Taxes

Enjoy Tax Day 2021. They Just Get Worse From Here.

Tax hikes and growing debt guarantee shared pain in a hobbled economy.

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Happy Tax Day! True, April 15 is a bit less momentous than usual this year, because the IRS and many state revenue agencies extended the deadline for filing tax returns and making payments to accommodate economic troubles caused by the pandemic and lockdowns. Still, those of us accustomed to the usual date can't help but dread the coming of mid-April. This year, that dread is even more appropriate if you recognize that taxation is theft and anticipate rougher muggings than usual in years to come, courtesy of the Biden administration's ambitious tax proposals.

"Democrats have spent the last several years clamoring to raise taxes on corporations and the rich," Jim Tankersley and Emily Cochrane noted for The New York Times in March. "Now, under President Biden, they have a shot at ushering in the largest federal tax increase since 1942."

Such a dramatically large tax increase is impressive, but what's even more impressive is that it still isn't enough to cover President Joe Biden's spending plans. "Aides suggest his proposals might not be entirely paid for, with some one-time spending increases offset by increased federal borrowing," added Tankersley and Emily Cochrane.

In fact, "the largest federal tax increase since 1942" is sufficient to cover only a small part of the trillions of dollars in spending already passed and under consideration by the federal government.

"Biden plans to splurge $11 trillion in additional spending over a decade," Reason contributing editor Veronique de Rugy observed earlier this month. "Meanwhile, his proposed tax hikes are estimated to reap $2.1 to $2.8 trillion. In other words, for every $5 or $6 in new spending, $1 will be paid for in new taxes, and the rest goes on the nation's credit card."

That's a double whammy of pain, because there are costs to both higher taxes and soaring debt.

The easiest sell for the administration is a big hike in the corporate tax rate, because seemingly everybody is angry at corporations right now and they're relatively faceless, easy targets. The president proposes to raise the corporate tax rate from the current 21 percent, which is about the middle of the pack among developed countries, to 28 percent, which is more than triple Switzerland's 8.5 percent and almost twice the 15 percent charged by Canada (Canadian provinces and Swiss cantons also impose additional taxes, just like U.S. states).

Aware that such a high tax rate might make the United States an unattractive place for companies to base themselves, U.S. Treasury Secretary Janet Yellen advocates a "global minimum corporate tax rate that can stop the race to the bottom." Of course, imposing that tax would require the cooperation of governments that might benefit more easily by offering an attractive low-tax alternative to Yellen and company.

But corporations are just ways of organizing group efforts by human beings, and those people ultimately pay taxes.

"The burden is shared among stockholders and, unintuitively, among a broader group of workers and investors," observes the Tax Policy Center, a project of the Urban Institute and the Brookings Institution. "[T]he Urban-Brookings Tax Policy Center (TPC) assumes investment returns (dividends, interest, capital gains, etc.) bear 80 percent of the burden, with wages and other labor income carrying the remaining 20 percent."

Tax policy may aim at big, bad corporations, but it ultimately hits retirement investments and paychecks.

Another easy target is "the rich," because few people consider themselves in that category until the term is redefined in unexpected ways. What it means at the moment isn't clear because Biden says his plan "won't raise a penny tax on a family making less than $400,000 a year," while Jen Psaki, his press secretary, insists the proposal "will not raise taxes on any individual or family" under the cutoff, which isn't the same thing. Even if most Americans ultimately make less than the magic threshold, a lot more people are in for rougher future muggings from higher income taxes. And even lower-income individuals and families will suffer from an economy depressed by higher spending, soaring taxes, and growing debt.

"The general finding is that increasing taxes leads to lower GDP and personal consumption," the Congressional Budget Office (CBO) warned last month of the consequences of higher taxes to finance increased government expenditures. "After 10 years, the level of GDP by 2030 is between 3 percent and 10 percent lower than it would be without the increase in expenditures and revenues."

The CBO also warned that revenues collected by the federal government from hikes across three possible tax policies affecting income and capital will shrink without adjustment because people will work less, reduce investments, and even leave the labor force in response to the government's increased take. "To maintain deficit neutrality, tax rates for all three tax policies must rise over time to offset behavioral responses that result in smaller tax bases."

Those continuing deficits—remember that even "the largest federal tax increase since 1942" isn't sufficient to cover spending plans—will add on to a debt that's been accumulating for a federal government that hasn't balanced a budget in 20 years. Even before the spending spree of the past year, federal debt was expected to hit 98 percent of GDP in 2030. Debt at that level "would dampen economic output" and servicing it would inevitably "reduce the income of U.S. households," the Congressional Budget Office predicted. Debt will now be much higher as a share of GDP as a result of trillions of dollars in additional spending, with all of the pain that implies.

