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A Tax Code at War with Growth and Efficiency
Is destroying productivity a cure for inflation? Washington is giddy with anticipation over Joe Biden’s climate change and health care bill. According to James Freeman in the WSJ, our Washington lawmakers can’t wait for the impending shift from the productive economy to the political economy.
Alan Fram of the Associated Press reports on Democrats’ flagship climate change and health care bill:
Another Transformative Bill
Democrats were thirsty to declare victory on top-tier goals such as providing Congress’ largest ever investment in curbing carbon emissions, reining in pharmaceutical costs and taxing large companies and show they can wring accomplishments out of a frequently gridlocked Washington that disillusions many voters.
Rep. Hakeem Jeffries, D-N.Y., called the measure “another transformative bill brought to you by your friendly neighborhood Democratic Party.” Rep. Pramila Jayapal, D-Wash., a leading progressive, said Democrats would further bolster child care, housing and Medicare if they win larger majorities in Congress, but that “today, let’s celebrate this massive investment for the people.”
Ready to Celebrate?
Not so fast, suggest Mr. Freeman.
What’s troubling is not just the large amount of money that will be surging into Washington but the way some of it will be pried out of the hands of Americans
Targeting the Middle and Upper Class
From the WSJ:
The pact between Sen. Joe Manchin and Majority Leader Chuck Schumer includes $80 billion in new funding for the tax man. Democrats claim this “investment” will yield more than $200 billion in revenue. That estimate is highly speculative, but if it’s anywhere close to right IRS auditors will soon be coming after tens of millions of Americans…
The bill earmarks $45.6 billion for “enforcement,” including “litigation,” “criminal investigations,” “investigative technology,” “digital asset monitoring” and a new fleet of tax-collector cars. The result will be far more audits, civil suits and criminal referrals.
The main targets will by necessity be the middle- and upper-middle class because that’s where the money is. The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that from 78% to 90% of the money raised from under-reported income would likely come from those making less than $200,000 a year. Only 4% to 9% would come from those making more than $500,000.
From the Cato Institute’s Chris Edwards:
All those new IRS employees would undermine GDP rather than producing it. But that would be only part of the waste. Another cost would be the increased time and energy needed by taxpayers, lawyers, and accountants to defend against a more aggressive IRS.
The Inflation Reduction Act adds or expands a slew of special interest tax breaks and creates a parallel corporate tax structure based on financial statement income. Those misguided changes would also increase tax compliance costs on the private sector.
Mr. Edwards reports (data from the federal Office of Management and Budget):
“…individuals and businesses currently spend 6.5 billion hours per year on federal tax paperwork.
That is “equivalent to 3.6 million people working full‐time on this unproductive activity.”
Does America really need a “Tax Army” that is 2½ times as large as our active-duty military?
Concludes Mr. Edwards:
“Congress has created a tax code at war with growth and efficiency.”
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