Americans Bracing for Higher Taxes
In 1988, George H.W. Bush got on the stage at the Republican National Convention and vowed "Read my lips: no new taxes”. Only two years later, this line came to be known as one of the most (in)famous broken promises in political history, as Bush went back on his word and agreed to hike taxes. This flip-flop arguably cost him the next election, but it also served as an important lesson to the public about the dangers of relying on campaign promises. Now, it looks like Americans are about to get a refresher course.
Wealthy Americans and business owners have been bracing for significant tax increases ever since Joe Biden moved into the White House, as his pre-election rhetoric and economic agenda had made it clear that a Biden-Harris administration would target job creators and family wealth in order to pay for their ambitious spending programs and redistributive policies.
Now, this prospect appears to be edging closer, as House Democrats passed a $3.5 trillion budget resolution, triggering a political clash with Republicans and even some moderate Democrats that recognize the true economic impact and the inevitable consequences of Biden’s radical plan.
As Rep. Kevin Brady (R-TX), top Republican on the House Ways and Means Committee, highlighted: “There are three big issues here: One, by raising business rates by a third, we’re creating an economic surrender to China, Russia, Europe, Canada, and others. Secondly, a lot of these tax increases are going to land on small businesses. And third, the President clearly breaks his pledge by taxing those below $400,000.”
While still on the campaign trail, Biden promised repeatedly that his planned tax hikes would only target the rich and pledged that middle class families and small businesses had nothing to worry about. As he fervently insisted, the vast majority of Americans would not see their taxes go up under his administration’s tax plan, “Not one penny. It’s a guarantee.”
And yet, that promise appears to be realistically impossible to keep. According to the Tax Foundation, Biden’s plan will impose largest tax increase since 1968, while a recent analysis by the Joint Committee on Taxation (JCT), the official tax scorekeeper for Congress, clearly demonstrated that it would affect Americans at every income level, not just “Big Business” and the super-rich.
The burden of a higher corporate income tax will fall on anyone with capital income, like that originating from corporate stocks, which most Americans have in their pension and retirement accounts. It would also hurt workers, as the Tax Foundation demonstrated in its own analysis, showing that hiking the corporate tax rate to 28% would result in 138,000 jobs lost and wages cut by 0.6% in the long run.
The imminent tax hikes in the US once again highlight the urgent need for investors to develop and implement a sound and sustainable financial plan and to act proactively. Especially for Americans, jurisdictional diversification and compliant, tax-efficient strategies can play an essential role in protecting and preserving hard-earned savings and family wealth.