Why Joe Biden’s ‘Tax The Rich’ Plan Is The Wrong Path For Spending Boosts, Despite The $400,000-Earner Pledge
Joe Biden has promised a vast array of new spending — not, perhaps, as much as Bernie Sanders had, but enough for Sanders to praise him as having “a chance to be the most progressive president since FDR.” His spending plans total $6 trillion over 10 years according to Marc Joffe writing at The Hill, or as much as $8 trillion according to the calculations of James Capretta at AEI. The new spending includes $2.0 trillion in new healthcare spending such as increased ACA/Obamacare subsidies, a “public option,” and Medicare eligibility at age 60; $1.7 trillion in “Green New Deal” spending; $1.6 trillion in new education spending across all levels; $0.5 trillion in paid leave benefits; $0.5 trillion in Social Security spending, and more. It all adds up.
And Biden has promised an array of new taxes, which the Tax Foundation estimates totalling up to $3.8 trillion over 10 years, and the Tax Policy Center calculates at $4.0 trillion. As Capretta summarizes:
“He would: push the corporate tax rate up from 21 to 28 percent; apply the combined employer-employee Social Security payroll tax rate of 12.4 percent to all earnings above $400,000 annually; increase the top income tax rate to 39.6 percent immediately, up from 37.0 percent today; tax capital gains as ordinary income; phase out passthrough business income deductions for households with total incomes over $400,000 annually; impose new taxes on pharmaceutical manufacturers, banks, and real estate companies; and impose many other smaller tax hike provisions.”
At the same time, Biden has pledged that under no circumstances will taxpayers with incomes under $400,000 pay more in taxes — and the campaign insists that this pledge is so “ironclad” that any provision that would otherwise impact them, will be adjusted to “hold harmless those below $400,000.”
This simply isn’t reasonable. Irrespective of one’s opinions on how expansive government spending should be, it is simply not responsible to promise that “the rich” can pay for everything we want.
Regular readers will know that, within the context of Social Security and social insurance programs generally speaking, I regularly point to European countries as examples.
Their Social Security earnings ceilings are significantly lower than ours. The Dutch long-term care system I profiled last week is funded by a payroll tax of 9.65% with a very low ceiling indeed, EUR 33,994 ($37,700).
Medical benefits, too, are often funded by FICA-like taxes, or by flat-rate payroll taxes: for example, 13.3% of payroll in France (paid by employers and therefore indirectly by employees) for healthcare and maternity/paternity leave benefits; and 7.3% each for employer and employee up to EUR 4,425 per month (about $65,000 annually) in Germany.
When Elizabeth Warren and Bernie Sanders promoted their wealth taxes to fund social insurance-type programs through taxes on “millionaires and billionaires,” I observed that the European versions of wealth taxes are more likely to high the upper middle class or even the “regular” middle class than the Warren/Sanders promise of only the ultra-rich.
And that’s true of tax rates as well: according to the OECD, the vast majority of developed countries have top marginal tax brackets considerably lower than ours, and even those who don’t, don’t attempt to use the wealthy as piggy banks. Sweden and Denmark, which both fund their universal health care system through general tax revenues, both have highest tax bracket levels at about $80,000. France, at about $190,000. Germany’s highest rate kicks in at about $315,000 — but that’s a marginal tax rate of 45%, which is an increase of only 3 percentage points from the 42% rate that applies on all income above about $65,000.
In addition, in the U.S., we have sales taxes that vary by state, county, and city, and top out at 10% in the highest-taxed state (yes, that’s Illinois); in Europe, their value-added-tax is a form of “national sales tax” and their rates are double that or more: 19% in Germany, 25% in Norway, Sweden, and Denmark.
In other words, progressives look to European countries as role models for increasing the degree of social welfare/social insurance provision in a variety of ways. But it seems outlandish to claim that we should learn from them, and yet ignore the parallel lesson that in order to achieve this, everyone must contribute to funding these benefits. Promising that the “millionaires and billionaires,” or, in the latest version, “everyone earning over $400,000,” can pay for it all, simply won’t work.
And by “won’t work,” I don’t merely mean that it will have unintended consequences economically — in the same manner as Sweden found that its 90% tax rate on the wealthy did more harm than good and brought it down to 50% in a 1991 tax reform. I mean that any sort of social insurance program — be it benefits for the old, or for parental leave, child care, medical care, or the other types of benefits that fall under this label in other countries — cannot function in the long term, and cannot produce a society with adequate levels of social cohesion and trust, if these are funded by a small sliver of the country rather than by, well, all of us.
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