That pain from the growing national debt will add on to the pain of soaring taxes that are insufficient to offset that debt. It all adds up to a shared experience that just might live up to Biden's call for "uniting our nation." Misery loves company, after all.

So, happy Tax Day. Get what enjoyment you can from this year's events, because the muggings to come will be a lot rougher.

NEXT: Brickbat: Snow Job

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  1. Taxes are the price we pay to enjoy the benefits of civilization.

    1. No, they are what we pay because we are still uncivilized. Civilized people don’t need to be coerced and gladly pay (user fees) for what they want.

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    2. Taxes are the price we pay to avoid seeing starving hobos and listening to whiny SJWs.

      1. Doesn’t seem to work.

        1. This.

        2. If Skeptics statement was entirely opposite it would be true.
          Lefties love thinking with their *ss instead of their head.

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  2. Logic clearly dictates that the needs of the many outweigh the needs of a few.

    1. From each according to his wants, to each according to his abilities.

      1. From anybody who has more than me to me.

    2. To quote James tiberious kirk
      “the needs of the one, spock, the needs of the one”

    3. And the “needs” of the many always outweigh the production of everybody (at least those actually producing).

  3. No man is an island into himself.

    1. But I sure wish I had one now.

    2. I am a peninsula.

    3. Did you see the sports illustrated swimsuit edition? I’m pretty sure that chick qualified as an island

    4. paraphrased — You don’t own you; [WE] own you…
      The exact same Anti-USA belief instilled in every communist failure.

  4. Democrats have spent the last several years clamoring to raise taxes on corporations and the rich

    It’s pretty popular with Republicans too.

    1. Not long ago, we had an R POTUS who managed to cut taxes; did you forget?

      1. Orange man bad. Good for my wallet, but bad because the lefties hate him.

        1. Mean tweets… mean tweets…

          Oh, and the media hated him. No way could he have been a good person when the media hated him.

        2. The insane spending following tax cuts isn’t that great either. We need big tax cuts and big spending cuts. But I suppose much of that is on congress.
          I’d much prefer we had Trump still instead of Biden, but Trump isn’t exactly a fiscal libertarian.

      2. And whose spending still more than offset those cuts

  5. They can tell you what to do but they’ll make a fool of you and it’s all right, baby it’s all right.

  6. “shared pain in a hobbled economy”

    As Koch / Reason libertarians, our primary objective is to make billionaires — especially our benefactor Charles Koch — even richer. By that standard the Biden economy is already a smashing success.

    “Democrats have spent the last several years clamoring to raise taxes on corporations and the rich”

    Once again, I must cite OpenBordersLiberal-tarian’s First Law.

    Yes, Democrats tend to campaign on sticking it to “the rich” and “the corporations.” But that’s only to trick a handful of poor voters into staying in their coalition. Once in power, Democrats invariably govern in an objectively pro-1%, pro-multinational-corporation manner. Which is why Biden had so much support from billionaires, Koch-funded libertarians, Wall Street, and Silicon Valley.

    #InDefenseOfBillionaires

    1. Don’t forget…
      Libertarians for Neo-Liberalism

      1. Indeed.

        Also #LibertariansForEmbracingNeocons — which Reason.com’s editor-in-chief KMW pioneered when she worked with Bill Kristol at The Weekly Standard.

        1. She did a shitty job there, too.

          1. We need neo-cons, like Jennifer Rubin and Bill Kristol, to help advocate for expanding the security state. Who else will protect us from those white nationalist, anti-Semites?

    2. You’re probably right. Why tax your benefactors when there is all that IRA and 401k money left unharvested.

  7. Why even collect taxes anymore? Can’t they just print all the money they need? Oh right. You gotta punish the bad people somehow.

    1. “In other words, for every $5 or $6 in new spending, $1 will be paid for in new taxes, and the rest goes on the nation’s credit card.”

      Apparently taxation is not worth the effort from a fiscal standpoint. (Of course, some JOBS are saved or created.) Maybe they’ll require listing all deductions to facilitate finding bad people.

    2. Given my limited comprehension of modern monetary theory [MMT] the government that has a fiat currency can print all of the money it needs to, borrow however much it wants, and never default. Taxes are supposed to be used to put the brakes on the prols so we don’t have runaway inflaction. And besides, that money belongs to the government that prints it, anyway.

      1. They tax barter, too.

      2. The de-associating between the USD and Human Labor is what brings about slavery.

        And besides, that money belongs to the government that prints it, anyway = the government owns all human labor and resources.

        The Democratic utopia of communism chuck full of ignorance of millions of years of historical failures and genocide.

