The Biden Plan for Economic Sclerosis

By Kevin Hassett5 days ago

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President Biden has proposed a back-to-the-future tax plan. When President Trump took office, the U.S. had the highest corporate tax rate in the developed world and had experienced a decade of slow growth, low investment and stagnant employment and real wages. The Obama economy was especially toxic for low-earning and less-educated groups. The assault on business was so widespread that capitals contribution to economic growth was lower during the Obama expansion than it had been during any other period of growth since World War II.

The academic literature on corporate taxation pointed to the problem. High corporate taxes, a regulatory assault and social programs that discourage work and advancement led many U.S. multinational companies to locate their activity and profits overseas. This reduced or eliminated their tax in the U.S. while also reducing their demand for American labor. Wages dropped and tax revenue dropped, a double hit.

The idea of the 2017 Tax Cuts and Jobs Act was to make America an attractive location for capital formation again, and to drive wages up by increasing productivity. Mr. Trumps Council of Economic Advisers estimated that wages for a typical family would grow about $4,000 over the first three to five years. Though the Obama administration proposed a corporate tax cut in 2015 for the same reasons, opponents of the bill ridiculed the Trump teams numbers.

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