Opinion: Biden's tax plan will burden Americans affected by COVID-19
President Elect Joe Biden has promised to “Build Back Better,” saying that he will be able to help states like Michigan make a complete economic recovery following the COVID-19 pandemic. Unfortunately, his tax plan would raise taxes on most businesses in the middle of an economic recession, increasing the number of business closures in Michigan and taking their jobs with them. Many of these businesses will not be able to build back at all if Biden’s tax plan becomes law.
Few states need an economic recovery more than Michigan, where 32% of businesses were forced to close during the pandemic — the most of any state — and where a third of restaurants estimate that they will be forced to close permanently. State government shutdowns have caused layoffs and are a key reason why Michigan families have lost income during the pandemic. However, Joe Biden’s promise to raise the corporate tax rate to 28%, up from 21%, and increase the top individual income tax rate to 39.6% could be the final nail in the coffin for many Michigan businesses.
Often forgotten in the tax debate is the fact that 95% of businesses are organized as pass-through businesses, meaning their owners pay no corporate taxes, instead opting to pay their business taxes on their individual income tax forms. Over 45% of pass-through income is taxed at the top rate, so raising the top income tax rate directly impacts many businesses’ finances.
When Biden talks about raising the top individual tax rate, this proposal is actually a business tax increase that has the same harmful effects as an increase in the corporate tax rate. Business tax hikes increase the cost of capital, making it more costly for businesses to make the economically productive investments that increase job growth and wages.
Michigan businesses and families cannot afford a job-killing business tax hike. All raising pass-through business and corporate tax rates will do is increase the unemployment rate and cause more businesses to close.
Luckily for Democrats, there are dozens of other tax options that they can pursue that have no effect on the economy, and possibly improve it, while also raising revenue.
If Democrats really want to raise tax revenue from the wealthy without harming businesses, they should consider eliminating many itemized deductions from the individual tax code. These deductions are only available to taxpayers who itemize their taxes; so they’re essentially no benefit to the middle class. Since the Republicans doubled the standard deduction in the 2017 tax law, today roughly 10% of taxpayers now itemize their taxes and benefit from the deductions — only the wealthiest households.
Two of the most popular itemized deductions, the Home Mortgage Interest Deduction and Charity Deduction, do not achieve their intended policy goals. It has been argued that the Mortgage Deduction does not make housing more affordable and that the charity deduction does not increase charitable donations. The only purpose these policies now serve is to subsidize wealthy homeowners and charitable donations that taxpayers would be giving even if the charity deduction did not exist. Eliminating these two provisions would raise $405.1 billion over the next four years, according to the Joint Committee on Taxation, and the economy would not suffer at all.
If Biden wants to stimulate an economic recovery, he needs to abandon his proposed business tax hikes that would harm businesses and families. He should consider other ways to raise revenue that do not hurt the economy.
Travis Nix (@tnix113) is a Young Voices contributor and a student of tax law at Georgetown Law. His tax and budget commentary has been featured in Fox News, National Review, the Washington Examiner and the Chicago Tribune, among other publications.