisX showed that American voters want the U.S. corporate income tax rate to be competitive with China. Currently, the U.S. state average corporate tax rate is 4 percent, leading to a combined federal and state tax rate of 32 percent, well beyond China’s rate of 25 percent and the OECD average rate of 23.5 percent.

The new corporate tax rate would make the U.S. less globally competitive while also adversely lead to higher prices for American consumers. A 2020 study by the National Bureau of Economic Research found that 31 percent of corporate tax increases fall onto consumers in the form of higher prices. While Americans are already seeing price increases across the board, the last thing we need is higher taxes that will only increase prices even further.

The proposed corporate tax increase will also harm American workers who have seen their actual wage value fall because of high inflation. The Joint Committee on Taxation estimates that 25 percent of the tax increase will fall on workers, while the Tax Foundation estimates that a whopping 70 percent of this tax is borne by workers in the form of lower wages. A corporate tax increase will only worsen the problem of declining U.S. wages, and when coupled with record-high inflation will drastically hurt low and middle-class American workers.

A corporate tax increase will also threaten American’s life savings by reducing the value of publicly traded stocks in brokerage accounts or in 401(k)s. According to the Federal Reserve, at least 53 percent of American household’s own stock. Furthermore, 80 to 100 million people have a 401(k), and 46.4 million households have an individual retirement account. Biden’s drastic tax increase could have a large-scale impact on countless American family’s investment portfolios and would harm their economic future

2. Increase the top income tax rate to 39.6 percent

Biden’s proposal also increases the top income tax rate to 39.6 percent, equal to a $186.8 billion tax increase. This tax increase will negatively impact small businesses that are organized as sole proprietorships, LLCs, partnerships, and S-corporations across the country. These business structures allow business income to be treated as the personal income of the owner.

A substantial portion of business income is paid through this method of the tax code, with a 2016 Senate Finance Committee report noting that only 42 percent of net business income in the United States was earned by corporations. Given the high proportion of business income being treated as personal income under the tax code, Biden’s proposed tax increase will have large scale effects on Americans’ tax bills.

If Biden’s Build Back Better Act becomes law, we will see the addition of countless tax increases that will only push the top tax rate even higher. The bill includes a 5 percent surcharge on modified adjusted gross income (MAGI) above $10 million, a 3% charge on MAGI above $25 million, and removes provisions in the tax code that allow some taxpayers to avoid paying the 3.8% Medicare surtax on their earnings. This would bring the actual top tax rate to an astounding 51.4 percent. This rate does not even account for state income tax. When you factor in the average top marginal state tax rate of 6 percent the new top marginal tax rate would be 57.4 percent, far higher than any other OECD nation.

3. Double the capital gains rate to 40.8 percent

President Biden is also seeking to double the capital gains rate to 40.8%. Currently, the United States has a combined capital gains rate of just over 29 percent, inclusive of the 3.8 percent Obamacare tax and the 5.4 percent state average capital gains rate. Biden’s proposal would be significantly higher than our foreign competitors’, and in some states, we could see rates as high as 50 percent. Currently, Californians pay a top capital gains tax rate of 37.1 percent (20% + 3.8% + 13.3% = 37.1%) yet under Biden’s plan, Californians would pay a far higher rate of 54.1 percent (37% + 3.8% + 13.3% = 54.1%).

Higher capital gains rates naturally have a “lock in” effect that disincentivizes taxpayers to realize their gains. Taxpayers may then choose to delay their gains or just choose not to invest altogether.

Economists argue that there is a “revenue-maximizing rate” in which we will get the most revenue possible and any level beyond that rate would diminish the revenue collected through the tax. This consensus seems to center somewhere around a revenue-maximizing rate of 28 percent. Both the Congressional Budget Office and Congress’s Joint Committee on Taxation estimate a rate of 28 percent is revenue-maximizing and other groups such as the left-leaning Tax Policy Center agree. The Tax Policy Center even argues that there is a significant chance this rate is even lower than 28 percent.

A Joint Economic Committee Study found that higher capital gains tax rates increase the cost of capital and decrease overall investment in the economy. Similarly, A Federal Reserve publication notes that taxing capital gains at higher rates increases the cost of funds to firms while reducing the after-tax return to stockholders.

Higher taxes on capital gains and corporations coupled with an already uneasy economy will only hurt low- and middle-income families and stunt US economic growth. If we see these tax increases, we could see decreased business investment in the United States and a greater level with our overseas competitors, destroying American job opportunities and bringing lower wages to American workers.

4. Impose a 20 percent minimum tax on “billionaires”

The Biden budget also creates a “billionaire minimum income tax” that would impose an annual 20 percent tax on taxpayers with income and assets that exceed $100 million, equivalent to a $360 billion tax increase. This tax is similar to the wealth taxes pushed by radical progressives Senator Elizabeth Warren (D-Mass) and Bernie Sanders (I-Vt.)

This new tax would force Americans to pay taxes every year on the paper gain in the value of assets (i.e., stocks, collectibles, real estate). Currently, taxpayers only pay the capital gains tax when an asset is sold. The current system is far more logical, as these types of assets are not liquid until sold. Under Biden’s proposal, American taxpayers would be required to pay tax on the value of an asset based on the value of said assets on an arbitrary date.

This new tax would embolden the IRS by granting them greater access to the private asset information of American taxpayers. The IRS has a history of discrimination and administrative failures and cannot be trusted with greater access to the private financial information of American citizens. For the tax to be properly administered, the IRS would have to endlessly monitor American citizens assets and due to the complexity of valuing assets, both the Federal Government and taxpayers would almost certainly have to hire lawyers and accountants to determine asset valuations.

We cannot ignore the possibility that this tax will grow to impact a greater number of American citizens. The White House says this tax will hit just 700 taxpayers, as the tax only applies to taxpayers with over $100 million in income and assets. Yet Congress has a history of expanding taxes well beyond their initial levels. It seems unlikely that this tax would not grow to inevitably hit thousands or even millions of taxpayers.

5. Countless energy sector tax hikes

President Biden’s budget also includes countless tax hikes on the energy sector. The budget includes the elimination of deductions for drilling costs, the utilization of carbon capture technology, and credits for marginal wells.

Expensing for intangible drilling costs allows companies to recover costs such as labor, site preparation, and equipment rentals which account for roughly 60 to 80 percent of production costs. Under President Biden’s budget this expensing would be repealed, amounting to a $10.7 billion tax increase. It’s expected this increase could bring about the loss of over 250,000 good-paying jobs by 2023.

The budget also includes provisions that target bipartisan tax credits to promote carbon capture technology. Currently, there is a 15 percent tax credit for costs attributable to enhanced oil recovery projects including carbon capture and sequestration technologies that help decrease greenhouse gas emissions. Repealing this tax credit amounts to a $1.56 billion tax increase.

Biden’s proposing a removal of these tax credits even as energy costs are increasing. While gas prices are currently at near-record highs, Biden’s tax increases will only exacerbate the issue of high energy prices and harm American workers.