Friday, August 9, 2019

A Decade of Tax Hikes Looms for the Middle Class

Chris Edwards writes:

The Democratic presidential contest is revving up the tax policy debate. The candidates are calling for higher taxes on corporations, capital gains, wealth, and much else...

Going forward, taxes will reclaim center stage, but rather than tax cuts, there could be endless battles over tax hikes. Today’s surfeit of soak-the-rich ideas from Democrats may be just a prelude to major thrusts at hiking middle-class taxes down the road.

The tax threat is rising because federal debt is piling up by more than $1 trillion a year. If growing debt triggers a financial crisis, government interest costs may spike, which could prompt Wall Street to press Washington to raise revenues...

Another harbinger of tax hikes is the abdication of spending restraint by Republicans. The current two-year budget deal will add another $1.7 trillion to spending over the coming decade. On paper, control of Congress is split, but in practice the spend-more-on-everything party dominates.

The disinterest in spending restraint by President Trump and the Republicans is setting up the 2020s to be the tax-hike decade. All the experts say that rising debt is “unsustainable,” and that means the gap between spending and revenues will have to be contained at some point.

As for the Democrats, they have moved hard left and favor large-scale federal expansion, not restraint. Whereas President Obama signed the 2011 Budget Control Act to limit spending, today’s Democrats are proposing huge new outlays on green energy, health care, and many other things.

To fund an expanded welfare state, Democrats are pushing three broad tax planks. First, nearly all the presidential candidates want to repeal the TCJA’s tax cuts. The law’s individual cuts expire after 2025, and Democrats will have the upper hand in letting them go because deficits will be running $1.5 trillion or more at that time.

Second, the presidential candidates are proposing a slew of tax increases, including higher taxes on corporations, capital gains and estates. Sen. Elizabeth Warren (D-Mass.) has proposed an annual wealth tax, and a number of candidates want new taxes on financial trades.

Those are all taxes on capital, which Democrats believe won’t hurt labor. But they are wrong because when taxes on capital rise, investment falls, workers are less productive, and wages stagnate. For the government, tax hikes on capital would backfire because they would induce more avoidance and undermine growth, thus suppressing overall federal revenues.

On the spending side, Democrats will likely continue tag-teaming with the GOP to expand defense and domestic programs, thus pushing deficits ever higher. A paid-leave entitlement could be the next bipartisan budget-buster.

And that brings us to the third tax-hike plank. As spending expands, the search for new revenues will intensify, leading to a push for new, broad-based taxes on the middle class. The leading candidates for this nightmare scenario are a carbon tax and value-added tax (VAT).

Both carbon taxes and VATs would be federal money machines because they have broad bases and would hide the burdens in the prices of goods and services. The politicians would say the taxes are imposed “on business,” but the costs would land on all of us...

A middle scenario from the Tax Policy Center found that a carbon tax would about raise about $250 billion per year, or about $2,000 on every U.S. household.

A VAT would be an even more powerful revenue machine as it would land on most items we all buy....

Democrat presidential candidate Andrew Yang...says his 10 percent VAT would raise $800 billion a year, or $6,300 per U.S. household. But once a VAT was in place, the politicians would push the rate higher, as we see in Europe where the average rate is 21 percent. The Euro VATs raise an average 7 percent of gross domestic product, which for the United States would be about $11,000 per household.

1 comment:

  1. I think it was Lew Rockwell who wrote before that eventually the US will become like Europe. Lots of social programs and high taxes. More accurately I think we will be Europe with guns. That seems to be the only form of freedom conservatives fight for now. I prefer all the freedoms that come with private property rights.