We can’t tax-and-spend our way to ‘recovery’

The U.S. House of Representatives recently passed a $3.5 trillion budget blueprint, laying the groundwork for huge tax increases to fund a massive federal expansion of government into issues traditionally handled by the states. This hefty price tag doesn’t even include the long-touted $1 trillion infrastructure bill, which is itself one of the largest non-emergency spending measures of the past 50 years.

This profligate tax-and-spend mentality conveniently omits one extremely important factor: The United States has barely started to recover from the wreckage inflicted by a pandemic that shows few signs of ending anytime soon. Yet increasing taxes is a key component of the left’s sweeping legislative agenda. Federal officials are proposing to raise the corporate tax rate from 21 percent to 28 percent, as well as doubling the Global Intangible Low-Taxed Income (GILTI) rate, which is a special category of taxation on overseas profits.

These changes would put America’s fragile economic recovery at risk, harm businesses across the board, and return the U.S. to the unenviable position of having the highest corporate tax rate of the world’s advanced economies. When accounting for state corporate income taxes, the U.S.’s true corporate tax rate would exceed 32 percent, making communist China’s 25 percent seem downright conservative by comparison. Given that countless businesses are still reeling from the economic impacts of the pandemic, it is imprudent to raise taxes on the very entities needed to power our recovery.

These proposed tax hikes are the latest example of government overreach. A U.S. Chamber of Commerce analysis found that 1.4 million small businesses, employing almost 13 million American workers across various sectors, would pay the higher corporate tax rate. This would force many local businesses to stay underwater just as they’re struggling to come up for air.

Additionally, the proposal to double the GILTI rate spells trouble for businesses with any presence abroad. A National Association of Manufacturers study found that the consequences of raising GILTI could result in nearly one million jobs lost and $20 billion in lost economic activity. Many of our nation’s critical industries, like mining and mineral extraction in Arizona, operate in a global economy. Increasing their taxes would limit American competitiveness worldwide while hurting workers and businesses here at home.

Combined with proposed tax increases on the “wealthy” and on capital gains (the government’s favorite ploy to tax income twice), the federal regime seems to be doing everything in its power to inhibit economic growth and international competitiveness. This is in stark contrast to policies implemented in Arizona. This past year, the Goldwater Institute, working closely with Gov. Doug Ducey and our allies, passed the lowest flat income tax rate in the country — saving Arizonans hundreds of millions of dollars and making the state one of the most tax-friendly places to live and work. Several other states also cut taxes to quicken their economic recoveries.

If the federal government were acting responsibly, it would look to replicate the actions taken at the state level that encourage businesses to flourish in an ever-changing economic landscape. It would stop bolstering government authority and instead focus on developing policies that support American enterprise, rather than obstruct it.

Instead, the White House and its allies seem intent on a tax-and-spending spree highlighted by “free” universal preschool, expanded Medicare, and the formation of the Civilian Climate Corps — an apparent homage to FDR’s penchant for paying people to do jobs that don’t result in the production of goods or services. What these programs have in common is that they indoctrinate people into the cult of government munificence — to the detriment of actual businesses and taxpayers.

Increasing taxes is never a sound method of economic development. And in 6,000 years of civilization, no government has succeeded in spending its way to prosperity. Today, amid increasing inflation and massive federal debt, this path is simply irresponsible.

Fortunately, it’s a path not yet set in stone. Common sense can still prevail, and lawmakers still have the opportunity to stand up for businesses and taxpayers despite the direction desired by those in control of our nation’s capital. Arizona and other states have provided the blueprint for economic recovery and success. Hopefully, there are enough people left in Washington willing to consider it.

Victor Riches is the president and CEO of the Goldwater Institute.