Biden’s tax plan will weigh on People affected by COVID-19

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Michigan companies and families cannot afford a job-killing corporate tax hike, writes Nix.

President-elect Joe Biden has pledged to “rebuild better” and stated that he can help states like Michigan recover fully economically from the COVID-19 pandemic. Unfortunately, his tax plan would raise taxes for most businesses in the midst of an economic recession, increase Michigan business closings, and take their jobs away. Many of these companies won’t be able to rebuild at all if Biden’s tax plan becomes law.

Few states need an economic recovery more than Michigan, where 32% of businesses had to shut down during the pandemic – most of all states – and where a third of restaurants estimate they will be forced to close permanently. The state government shutdown has resulted in layoffs and is a major reason families in Michigan have lost incomes during the pandemic. Joe Biden’s promise to raise the corporate tax rate from 21% to 28% and raise the highest individual income tax rate to 39.6% could be the final nail in the coffin for many Michigan businesses.

What is often forgotten in the tax debate is the fact that 95% of businesses are organized as transit businesses, which means that their owners do not pay corporate taxes but choose to pay their corporate taxes on their individual income tax forms. Over 45% of pass-through income is taxed at the highest tax rate, so increasing the highest income tax rate will have a direct impact on the finances of many companies.

When Biden talks about raising the highest individual tax rate, this proposal is actually a business tax hike that has the same damaging effects as an increase in the corporate tax rate. Business tax increases increase the cost of capital and make it more expensive for companies to make economically productive investments that increase employment growth and wages.

Michigan businesses and families cannot afford a job-killing corporate tax hike. Raising the pass-through corporate and corporate tax rates will only increase the unemployment rate and shut down more businesses.

Fortunately for Democrats, there are dozens of other tax options to pursue that will have no impact on the economy and potentially improve it while increasing revenue.

If Democrats really want to get tax revenue from the rich without harming businesses, they should consider removing many individual deductions from individual tax laws. These deductions are only available to taxpayers who declare their taxes. So they’re essentially no mid-range benefit. Since Republicans doubled the standard deduction in the 2017 tax bill, around 10% of taxpayers now declare their taxes and benefit from the deductions – only the richest households.

Two of the most popular line item deductions, the home mortgage interest deduction and the charity deduction, fail to achieve intended policy goals. It has been argued that the mortgage withdrawal does not make housing more affordable and that the charity withdrawal does not increase donations to charities. The only purpose these guidelines now serve is to subsidize wealthy homeowners and charitable donations that taxpayers would provide even if the charity deduction were not in place. The removal of these two provisions would raise $ 405.1 billion over the next four years, according to the Joint Tax Committee, and the economy would not suffer at all.

If Biden is to fuel economic recovery, he will have to ditch his proposed business tax hikes that would harm businesses and families. He should consider other ways to generate income that won’t harm the economy.

Travis Nix (@ tnix113) is a Young Voices employee and a tax law student at Georgetown Law. His tax and budget commentary has appeared in Fox News, National Review, the Washington Examiner, and the Chicago Tribune, among others.