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By: Opinion, Martin R. Cantor April 11, 2022
President Biden recently released a $5.8 trillion 2023 budget proposal that illustrates a disconnect between the role that federal fiscal and borrowing policy plays in the domestic economy and inflation.
The rationale behind the tax, borrow and spending 2023 budget flies in the face of inflation’s primary cause: too many dollars chasing too many goods fueled by federal borrowing. This adversely impacts the bond market, long-term interest rates, business expansion, job creation and home buying, especially at the time when the Federal Reserve is seeking to limit the amount of dollars in the economy by increasing short-term interest rates and removing dollars from the money supply. Rather than coordinating with the Fed’s monetary policy, Biden’s proposal runs counter to Fed policy and will only prolong inflation.
The president, astonishingly trying to tax America back to prosperity, would increase taxes on wealthy individuals and large corporations by $2.5 trillion over the next 10 years while also repealing tax breaks for oil and gas companies at the very time he is exhorting them to produce more oil to reduce inflation at the gas pumps.
For the wealthiest Americans, individuals earning more than $400,000 or couples earning $450,000 annually, Biden would impose a tax rate as high as 39.6%, and for households worth $100 million or more, the president proposes a 20% minimum “wealth tax” on income and unrealized gains on stocks and bonds, rather than on actual gains when the stocks and bonds are sold.
Unclear is the constitutionality of a wealth tax and whether the payments would be refunded if future capital losses arise. The slippery slope for middle class Long Islanders is that while a wealth tax is focused on higher income taxpayers, once enacted, history has shown that there isn’t a tax that congress doesn’t know how to expand.
While it’s no secret that high oil prices are contributing to current inflation levels, rather than encouraging more domestic oil production, the president’s inexplicable punitive policies would result in less oil production. The president would take away unused leases on public lands, penalize oil companies for not producing oil from those leases and increase taxes on the oil and gas industry by eliminating significant tax deductions including, intangible drilling expenses for labor, site preparation and repairs, and production from marginal wells.
And finally, the deduction that mineral rights owners can claim for a percentage of the value depletion for the reserves removed from their property would end. These policy changes alone would cost the industry $43.6 billion in tax breaks through the next 10 years. Hopefully realistic heads prevail, and the oil and gas provisions are dead on arrival if they reach congress.
As for corporations, Biden’s favorite pinata, his proposed tax rate increase from 21% to 28% ignores the fact that corporations do not pay taxes, the consumers of their goods and services do when tax increases are passed along to them.
As America struggles to emerge from inflation, and it will certainly be painful as interest rates increase and there are fewer dollars in the economy to finance home purchases, business expansion and job creation, the last thing the domestic economy and American households need is for President Biden to propose a budget that douses economic expansion by fanning the flames of inflation that everyone is trying to extinguish.
Martin Cantor is director of the Long Island Center for Socio-Economic Policy and a former Suffolk County economic development commissioner. He can be reached at EcoDev1@aol.com.
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