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Would Biden’s tax plan help or hurt a weak economy?



At a drive-in campaign last week in a union hall in Toledo, Ohio, Joseph R. Biden Jr. asked. those in the audience about beeping their car horns if they earned more than $ 400,000 a year. “You get a tax increase,” he declared as some cars tapped.

Mr. Biden, the Democratic presidential candidate, has proposed sweeping tax increases on high-paying and large corporations, which various independent forecasting models project would raise about $ 2.5 trillion in revenue over a decade. In a rare case of agreement, both Mr. Biden and his sitting opponent, President Trump, tried to raise these tax plans in the final weeks of the campaign.

The competing strategies reflect differing views on how voters react to tax increases – and on how these increases will affect a fragile economic recovery in the coming years.

Sir. Biden and his advisers say tax increases will now accelerate growth by funding a stream of spending proposals that can help the economy, such as improving infrastructure and investing in clean energy. At least one independent study supports these claims and found that Mr. The bid’s full series of plans would boost economic growth. Researchers at some conservative think tanks project that his tax increases will only result in a modest pull on the economy.

Sir. Trump and congressional Republicans say otherwise, arguing that tax increases of any kind threaten to track the rebound from the recession. “If he comes together and raises rates, all the companies that come in will leave the United States so quickly that your head will turn,” the president said Thursday during an NBC City Hall event. “We can not let that happen.”

A group of Trump’s former economic advisers released a study last week in which they projected sharp losses in employment, wages and economic growth from the adoption of Mr. The bid’s agenda, including significant damage from a tax proposal that has attracted relatively little control in the campaign: Mr. Biden’s plan to raise the ceiling on wages subject to the payroll tax that finances social security. This move will raise money from high-wage earners, but two of Mr Trump’s former financial advisers say it will penalize small business owners and reduce employment.

Polls show that Americans largely support raising taxes on the rich. But Mr Biden has raised increasing questions about whether, given the pandemic, he would delay his tax increases, which also include raising the corporate rate to 28 percent from 21 percent and increasing the rate of high-paying investment and labor income.

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The questions come largely from Republican critics, but also arose during an ABC City Hall event on Thursday. Asked whether it was wise to raise taxes on the wealthy and businesses now in the midst of a weak economy, Mr Biden replied, “Absolutely.”

Republicans have long argued that any democratic proposal to raise taxes would hurt the economy, whether it was thriving or ailing. In recent years, including the Democratic presidential election this year, Democrats and liberal economists have argued more strongly to the contrary: raising taxes on the rich to fund public spending that strengthens the productivity of the U.S. economy will accelerate economic growth.

Economists advising Mr. Biden’s campaign from the outside, says that they remain confident that his agenda will promote growth – and that Mr. Biden should not wait, if elected, to raise taxes on corporations and the rich.

“This has been a huge unequal recession. And people with high incomes and large corporations, many of whom have not had a recession at all, ”said Austan D. Goolsbee, a former White House Chief of Staff on Economic Advisers under President Barack Obama, now a professor at the Chicago Booth School. of Business and an external advisor to Mr. Biden.

If you raise taxes on these groups, as Mr Biden has suggested, Mr Goolsbee said, “and spend the money on the things that Joe Biden is talking about, it does not slow down growth. It increases growth. ”

Several independent tax models have analyzed Mr. Bid’s plans in recent weeks and estimated how much tax revenue they could generate and whether they would help or hurt the economy. Some analyze Mr. Biden’s tax and expense proposals together. Others focus only on taxes.

The most bullish of these analyzes for Mr. The bite comes from Moody’s Analytics, which recently reported that if Mr. Biden wins, and Democrats control both the House and the Senate, the country’s real gross domestic product would be 960 billion. Dollars bigger at the end of his term than it would be at the end of another Trump term with Republicans controlling both houses. The winnings from Mr. Biden’s spending programs would offset the deduction from his tax increases, Moody’s stated.

Others have found relatively small effects on tax growth. The tax fund, which typically predicts large gains from tax cuts, predicts that the Biden plan would reduce the size of the economy by nearly 1.5 percent over about 30 years. Kyle Pomerleau and Grant M. Seiter of the American Enterprise Institute find that the tax plan would shrink the economy by 0.16 percent over a decade.

In an interview, Mr Pomerleau said the move was small from the proposals because Mr Biden largely taxed savings on high-wage earners, which is not a major driver of economic growth, as Americans have saved much of their wealth.

“Some tax increases have greater effects on growth than others,” he said. “Biden has chosen taxes that do not have a massive effect.”

Kevin Hassett, a former chairman of Mr. Trump’s Council of Economic Advisers now at Stanford University’s Hoover Institution, and Casey B. Mulligan, a former top economist on the council who is a professor at the University of Chicago with their co-authors Timothy Fitzgerald and Cody Kallen finds much greater damage to growth in an analysis examining Mr. Biden’s tax, health and regulatory proposals.

They project that Mr. Biden’s plan to extend health insurance subsidies under the Affordable Care Act will deter Americans from working and earning more. And they predict that corporate tax increases will reduce investment, that new environmental regulations will increase energy costs, and that increased social security taxes will discourage the employment of small business owners whose profits are taxed as individual income. High-paying owners of such companies will be subject to additional taxes from the abolition of the social security wage cap, which the authors claim will reduce the amount they have available to hire.

Sir. Hassett said in an interview that the study should show how “unlikely” it would be for Mr. Biden to try to implement his plans at a time when the economy is still struggling. “Linking up corporate interest rates right now seems like a disaster,” he said, “given how close to the edge so many companies are.”

Both Mr Trump and Mr Biden have been keen to make their tax plans a campaign issue. Sir. Trump often says that Mr. The bid’s plans will ruin the economy and throw the country into another major depression.

On the campaign track, Mr. Pay attention to its promise not to raise taxes on people earning less than $ 400,000 a year. His campaign also underscores this promise in TV commercials, including one that concludes: “The city’s plan: Businesses pay more. You benefit. ”

Mr. Biden has leaned into the plan in the last days of the campaign. He has also acknowledged the potential political obstacles to adopting it. “So there will be no delay in the tax increases?” asked the moderator of the ABC event, George Stephanopoulos, Mr. Bid Thursday.

“No, I must get the votes,” said Biden. “I have to get the votes.”


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