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BUILD BACK BETTER? Democrats’ Plan Would Reduce GDP, Wages and Jobs

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President Joe Biden, Vice President Kamala Harris, and Senate Majority Leader Charles “Chuck” Schumer, D-N.Y., look on as House Speaker Nancy Pelosi, D-Calif., delivers remarks on the American Rescue Plan Friday, March 12, 2021, in the Rose Garden of the White House. (Official White House Photo by Adam Schultz)

A new analysis of the latest version of Democrats’ “Build Back Better,” money transfer scheme by the Tax Foundation, finds that the plan will reduce GDP, wages, and jobs. The Tax Foundation’s analysts write:

Democratic lawmakers in the House of Representatives have advanced updated legislation containing the tax elements of President Biden’s Build Back Better agenda. The draft legislation may be modified before moving to the House floor and differ from the Senate’s version of the legislation. This analysis contains estimates of the budgetary, economic, and distributional impacts of the House bill as specified in the House Rules Committee print released on October 28, 2021.

Using the Tax Foundation General Equilibrium Model, we estimate that the tax provisions, IRS enforcement, and drug pricing provisions in the House bill would increase federal revenues by about $1.2 trillion over the next decade, before accounting for $451 billion in expanded tax credits for individuals and businesses, resulting in a net revenue increase of about $768 billion. Excluding the anticipated revenue from increased tax compliance and the drug pricing provisions, the bill would raise about $503 billion from net tax increases over 10 years.

We estimate that the House bill would reduce long-run economic output by nearly 0.4 percent and eliminate about 103,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for the top 80 percent of taxpayers over the long run.

Table 1. Combined Long-Run Effects of the Updated House Build Back Better Act
Long-run Gross Domestic Product (GDP) -0.37%
Long-run Gross National Product (GNP) -0.36%
Capital Stock -0.78%
Wage Rate -0.27%
Full-Time Equivalent Jobs -103,000
Source: Tax Foundation General Equilibrium Model, November 2021.

The tax implications alone should be enough to frighten Americans. As a country founded on defiance to unfair taxation and the principles of capitalism, the Democrats’ attempts to tax capital itself are beyond the pale. In addition, Democrats have lined up a slew of new tax measures to fund their economy killing bill. The Tax Foundation outlines the measures:

Individual Income Taxes

  • Create a new surcharge on modified adjusted gross income (MAGI), defined as adjusted gross income less investment interest expense, equal to 5 percent on MAGI in excess of $10 million plus 3 percent on MAGI above $25 million.
  • Extend the American Rescue Plan Act (ARPA) Child Tax Credit (CTC) expansion through 2022, and make the entire CTC fully refundable on a permanent basis
  • Extend the ARPA’s temporary expansion of the Earned Income Tax Credit (EITC) eligibility, phase-in rates, and amount through 2022

Pass-through Business Taxes

  • Expand the base of the 3.8 percent Net Investment Income Tax (NIIT) to apply to active business income for pass-through firms
  • Make permanent the active pass-through loss limitation enacted in the 2017 Tax Cuts and Jobs Act (TCJA)

Corporate and International Taxes

  • Impose a 15 percent minimum tax on corporate book income for corporations with profits over $1 billion, effective for tax years beginning after December 31, 2022
  • Create a 1 percent excise tax on the value of stock repurchases during the taxable year, net of new issuances of stock, effective for repurchases after December 31, 2021. Excluded from the tax are stock contributed to retirement accounts, pensions, and employee-stock ownership plans (ESOPs).
  • Change the Global Intangible Low-Taxed Income (GILTI) regime, effective for tax years beginning after December 31, 2022, including:
    • Reduce the deduction for GILTI to 5 percent, resulting in a tax rate of 15 percent
    • Calculate GILTI on a country-by-country basis
    • Reduce the deduction for Qualified Business Asset Investment (QBAI) to 5 percent
    • Reduce the foreign tax credit (FTC) haircut to 5 percent and allow FTCs to be carried forward for 5 to 10 years and disallow FTC carrybacks
    • Exempt GILTI from expense allocation rules
    • Include foreign oil and gas extraction income (FOGEI)
  • Reduce the deduction for Foreign-Derived Intangible Income (FDII) to 21.875 percent, resulting in a tax rate of 15.8 percent, effective for tax years beginning after December 31, 2022
  • Create a new limitation on interest expense deductions for certain multinational corporations, effective for tax years beginning after December 31, 2022

Other Modeled Tax Proposals

  • Delay the requirement to amortize research and development (R&D) expenses over five years, instead of taking immediate deductions, to begin after 2025 instead of after 2021
  • Modify, extend, and create a variety of tax credits for green energy and other efforts primarily through 2031 or 2033
  • Reinstate the Superfund tax on crude oil and imported petroleum at 16.4 cents per gallon (indexed to inflation), and double the reinstated Superfund tax on the sale of chemicals

Significant Proposals Not Modeled

  • Extend or make permanent certain ARPA expansions of premium tax credits, including allowing higher-income households to qualify for the credits and boosting the subsidy for lower-income households
  • Create a new limitation on foreign company base sales and services income
  • Make tax changes targeted at cryptocurrency, including imposing rules related to common control and wash sales
  • Modify the base erosion and anti-abuse tax (BEAT) for multinational corporations

Action Line: As usual, Democrats want to use your wealth to fund their priorities. You need to plan for a liberty retirement, that puts you in a place to keep your tax burden low, and your income high. If you need help, I would love to talk with you.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.