Why Democrats Can’t Pay for Their Ambitions

Benjamin Franklin was right about death and taxes, but new taxes only become inevitable when a Democrat is elected president, and here we are. The House Ways and Means Committee released an outline of tax proposals to offset President Biden’s jawdropping spending plans, and it’s the expected assortment of tax increases on business and the affluent that Democrats like to pretend can fund a social welfare state of the sort that Bernie Sanders has long pined and advocated for. The individual tax rate would increase from 37% to 39.6%, the capital gains rate from 20% to 25%, and the corporate tax rate from 21% to 26.5%, among sundry other provisions befitting the hideously complex U.S. tax regime. It’s a sign of the scope of Biden plans that the committee version represents a step back from his tax proposals, yet still clocks in at an enormous $2.2 trillion in estimated new revenue over ten years. The corporate taxes are particularly noxious. Democrats love the politics of taxing corporations, based on the lazy and wrongheaded idea that the corporate tax is the way to stick it to executives and shareholders. To the contrary, if businesses are taxed at a higher rate, they have less resources available the capital investments that improve worker productivity over time. This ultimately means lower wages for workers. It is telling that no one is talking about going back up to the pre-Trump rate of 35%.

According to the Tax Foundation, a top corporate rate of 28%, the level that Biden favors, would once again give the U.S. the highest rate in the OECD at 32.3% once state level corporate taxes are factored in as well. France currently has the highest rate but is set to reduce it next year.

What’s the sense in instantly making the business environment in the United States less favorable and giving a competitive advantage to foreign countries?

While the Way and Means draft rejects Biden proposals such as taking the capital gains rate all the way up to 39% (!), it does everything it can to try to hold anyone making less than $400,000 harmless. As The Washington Post puts it, “The efforts are designed to avoid even the appearance of affecting middle- and lower-income households.”

This is where the Democrats are willing to talk the talk about a cradle-to-grave welfare state, but not walk the walk. There can be no European-style welfare state, at least not sustainably so, without European-style taxes.

The dirty secret about the Scandinavian countries that the left constantly holds up as a model is that they aren’t afraid to tax the middle class. These alleged models of social justice tax more than we do and tax much more broadly, realizing that taxing the rich and corporations isn’t enough to fund extensive and generous social programs.

The Tax Foundation calculates that if the U.S. had a tax system comparable to Denmark, we would be taxing all income over $70,000 at 55.9%, Denmark’s top rate.

The Ways and Means tax hikes would, sure enough, create Denmark-like rates. As Robert Frank of CNBC notes, the combined state and federal top tax rates in New York City would be 61.2%, in California 59.7%, and in New Jersey continued from page

57.2%. But the rates wouldn’t reach down into the middle class. In fact, Democrats from high state taxes are determined to raise the cap on federal tax deductions for state and local taxes — limited in Donald Trump’s tax reform — to reduce the tax bite on their relatively affluent constituents.

Maybe don’t increase taxes in the first place?

Indeed, rather than trying to spend historic amounts of money while their slender majorities last, it’d be better for the country if Democrats sought to fund their priorities by reallocating dollars within the already vast federal budget. But standing the aforementioned Benjamin Franklin on his head, they believe that a trillion saved is a trillion wasted.

Rich Lowry is editor of the National Review.

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