Joe Biden captured the Democratic nomination with strong support from party elders earned by running as a moderate. Once nominated, he embraced more radical ideas from rivals like Bernie Sanders to unify his party.
Some of those could get to the root of problems and not merely redistribute income. Mr. Biden’s health care public option if run like the British Health Service could pressure private insurers to cut overhead and the tedious hours we spend parsing what’s covered with insurance company bureaucrats.
The success of the auto industry is still central to Middle American prosperity, and we lag China and Europe in creating markets and infrastructure for electric vehicles. Taxing internal combustion vehicles to subsidize sales of EVs would not increase the budget deficit.
However, Mr. Biden wants to devote $2 trillion over four years to accelerate the transition to EVs, carbon-free buildings and green power but much of the required technology is not here yet. Reckless spending would balloon post-pandemic federal deficits and leave the nation in 2030 with an obsolete, internationally-uncompetitive fleet of vehicles, structures and power grid that kills jobs.
Much greater harm could result from his plans to increase taxes on only those earning more than $400,000.
Levying to a 39.6% top marginal rate, the 0.9% Medicare surcharge on high incomes, imposing the full Social Security tax and some tightening of rules for many deductions would raise effective federal rate on wages for those earning at least $400,000 to more than 56%. Adding in state and local taxes in places like New York City and California would take top marginal tax rates to about 70%.
Taxes like those impose a mighty disincentive among highly-skilled professionals to work more, longer, innovate or assume more responsibility to advance within their organizations.
Perhaps the most profound negative effect on growth would be on startups and venture capital in the high-tech sector. The Biden plan would apply at least a 44% tax on capital gains instead of the current 23.8%.
Among venture capitalists in California or New York City marginal state and local taxes on higher incomes would raise the overall capital gains rate to about 57%.
Angel investors pour seed money into many unproven ideas in the hope that a few will create an attractive product with the promise of big sales and earnings growth, and then either go public or be acquired by a large tech like Facebook or Microsoft.
Wealthy folks never really spend all their gains — except maybe to put it into mansions that fall into their estates — because they keep reinvesting. In the end, the death tax kicks in. Applying Mr. Biden’s proposed 45% estate tax and the additive tax effect on the value of the estate from taking a risk on a successful startup becomes as much as 76%.
That’s not all. Mr. Biden’s tax plan is likely to yield about $2.8 trillion in revenues over 10 years — far less than his spending ambitions in green energy, higher education, day care and the like.
Waiting to make up the difference are Democrats, including the ranking Democrat on the Senate Finance Committee, Ron Wyden, who would apply the capital gains tax to stocks and other assets each year before those are realized through sales. Angel investors would have to pay tax as startups mature and before initial product offerings or corporate acquisitions generated any cash.
On the demand side, the Biden plan would raise corporate tax rates. That would have a big impact on the ready cash high-tech companies have to pile into startups.
Technology companies now compose nearly 40% of the S&P 500, and startups are still going to happen. It doesn’t take a complicated tax inversion and wrangling with the Treasury to simply incorporate new ventures in friendlier places like Ireland and move independent pools of venture capital overseas.
Simply, with Mr. Biden’s tax plan we would have Soviet-style incentives to invest in jobs creating new technology. Propaganda, bologna and vodka — pinot grigio for enlightened urban professionals — and fewer good-paying jobs
The Tax Foundation and others estimate the Biden plan hit on growth would lower household incomes for the rich and poor alike by 2030, and the Hoover Institution puts the average annual loss at $6,500. My eyes bulged with skepticism when I read such a huge loss but those returned to their sockets when I worked out those enormous capital gains tax rates.
• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.