Recipe for Economic Train Wreck: Biden’s FY ’25 Budget’s 10 Massive Tax Increases

The term "Economic Train Wreck" seems to be a reference to criticisms of U.S. President Joe Biden's proposed FY 2025 budget, which includes various tax increases. These tax hikes are often discussed as detrimental to economic growth or as burdensome to businesses and individuals. Below is a breakdown of what some critics might consider the "10 Massive Tax Increases" in Biden’s proposed budget:

1. Increase in Corporate Tax Rate

• Proposal: Raising the corporate tax rate from 21% to 28%.
• Criticism: Critics argue that this could discourage investment and slow down business expansion, ultimately hurting the economy.

2. Global Minimum Tax on Multinationals

• Proposal: Imposing a global minimum tax on foreign profits of U.S. multinational companies.
• Criticism: This could hurt global competitiveness, as U.S. companies may face higher tax rates compared to firms based in countries with lower corporate tax rates.

3. Increase in Capital Gains Tax Rate

• Proposal: Raising the capital gains tax rate for high-income earners from 20% to 39.6%.
• Criticism: High-income investors might reduce their investment activity or seek tax avoidance strategies, potentially harming stock markets and economic growth.

4. New Minimum Tax for High-Income Earners

• Proposal: A new minimum tax requiring households earning more than $100 million to pay at least 25% of their income in taxes.
• Criticism: Critics claim this could penalize high earners and affect the economy by discouraging investment and entrepreneurship.

5. Elimination of “Like-Kind Exchange” for Real Estate

• Proposal: Ending the tax break that allows investors to defer capital gains taxes on real estate sales when reinvesting in like-kind property.
• Criticism: This move could reduce investment in the real estate market, raising costs for developers and potentially decreasing housing availability.

6. Increase in the Estate Tax

• Proposal: Reducing the estate tax exemption and increasing the estate tax rate for wealthier estates.
• Criticism: Some argue that it could discourage wealth accumulation and lead to more estate planning or tax avoidance strategies.

7. Expansion of IRS Enforcement

• Proposal: Increasing IRS funding to audit high-income earners and corporations more aggressively.
• Criticism: While proponents argue it will reduce tax evasion, critics believe this could create an overly burdensome and costly tax compliance environment.

8. Phasing Out Deductions for High Earners

• Proposal: Limiting tax deductions for high-income earners, especially regarding state and local tax deductions.
• Criticism: This would primarily affect high-income individuals in states with high tax rates, and critics say it could reduce disposable income.

9. Elimination of Tax Preferences for Fossil Fuels

• Proposal: Ending subsidies and tax breaks for fossil fuel companies.
• Criticism: Opponents argue this could lead to higher energy costs for consumers and negatively impact energy companies and workers in those sectors.

10. Increased Taxes on Investment Income

• Proposal: Applying the ordinary income tax rate (up to 39.6%) to certain investment income, including dividends and interest for the highest earners.
• Criticism: This could lead to reduced income for investors and increased financial market volatility.

Potential Economic Effects

Critics of Biden’s proposed tax increases argue that they could lead to a number of negative outcomes, such as:

• Reduced investment in businesses and financial markets.
• A decline in economic growth as high earners may reduce their spending and investment activity.
• Increased tax avoidance and legal loopholes.
• Job losses, particularly in sectors affected by higher corporate taxes.

Proponents of these tax increases argue they are necessary to fund important public programs like healthcare, infrastructure, and climate change initiatives, as well as to reduce the federal deficit. They claim that wealthier individuals and profitable corporations should contribute more to help reduce income inequality and fund necessary government functions.

In summary, critics view these proposed tax increases as a potential "economic train wreck" due to their perceived negative impacts on business investment, high-income earners, and overall economic growth.