wants a Senate vote on his partisan tax deal with
as early as this week, and no wonder he wants to rush it through. The more Americans learn what’s in this tax-and-spend behemoth, the more they’ll dislike it.
Start with the authors’ central claim that the bill will reduce the deficit and thus inflation. The Penn Wharton Budget Model, which Sen. Manchin has been known to watch, examined the details of Schumer-Manchin and found that it doesn’t contain any net deficit reduction until 2027.
“The impact on inflation is statistically indistinguishable from zero” through 2031, say the Penn Wharton modelers. We don’t agree with those who think deficit reduction leads in a straight line to lower inflation, but that’s what the Democrats claim for their bill. If the first deficit reduction doesn’t come for five years, what’s the help on inflation today?
The $327 billion in new taxes could slow inflation if the economy falls into recession, and that may be the quiet expectation. The tax increases on business will discourage investment while the Federal Reserve is also raising business costs with higher interest rates. But tax policy should be working in the opposite direction to encourage investment when the Fed is tightening and the economy is close to recession.
Evidence is emerging that the new Schumer-Manchin 15% minimum tax on corporate-book income is especially harmful to U.S. manufacturing firms. An analysis by Congress’s Joint Committee on Taxation (JCT), which is hardly a nest of supply-siders, found that 49.7% of the tax would hit U.S. manufacturers.
The book-income minimum tax would hit the accelerated depreciation in the tax code that lets businesses write off investment in, say, new factories. Wholesale trade (9.3%), retail trade (4.9%) and information (11.5%) companies would get off relatively easy by comparison.
This new tax increase arrives only days after the Senate passed a $280 billion subsidy bill for computer-chip manufacturers in the name of keeping the U.S. globally competitive. Now Democrats want to take a chunk of that back for themselves via the minimum book tax. Subsidies for a few, tax increases for the many. So much for President Biden’s claim that he wants a renaissance in U.S. manufacturing.
An analysis by the National Association of Manufacturers says the tax in 2023 alone will reduce real GDP by $68.5 billion and cut labor income by $17.1 billion. One well-known economic truth is that corporations don’t really pay taxes. They are essentially tax collectors, as the corporate tax rate ultimately falls on some combination of workers, shareholders and customers. Raise the corporate tax rate, and you’re cutting wages and salaries for workers.
No surprise, that’s exactly what the Joint Committee on Taxation found in its analysis of the Schumer-Manchin bill’s distributional impact. The JCT finds that average tax rates will increase for nearly every income category in 2023 under the bill.
Taxes will rise by $16.7 billion in 2023 on Americans earning less than $200,000 a year. Taxpayers earning between $200,000 and $500,000 will pay $14.1 billion more. This gives the lie to Democratic claims that no one earning under $400,000 will pay more taxes under the bill, a promise Mr. Biden also made in his campaign. The reality is that the Schumer-Manchin bill is a tax increase on nearly every American.
If Arizona Sen.
and other Democrats want to sign up for this tax ball-and-chain barely three months before an election, they will be responsible for the economic consequences. Their new tax on workers is unlikely to be a political or economic winner.
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