As portrayed in Ayn Rand’s “Atlas Shrugged,” Galt’s Gulch was a remote colony of inventors and businessmen engaged in the “great strike.” They left to escape a culture that stifled their creativity, overburdened them with rules, and took away the fruits of their labor. Joe Biden, the president, would be wise to observe that when society pushes its most productive individuals too far, they may decide to completely withhold their gifts.
That is exactly what Biden’s most recent budget plan promises to do—it would raise the capital gains tax rate to a historic 44.6%. The suggested amount has chilled the collective spines of investors, small company owners, and anyone with a basic understanding of economics. This idea is especially offensive, not just because of the outrageous tax rate but also because of the seriously poor economic reasoning that supports it.
If Biden’s plans succeed, one can only wonder how long it will take for our own “Atlases” to shrug and leave us with a poorer society that has pushed them away.
Let us analyze Biden’s idea first. The highest individual income tax rate will rise from 37% to 39.6% as part of the hike, while the net investment income tax will increase from 3.8% to 5%. Practically speaking, eligible dividends and long-term capital gains above $1 million will be subject to regular income tax rates, essentially increasing the highest federal tax rate to 44.6% on these earnings. In places with significant state and local taxes, such as California and New York, the total might rise to about 60%.
Think about the consequences. After decades of growing their modest business with blood, sweat, and treasure, the couple decides to sell their labor of love when they retire. Under Biden’s plan, they would get a harsh tax rate that would take away over half of their income as compensation for years of diligence and taking calculated risks. This is not a case of “taxing the rich”. It robs American employers and business owners.
The administration claims that these tax increases are required to finance its expansive spending plans, which include sending your taxes overseas to fight in far-off proxy wars and growing the size and reach of the federal government to support initiatives like the Green New Deal and Medicare for All. This reasoning, however, seems flimsy given that the US has a spending problem rather than an income problem.
Federal revenue as a proportion of GDP is close to historical averages, despite post-pandemic expenditure still being above historical standards and expected to rise to record-high, unsustainable levels. Biden’s planned tax increases are a blatant attempt to use tax revenue from the productive sector of the economy to support an ever-expanding bureaucratic goliath.
Investment is the driving force behind economic growth. We will eventually get less investment income as a result of higher taxes, which will also mean fewer jobs for hardworking American families. According to the Tax Foundation, Biden’s tax increases may result in the loss of approximately a million jobs. Reduced investment leads to slower economic growth, fewer jobs, and a lower rise in living standards. Because money is so mobile in a global market, high tax rates like this will encourage investment to go to countries with more tax-friendly economies.
Republicans in Congress successfully enacted the 2017 Tax Cuts and Jobs Act, which President Trump signed into law. This act stopped corporate inversions and encouraged more investment and profits to stay in the United States, therefore establishing a favorable tax climate for American corporations. Biden’s proposed tax changes will reverse our gains and take our economy and tax structure in another direction.
It is important to note that China’s top capital gains tax rate would be less than half of what the United States is proposing. China is aggressively seeking foreign investment as it works to become the global economic superpower, but the Biden administration appears set on penalizing achievement and discouraging the same capital that fosters innovation and expansion.
In order to ensure that the wealthiest pay their “fair share,” Biden will contend that his taxes would primarily affect the wealthy. However, the Biden family’s history of dodging taxes demonstrates how little faith he has in his own words. Joe and Jill Biden classified their almost $13.3 million in speaking fees and book royalties as S-corporation profits in order to avoid paying payroll taxes on them in 2017 and 2018. This allowed them to avoid paying payroll taxes on their earnings. Thanks to this strategy, they were able to avoid paying approximately $500,000 in Medicare and Obamacare taxes, money that would have gone toward funding the same initiatives that Biden seems to favor.
A long-standing pillar of American wealth, free enterprise, and individual success are under attack in President Biden’s plan for a capital gains tax. If passed, it will discourage investment, hinder economic expansion, and eventually result in greater poverty for all of us. This is not the path to future improvement. Better is due to the people of America.
The most prosperous Americans may leave an economy that penalizes them for their achievements, much as the members of John Galt’s famous strike did. If Biden’s plans succeed, one can only speculate as to how long it will take for our own “Atlases” to decide to shrug and leave us with a poorer society that has pushed them away.
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