Selling Luxuries to the Middle Class

COMMENTARY Taxes

Selling Luxuries to the Middle Class

Oct 20th, 2021 3 min read
COMMENTARY BY
Rachel Greszler

Research Fellow in Economics, Budget and Entitlements

Rachel researches and analyzes taxes, Social Security, disability insurance, and pensions to promote economic growth.
U.S. President Joe Biden speaks to reporters as he arrives on the South Lawn of the White House October 15, 2021 in Washington, D.C. Drew Angerer / Getty Images

Key Takeaways

Biden promised not to raise taxes on anyone making less than $400,000, but scorekeepers said that his plan would raise taxes on millions of middle-class families.

The proposed corporate tax rate of 26.5% would put the U.S. at a competitive disadvantage. Even China’s Communist Party only levels a 25% corporate tax rate.

Combined, higher taxes, lower incomes, higher prices and added energy costs could cost the typical American household $100,000 over the next decade.

There seems to be something for everyone in the massive spending packages now working their way through Congress. And with a price tag of $4.6 trillion, or $37,400 per household, offering something for everyone—be it government-paid family leave, monthly child payments, free community college, union dues write-offs, a $12,500 electric vehicle tax credit or new bike paths—is easy.

Politicians who want to grow government like to talk about how great this grab-bag will be for workers, for families and for the economy. And they promise that only big corporations and really wealthy people will pay higher taxes.

But that’s like selling a souped-up Lincoln Navigator to a family that wants a minivan, reasoning that both require the same down payment.

Families deserve to know how much big-government policies will cost them—not only in taxes, but in how those policies will affect their paychecks and the prices they pay for everything from gas and groceries to utilities and child care.

>>> Biden’s Taxes Hit Americans at the Top and Bottom

Let’s start with taxes, which already consume more of Americans’ budgets than food, housing and clothing combined.

President Joe Biden promised that he wouldn’t raise taxes on anyone making less than $400,000, but Congress’s official nonpartisan scorekeepers said that his plan would raise taxes on millions of middle-class families.

Beginning in 2023, taxes would rise for nearly 6 million taxpayers that make less than $100,000. By 2027, more than half of all families earning between $75,000 and $100,000 would pay more in taxes. Taxes would even rise on hundreds of thousands of families making less than $20,000 a year.

Of course, taxes aren’t the only thing that affects families’ budgets.

The income that workers earn, and the prices they pay for goods and services, also determine a family’s bottom line.

The proposed corporate tax rate of 26.5 percent would put the U.S. at a competitive disadvantage. Even China’s Communist Party only levels a 25 percent corporate tax rate.

Corporations seem like an easy target for tax hikes because we tend to think of them in abstract ways—as corporate logos and big buildings. But logos and buildings don’t pay taxes. People do.

Across the U.S., companies would be hit with large tax hikes that economists agree would mostly be paid for by employees of those businesses through lower wages, less work and fewer benefits.

If higher taxes and lower incomes weren’t bad enough, another squeeze to families’ budgets will be higher prices.

After $6.5 trillion in COVID-19 spending, and the Federal Reserve buying more than half of the massive increase in U.S. debt over the past year, the risks of inflation are high. Another $4.6 trillion in spending between the $1.1 trillion infrastructure package and the $3.5 trillion big government socialist package would further stoke inflation and fiscal crisis risks.

And finally, so-called green energy policies will drastically increase costs for ordinary Americans, while creating special benefits for wealthy Americans and corporations. For example, the current $2,500-$5,000 electronic vehicle (EV) tax credit that overwhelmingly benefits corporations, California residents and individuals with more than $100,000 of income would be increased to as much as $12,500, even as ordinary Americans receive zero tax credits—and higher energy bills.

While the Green New Deal is not included whole cloth, one of the deal’s sponsors, Sen. Ed Markey, D-Mass., said that "the Green New Deal is in the DNA" of the $3.5 trillion reconciliation spending package.

>>> 8 Things You Need to Know About Democrats’ Tax Increase Bill

According to an analysis from the Heritage Foundation, the Green New Deal would cost every American $1,991 per year over the next decade, or nearly $8,000 per year for a family of four.

Combined, higher taxes, lower incomes, higher prices and added energy costs could cost the typical American household $100,000 over the next decade.

Compared to $37,400 per household in new government spending, that’s a pretty raw deal for ordinary Americans.

Instead of trying to sell Americans on policies that redistribute workers’ earnings and redirect families choices, lawmakers should seek policies that help all Americans achieve rising incomes, and greater freedom to pursue the choices that are best for them.

This piece originally appeared in the Miami Herald