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With the Senate having passed a budget plan over the weekend with only Democratic votes as well as a tie broken by the Vice President, it is only a matter of time before President Biden signs the first significant tax hike since the “Fiscal Cliff” tax hike in early 2013.  What’s important to keep in mind, according to Chief Economist, Brian Wesbury with First Trust Advisors L. P., is that it could have been worse…much, much worse.  

President Biden originally set out to raise the top tax rate on regular income to 39.6%, didn’t happen. Biden wanted to raise the top tax rate on long-term capital gains and dividends to 39.6% (versus a current 20%), that too didn’t happen.  He wanted to get rid of the step-up basis at death. Nope. He wanted to raise the regular corporate tax rate to 28% (versus the current 21%) and tax “carried interest,” as well. Again, no dice.

Wesbury writes that compared to what the President sought, the tax hike we’re soon getting is a shadow of its former self. But that doesn’t mean it’s good for the economy. The three most prominent sources of more government revenue will be a new 15% minimum tax on the book profits of large publicly-traded companies, beefed-up IRS enforcement against the middle class, and a new 1% tax on stock buybacks.      

According to Wesbury, the bottom line of this budget deal will raise spending and tax rates over the next decade, and this is bad for the economy’s long-term growth potential. But we’ve had much larger tax hikes in the past and survived.  

Final note, the Senate approved bill, includes $80 billion in new funding for the tax man. The $80 billion is more than six times the current annual IRS budget of $12.6 billion.

The bill earmarks $45.6 billion for “enforcement,” including “litigation,” “criminal investigations,” “investigative technology,” “digital asset monitoring” and a new fleet of tax-collector cars. The WSJ concludes, the result will be far more audits, civil suits, and criminal referrals.