Thanks to President Joe Biden’s policies, American families and small businesses are seeing rampant inflation that is reducing purchasing power and stretching budgets. While the Left has dismissed this inflation as “transitory,” if Biden and Congressional Democrats have their way and pass their reckless $3.5 trillion tax and spending plan, this problem will get much worse.
Prices have already increased by 5.4% in the past year, according to the Bureau of Labor Statistics – a significant increase from January when annual prices increased by just 1.4% on an annualized basis.
In the past year, gasoline has increased by 45.1%, appliances have increased by 13.7%, while fresh fruit has increased by 8.4%. Commodities have increased by 9%, airfares have increased 24.6%, and bacon has increased 8.4%.
In addition, companies including Kimberly-Clark, Whirlpool, Coca-Cola, and Proctor and Gamble are seeing increased costs that they are passing along to consumers.
At the same time, wages are decreasing. Seasonally adjusted real average hourly earnings decreased by 0.9% last month and have dropped by 1.7% over the past year. This marks a sharp contrast to wage growth that occurred before the pandemic – in 2019, median household income grew by 6.8%, a $4,400 wage increase for American families.
A key culprit for this inflation is the trillions of dollars in new federal spending over the past year, as noted by Former Clinton and Obama Economic Adviser Larry Summers. Congress has passed nearly $6 trillion in new federal funding to address the Coronavirus pandemic, including $2.2 trillion in March of 2020, $900 billion in December of 2020, and $1.9 trillion signed into law in March of this year.
To put this spending in context, there are 83.7 million families in the U.S, according to 2020 Census Bureau data. For each family, we have spent roughly $71,000 – an unsustainable level of federal spending.
All told, the federal government spent $6.5 trillion in 2020, or 31% of the entire economy. This year, spending will be more than $6.8 trillion, or 30.6% of the economy, according to the Congressional Budget Office.
Now, Mr. Biden and Senate Democrats want to pass at least $3.5 trillion in new spending and tax increases. This is a terrible idea – trillions in new federal spending will only exacerbate existing inflationary pressures, while tax increases on businesses will result in higher prices for consumers.
As part of this plan, Mr. Biden wants to raise the corporate tax rate from 21% to 28% and impose a 21% global minimum tax on American businesses overseas. The impact of these tax increases won’t fall on corporations but will instead be passed along to working families through increased costs of goods and services and fewer economic opportunities.
According to a 2020 study by the National Bureau of Economic Research, 31% of the corporate tax falls on consumers in the form of higher prices, while 38% of the tax falls on workers. Similarly, a 2017 study by Stephen Entin of the Tax Foundation found that 70% of the corporate tax falls on labor in the form of lower wages and fewer jobs.
The corporate tax increase will also directly raise the utility bills of American families. Utilities like electric, gas, and water companies pay the corporate tax rate and will pass along the higher costs to consumers. When the TCJA was signed into law, these utilities reduced rates.
Small businesses will not be spared from the Biden tax increase. Over one million small businesses are organized as c-corporations, and the corporate tax increase will hit them. At least 900,000 small businesses organized as pass-throughs will also see tax increases, as noted by a recent Reuters report. Just like large corporations, these small businesses will pass the costs of this tax hike along to workers and consumers.
The American people are already seeing prices go up. Businesses are seeing the cost of their inputs increase, while families are seeing essential products like fuel, housing, and food become more expensive.
While this problem is concerning, Mr. Biden‘s policies will only make it worse. Trillions in new spending will exacerbate inflationary pressures, while massive new tax hikes on businesses will be passed along to American workers and consumers through higher prices and fewer economic opportunities.
• Alex Hendrie is Director of Tax Policy at Americans for Tax Reform.