Biden is again on a tax-raising rampage. He proposes to increase income taxes by nearly $5 trillion for corporations. Increasing the corporate income tax rate to 28% (from 21%) will be a great driver of negative effects on the U.S. economy, reducing long-run GDP by 0.9%, the capital stock by 1.7%, wages by 0.8%, and full-time jobs by 192,000. Additionally, Biden's new tax proposals include increasing the recently enacted corporate alternative minimum tax rate from 15% to 21% and denying business deductions for employee compensation above $1 million.

Biden proposes an increase of the corporate income tax that's a higher tax rate than in communist China, France, and the U.K., each at 25%. Add to that rate the average state corporate income tax of 4% and the average combined rate will be 32%, the second-highest corporate income tax rate (just below Colombia) in the developed world.

As the late, great Paul Harvey used to say, "Corporations don't pay taxes." Households bear the burden of corporate income tax increases in the form of higher prices and/or slower wage growth.

Biden repeatedly said he wouldn't raise taxes on anyone earning less than $400,000, but has now proposed to raise taxes on almost everyone. He says he's going to let Trump's Tax Cuts and Jobs Act (TCJA) expire, which will be a massive middle-class income tax hike because it was a massive middle-class tax cut. Wealthy people saw their taxes reduced, but the TJIA actually transferred a larger portion of the tax burden onto the wealthy.

His most insidious tax increase has to be his 44.6% 'national wealth tax.' One of the most significant aspects of this proposed tax will be its impact on capital gains (and all gains) which will be subject to a federal tax rate of 44.6%. The tax will impose a combined 44.6% tax rate on wealthy Americans' income, long-term capital gains, and qualified dividends. The proposed taxes are explained in a footnote of the administration's report, "General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals," which includes a $73 trillion budget. This is the highest capital gains rate in 100 years.

What's most ironic is what Scott Bishop, co-founder of Presidio Wealth Partners, says about this tax: "If Biden actually did raise rates to 44.6%, there would be less trading and therefore less revenue. It will be a populist 'win' without generating more revenue to federal coffers, thus increasing and not reducing deficits." And David W. Demming, president of Demming Financial Services, called the capital gains and dividends taxes 'counterproductive.' He said, "Long-term capital gain treatment under the tax code has clear economic motivations. Incentivizing investors with a 40% to 50% tax discount, as the current tax system does, is there to encourage investment in our economy, ergo creating jobs and economic development."

Timothy P. Carney of the Washington Examiner: "This is a common theme with Biden: If you listen to him, and you understand taxes, you have to wonder if he's lying or if he just doesn't understand taxes."

Lie or lack of understanding? Difficult choice. Or perhaps a large helping of both.

Linear and curvilinear are terms that describe a relationship between two (or more) variables. Linear means that the ratio of change is constant, while curvilinear means that the ratio of change is not constant. The relationship between tax rates and tax revenues is that a tax rate change has two effects on tax revenues: a linear arithmetic effect and a curvilinear economic effect. The linear effect causes a change in revenue that always causes a corresponding revenue change. For example, a rate increase of 10% causes a constant (say) 8% increase (or decrease) in revenue. The reverse is also true.

The curvilinear economic effect causes an accelerated (or decelerated positive or negative) impact upon revenues because tax rate changes have a reinforcing effect upon employment, output, and investment. Lowering tax rates increases the tax base by providing incentives to increase these activities. Raising tax rates has the opposite effect by penalizing a participation in these activities.

The linear effect always works in the opposite direction of the curvilinear economic effect.

In August 1981, President Ronald Reagan signed the Economic Recovery Tax Act (ERTA) which reduced the marginal earned income tax rates by 25%. The highest marginal tax rate on unearned income dropped to 50% from 70%, and the capital gains tax rate dropped from 28% to 20%.

The ERTA reduced tax rates by 1.25% throughout 1981, 10% throughout 1982, 20% throughout 1983, and 25% throughout 1984. These marginal tax-rate reductions resulted in greater incentives to work, produce, and invest.

The economy responded favorably. Between 1978 and 1982, the economy grew at a 0.9% annual rate. The annual growth rate increased to 4.8% from 1983 to 1986. The economy was choking on high inflation, high interest rates, and high unemployment prior to ERTA. All three decreased after ERTA. The unemployment rate, which peaked at 9.7% in 1982, declined to 7.0% by 1986 and 5.3% when Reagan left office in January 1989.

Federal income tax revenues decreased at a 2.8% rate between 1980 and 1982, with total government income tax revenues (includes corporations) dropping at a 2.6% rate. Between 1983 and 1986 (ERTA in full effect) federal income tax revenue increased by 2.7%, and total government income tax revenue increased by 3.5%.

Further, ERTA reduced the highest marginal income tax rate from 70% in 1981 to 28% in 1988. Internal Revenue Service records show that tax collections from 'the wealthy' actually increased between 1980 and 1988 despite lower tax rates.

Changes in capital gains tax rates provide an opportunity to study the effects of tax rates on taxpayers' behavior. After a capital gains tax rate increase, revenues always drop. A capital gains tax rate decrease always causes a revenue increase. Following the 1981 capital gains cut from 28% to 20%, revenues increased from $12.5 billion in 1980 to $18.7 billion by 1983. Revenues increased to about 0.6% of GDP.

Reduction of income tax rates and capital gains tax rates in 1981 worked. They helped launch the greatest and longest period of wealth creation in world history.

Bottom line: Jimmy Carter wrecked the economy so badly it took two years of Reagan's tax policies before the economy responded. Similarly, when Trump is reelected and undoes the damage inflicted by Biden, don't expect the economy to recover overnight.

Warren Beatty has created a web page that facilitates quick responses to anything you consider outrageous and/or anything about which you wish to comment: quick-rant.atwebpages.com

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