PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

NEW: SBE Council Study Ranks the Economic Harm of Proposed Biden Administration Tax Hikes

By at 30 September, 2021, 10:56 am

Higher Capital Gains Taxes, Retroactive Increases at Death Most Harmful

For Immediate Release

Washington, D.C. – A new report released by the Small Business & Entrepreneurship Council (SBE Council) today ranks select tax increases proposed by the Biden Administration from least economically harmful to most economically harmful, and finds those targeting capital income would inflict the most harm. The analysis, prepared by EY QUEST for SBE Council, ranks the economic harm of five tax increases based on the change in gross domestic product (GDP) per dollar of revenue raised. The ranking is presented over the 10-year budget window and in the long run.

In regards to the findings, Raymond J. Keating, chief economist for SBE Council, stated: “It is not surprising to see that out of the major tax hikes examined, the significant increases proposed for capital gains taxes would inflict the greatest harm, followed by the increases in the dividends tax and the corporate income tax. These effectively are the largest tax increases in the Biden plan, and they are focused on capital income. Higher taxes on capital income mean higher costs and reduced incentives for such economically essential undertaking as entrepreneurship and investment. In turn, innovation and productivity suffer.”

Keating added: “As noted in this study, each of the major tax increases proposed by President Biden would hold significant negatives for the U.S. economy. Make no mistake, there’s nothing positive among these Biden tax increases.”

The five tax increases examined by EY QUEST include increases proposed by the Biden Administration in the corporate income tax, the top individual tax rate, the dividends tax, the self-employment tax, and the capital gains tax, including taxing capital gains at death.

The EY QUEST analysis gave an index value of 100 to the tax increase estimated to have the most adverse impact on GDP per dollar of revenue with the other tax increases scaled to this policy based on the estimated GDP impact per dollar of revenue for each. Among those policies ranked, the EY QUEST analysis finds that:

● The proposals to increase taxes on capital gains are, as a group, the most economically harmful in terms of their adverse impact on GDP per dollar of revenue either over the 10-year budget window or in the long run.

● Taxing qualified dividends is the second most harmful of the policies ranked, followed by increasing the top corporate income tax rate to 28%, increasing the top individual tax rate to 39.6%, and subjecting self-employment income to the 3.8% net investment income tax.

● Policies that increase taxes tax on capital income (i.e., capital gains, dividends, and the corporate income tax rate) are found to be more harmful than those that, at least in part, also increase taxes on labor income (39.6% top individual income tax rate, 3.8% NIIT applied to self-employment income).

● The ranking of the five tax policies is the same over both the 10-year budget window and the long run, although the index values vary.

From the report:

As noted by SBE Council president & CEO Karen Kerrigan, while some of the tax increase proposals have changed during reconciliation negotiations among House Democrats and the Biden Administration, the ranking makes clear that tax increases will be damaging to the economy, its innovative capacity, and U.S. competitiveness:

“These significant tax increases strike at the heart and soul of a vibrant, innovative and dynamic economy, which is all about capital access and formation and incentives for investment, risk-taking and entrepreneurship. Taxing more means our economy gets less productive activity. That means fewer startups, weaker Main Street businesses, less innovation and quality job growth, along with the destruction of local legacy businesses, which are economic drivers and stable employers in local communities nationwide. For example, higher capital gains taxes and retroactive capital gains taxes at death would devastate businesses and business formation and lead to consolidation, concentration and economic stagnation.”

Kerrigan concluded: “Sucking capital out of the private sector now and in the future is especially harmful as our economy works to dig out of the pandemic. Many businesses continue to struggle with a host of challenges, as they work to navigate an uncertain recovery. They need their capital and access to capital. Undermining investment and entrepreneurship through tax increases is a poor and badly-timed policy scheme. For the sake of our economy, our businesses and our workers, we have to hope that more rational thinking wins out.”

Access the EY QUEST study here.

Contact:  Karen Kerrigan, kkerrigan@sbecouncil.org

                Raymond J. Keating, rkeating@sbecouncil.org

SBE Council is nonpartisan advocacy, research and education organization dedicated to protecting small business and promoting entrepreneurship. For 27 years, SBE Council has worked on and advanced a range of private sector and public policy initiatives to strengthen the ecosystem for strong startup activity and small business growth. Visit www.sbecouncil.org for additional information. Twitter: @SBECouncil

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