Amid a crashing stock market and a looming recession, President Biden has reiterated his plans to reduce inflation by raising taxes on corporations and upper-income Americans. Raising taxes won’t cure inflation, and this is no time to do so, as New Yorkers know better than most people. The Empire State has some of the nation’s highest taxes, and it has seen the largest numerical decline in residents between July 2020 and July 2021, with a loss of 319,000. Texas, with no income tax, saw the largest gain, with increase of 310,000 residents.
Biden proposes to hike corporate tax rates from 21 percent to 28 percent, well above the global average of 23 percent. Factoring in average state and local taxes, the overall rate would be 32 percent. A tax increase of this magnitude would discourage investment in the U.S., resulting in more offshoring and further reducing GDP growth.
For those with net worth above $100 million, Biden has proposed a wealth tax based on the value of stocks, bonds, and private companies even before they are sold. If the value of those assets declined in future years, households would not get a commensurate deduction.
One reason such wealth taxes are rarely used is that they are hard to administer and have negative effects on the economy. Asset values change not just daily or hourly, but by the minute, and it’s hard to determine their true value if they are not sold.
The imposition of Biden’s proposed tax would cause people to shift their wealth out of assets that could be taxed and into other assets, such as art, instruments, jewelry, and cars, that are harder for tax collectors to find or to value. Sotheby’s on the Upper East Side and Christie’s in midtown would see their businesses boom—but their gains would be our loss, as the economy would lose a source of liquidity.
The Tax Foundation estimates that the corporate tax and capital gains tax increases would shrink GDP by about 1 percent and cost more than 170,000 jobs. But the loss to the U.S. economy would go beyond just lost GDP growth and jobs. For the past few decades, many of the greatest inventions—including the Internet, wireless technologies, and biotech—were developed in the United States, in part because our tax policies were more competitive than those of other countries. If we adopt uncompetitive tax policies, jobs and innovation will go overseas.
If Biden really wants to cut inflation, he should begin by reversing his policies on domestic oil and natural gas production. Energy prices have risen by 30 percent over the past year; these prices are set by expectations of future production. That is why oil prices rise when meteorologists predict that a hurricane will turn toward the Gulf of Mexico, before it has destroyed any oil rigs. The United States, the world’s largest oil and gas producer, has demonstrated the ability to influence the price of oil.
The president could lower the price of a barrel of oil by $10 to $20 with new energy policies. Yet on Biden’s first day in office, he reduced oil and gas production by banning offshore drilling, expanding the boundaries of national monuments, placing a moratorium on leasing activities in the Arctic National Wildlife Refuge, and revoking the permit for the Keystone XL pipeline, which would have brought Canadian oil to U.S. refineries for processing into gasoline and heating oil.
In recent months, the Federal Energy Regulatory Commission, the Department of the Interior, the Council on Environmental Quality, and the Securities and Exchange Commission have all issued reports or proposed regulations that make it more difficult to develop energy and associated infrastructure. If President Biden wants to tackle inflation, he should start by rolling back this added regulatory burden.
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