The non-partisan Tax Foundation ran the numbers on the economic effects of Biden’s Build Back Better plan and found that the Democrat’s proposal would be a major drag on the economy.
The Tax Foundation estimates that Biden’s spending plans would reduce long-run GDP levels by 0.38 percent, reduce real wages by 0.27 percent, and cost 107,000 jobs.
One feature of the Biden plan that has not been widely discussed is the effect on marginal tax rates. According to the Tax Foundation, if enacted, the top tax rate in the United States would be the highest in the world at 57.4 percent from the current 42.9 percent. See the table at the end from the Tax Foundation for details.
At 42.9 percent, the top tax rate in the United States is already slightly higher than the 42.6 percent average rate in advanced economies. Biden’s plan would result in a huge increase in top rates.
High tax rates have at least three very bad effects on the economy:
First, high tax rates discourage investment and work. Indeed, the Tax Foundation estimates that the Biden plan would reduce the overall capital stock of the U.S. economy by 0.79 percent. Less investment harms the competitiveness of U.S. companies relative to foreign companies.
Second, high tax rates create an incentive for the most entrepreneurial and innovative Americans to relocate abroad. At a tax rate of 57.9 percent, countries like the United Kingdom (top tax rate of 45 percent) or New Zealand (top rate of 33 percent) look pretty good. Or for great weather, perhaps Columbia (top rate of 33 percent) or Israel (top rate of 50 percent).
Third, high tax rates provide an incentive for wealthy to shift income to tax-advantaged sources and to seek out tax shelters. Investments motivated by tax considerations harm economic growth by channeling capital into less useful or productive investments.
It isn’t just the Tax Foundation’s analysis that shows that Biden’s plans would harm the economy. The University of Pennsylvania recently reviewed Build Back Better and found that the plan would increase the federal deficit by almost $3 trillion over the next ten years.
Far from “costing nothing” as Biden claims, Build Back Better really amounts to a Big Budget Buster that will result in lower growth and fewer opportunities for Americans.