    3. Heck, yeah – let’s just turn up the digital presses and make everyone a multi-millionaire! Life would be great – we could all retire, live large, and import poor immigrants to do the actual work. What a paradise it would be!

      1. This is exactly what’s going to happen. Buy some bitcoin.

  8. “the largest federal tax increase since 1942”

    Maybe that’s the problem.

    Maybe we should have been increasing taxes more previously.

    And yes the OBVIOUS answer is we should have decreased spending but since we didn’t we should have increased taxes to meet spending (which probably would actually have led to decreased spending).

    1. ….. we should have increased taxes to meet spending (which probably would actually have led to decreased spending).
      Logic and actual history show this to be false.

      1. “which probably would actually have led to decreased spending).”

        You have any basis for this, or is it like your other comments I’ve seen and just emanates from a dark body cavity?

        1. He said that assertion is false, you need to ask apedad, who won’t have any actual data showing it to be true.

  9. … because people will work less, reduce investments, and even leave the labor force in response to the government’s increased take.

    Hah. Who will be left to leave the labor force? As a result of these administrations’ policies (don’t kid yourself, trump was just as fond of helicopter money as biden), there are now 7 million people looking for jobs, and 98 million people who don’t want jobs. We are looking at this same thing, locally (northwest Florida). The tourist season is coming, and restaurants are not able to find anyone willing to work, except their established tipped employees. Why?

    Regular Florida unemployment is $275/week ($6.88/hr). Okay, you are making that, you see the end in sight, you gotta get a job making $8.25/hr, you are better off, right? Now add in the Covid money: $575/week ($14.38/hr). So through September, if you were to get off unemployment and find a job, you would lose a lot of money. Even if they pass the $15 minimum wage … would you sit on your butt playing Call of Duty for $14.28, or deal with retail customers (the worst) for $15? And this was insanely worse when the Feds were paying $600/wk on top of state unemployment.

    If anyone thinks [1] the government is going to turn off the spigot any time soon, or [2] these people will be worth a crap working after getting free money for 2 years, they have never worked a restaurant job in their lives.

    1. Seems like the same thing here as what you say above

      Missoulian no workers link

      1. I have seen this story repeated in so many different places. This summer will be tough on them.

    2. I’m guessing that the food trucks will become increasingly popular if they don’t cut off the spigot and get those people off the couch.

    3. It’s all a prelude to UBI.

  10. Already, a county in Penna. is whining that their expected share of Pharaoah Biden’s $2+ trillion infrastructure plan will be totally inadequate to fix and maintain their bridges, roads and public transportation. What will it take to disabuse state and locals of the idea that they don’t have to spend local money because there must be some fabulous money tree in Washington?

  11. Promises made, promises kept.

  12. Is Reason mad that Biden is doing what he promised to do?

    1. Reason’s pre-election position was “Damn the consequences, we have to oust Trump and his mean tweets!”. They got their wish.

  13. Get bent, Reason. You wished upon a star and now my taxes have skyrocketed.

    1. They are getting exactly what they wanted.

      Do not let them pretend otherwise.

  14. Hmm, how many retards cannot connect the dots between higher corporate taxes and higher prices (that they will pay) or lower pay (that they won’t get)?

    1. Or wasted resources. Government spending is wasted by corrupt politicians and bureaucrats on political ends and their cronies rather than on goods and services people actually want and need.

  15. I love it. The tax structure by our Government is ludicrous. I particularly love the part where those on minimum wages pay FICA which supports old farts with wealth getting SS checks each month. At least the the least among us pay something.
    When interest rates rise we will be more in awe of the pending demise of debt.

  16. >>The easiest sell for the administration is a big hike in the corporate tax rate, because seemingly everybody is angry at corporations right now and they’re relatively faceless

    you don’t think it’s your job to help people understand they’re wrong, or you believe this tripe too?

  17. It seems like all the big rich guys support the party of tax increases. Would it not make sense to impose a net wealth tax, so the people who want tax increases are the people who get them?

    I want the GOP to partner with Liz Warren to impose a net wealth tax. Liz wants 10% of everything over $50 Million per person. I prefer 50% of everything over $10 million per person.

    That might make the big rich guys change their politics.

  18. Why are only White people’s taxes expected to pay for their assimilation out of existence by unlimited third-world immigration and FORCE integration into EVERY White country and ONLY White countries? Nobody demands that the Chinese must pay for their assimilation out of existence by breeding with millions of non-Chinese in their own country. Diversity is a code word for White Genocide.

  19. I think Janet Yellen is a Feminist for Liberty too.

  20. Well I reached the who cares point a while back, and I’m no longer in the top tax bracket, so I will take my social security check please and bugger off.

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  22. Collecting taxes, collecting taxes, almost running out of money to eat,Also increase taxes on me

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