COMMENT

The Cost Of Bidenomics

Dr Orphe Divounguy
Illinois Policy Institute, Chicago

From Wall Street to Main Street, everyone wanted a US president who would make stopping the spread of COVID-19 his administration’s top priority. An end to the pandemic would get the country back on track and spur economic growth. But if President-elect Biden’s tax plan passes, the economy may not come roaring back even if the new administration succeeds on the virus-management front.

Given that higher corporate tax rates tend to reduce investment, and corporate taxes are negatively correlated with growth, Biden's US$1.9 trillion tax increase on businesses over the next decade would lower economic growth. On the other hand, re-electing President Donald Trump would have cemented tax cuts for workers and businesses.

Amid COVID-19-related uncertainty and the large decline in demand that resulted in many business failures, the tax hikes would come at the worst possible time. First, every American would pay higher taxes, including those at the bottom of  income distribution. Second, workers – especially those from low-income households who have been disproportionately affected by COVID-19 job losses – will stay unemployed longer because of more sluggish economic growth.

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