The Biden economic agenda can be summarized as follows: As much spending as possible, financed by as much taxation as possible, using lots of dishonest budget gimmicks to glue the pieces together.

But it turns out that higher taxes are not very popular, notwithstanding the delusions of Bernie Sanders, AOC, and the rest of the class-warfare crowd.

If the latest reports are accurate, the left has given up on imposing higher corporate tax rates, higher personal tax rates, and making the death tax more onerous.

That’s the good news.

The bad news is that they’ve revived an awful idea to make capital gains taxes more onerous by taxing people on capital gains that only exist on paper.

In a column for the New York Times, Neil Irwin explains how the new scheme would work..

…congressional Democrats..are looking toward a change in the tax code that would reinvent how the government taxes investments… The Wyden plan would require the very wealthy — those with over $1 billion in assetsor three straight years of income over $100 million — to pay taxes based on unrealized gains. …It could create some very large tax bills… If a family’s $10 billion net worth rose to $11 billion in a single year, a capital-gains rate of 20 percent would imply a $200 million tax bill.

In other words, families would be taxed on theoretical gains rather than real gains.

Some have said this scheme is similar to a wealth tax, though it’s more accurate to say it’s a tax on changes in wealth.

Similarly bad consequences, with similarly big problems with complexity, but using a different design.

Mr. Irwin’s column also acknowledges some other problems with this proposed levy.

The proposal raises conceptual questions about what counts as income. When Americans buy assets — shares of stock, a piece of real estate, a business — that become more valuable over time, they owe tax only on the appreciation when they sell the asset. …The rationale is that just because something has increased in value doesn’t mean the owner has the cash on hand to pay taxes. Moreover, for those with complex holdings, like interests in multiple privately held companies, it could be onerous to calculate the change in valuations every year, with ambiguous results. …having a cutoff at which the new capital gains system applies could create perverse incentives… “If you have a threshold, you’re giving people a really strong incentive to rearrange their affairs to keep their income and wealth below the threshold,” said Leonard Burman, institute fellow at the Tax Policy Center.

In other words, this plan would be great news for accountants, lawyers, and other people involved with tax planning.

I support the right of people to minimize their taxes, of course, but I wish we had a simple and fair tax system so that there was no need for an entire industry of tax planners.

But I’m digressing. Let’s continue with our analysis of this latest threat to good tax policy.

Henry Olson opines in the Washington Post that it’s a big mistake to impose taxes on unrealized gains.

The Biden administration’s idea to tax billionaires’ unrealized capital gains…would be an unworkable and arguably unconstitutional mess that could harm everyone. …Tesla founder Elon Musk’s net worth rose by $126 billion last year as his company’s stock price soared, but he surely paid almost no tax on that because he never sold the stock. Biden’s plan would tax all of that rise, netting the federal government about $30 billion. Do the same for all the nation’s billionaires, and the feds could pull in loads of cash… If that sounds too good to be true, it’s because it is. …Privately held companies…are notoriously difficult to value. Rare but valuable items are even more difficult to fix an annual price. …Billionaires are precisely the people with the motive and the means to hire the best tax lawyers to fight the Internal Revenue Service at every step of the way, surely subjecting each tax return to excruciatingly long and expensive audits. …Expensive assets can go down in value, too, and billionaires would rightly insist that the IRS account for those reversals of fortune. …Would the IRS have to issue multi-billion dollar refund checks to return the billionaires’ quarterly estimated tax payments from earlier in the year?

These are all excellent points.

Henry also points out that the scheme may be unconstitutional.

The Constitution may not even permit taxation of unrealized gains. The 16th Amendment authorizes taxation of “income,”… Unrealized gains don’t fit under that rubric because the wealth is on paper, not in the hands of the owner to use as she wants.

And he closes with the all-important point that the current plan may target the richest of the rich, but sooner or later the rest of us would be in the crosshairs.

…it will only be a matter of time before lawmakers apply the tax to ordinary Americans. Anyone who owns a house or has a retirement account has unrealized capital gains. Billionaires get all the attention, but the real money is in the hands of the broader public, as the collective value of real estate and mutual funds dwarfs what the nation’s uber-wealthy hold. The government would love to get 25 percent of your 401(k)’s annual rise.

Amen. This is a point I’ve made in the past.

Simply stated, there are not enough rich people to finance European-sized government. Eventually we’ll all be treated like this unfortunate Spaniard.

I’ll close with a few wonky observations about tax policy.

• The government should not impose discriminatory extra layers taxationon income that is saved and invested rather than consumed.
• This means there should be no capital gains tax, much less a tax on unrealized capital gains (or inflationary gains).
• This means there should be no wealth tax, whether levied on annual wealth or imposed on changes in wealth.

P.S. Biden, et al, claim we need higher taxes on the rich because the current system is unfair, yet there’s never any recognition that the United States collects a greater share of revenue from the rich than any other developed nations (not because our tax rates on the rich are higher than average, but rather because our tax rates on lower-income and middle-class taxpayers are much lower than average).

P.P.S. The bottom line is that taxing unrealized capital gains is such a crazy idea that even nations such as France and Greecehave never tried to impose such a levy.

There are lots of reasons (here are five of them) to dislike the version of the Biden tax hike that was approved by the tax-writing committee in the House of Representatives.

From an economic perspective, it is bad for prosperity to penalize work, saving, investment, and productivity.

So why, then, do politicians pursue such policies?

Part of the answer is spite, but I think the biggest reason is they simply want more money to spend.

And if the economy suffers, they don’t worry about that collateral damage so long as their primary objective – getting more money to buy more votes – is achieved.

But the rest of should care, and a new report from the Tax Foundation offers a helpful way of showing why pro-tax politicians are misguided.

Here’s a table showing that the economy will lose almost $3 of output for every $1 that politicians can use for vote buying.

I added my commentary (in red) to the table.

My takeaway is that it is reprehensible for politicians to cause nearly $3 of foregone prosperity so that they can spend another $1.

Garrett Watson, author of the report, uses more sedate language to describes the findings.

Using Tax Foundation’s General Equilibrium Model, we estimate that the Ways and Means tax plan would reduce long-run GDP by 0.98 percent, which in today’s dollars amounts to about $332 billion of lost output annually. We estimate the plan would in the long run raise about $152 billion annually in new tax revenue, conventionally estimated in today’s dollars, meaning for every $1 in revenue raised, economic output would fall by $2.18. When the model accounts for the smaller economy, it estimates that the plan’s dynamic effects would reduce expected new tax collections to about $112 billion annually over the long run (also in today’s dollars), meaning for every $1 in revenue raised, economic output would fall by $2.96.

This is excellent analysis.

But I think it’s important to specify that political cost-benefit analysis (from the perspective of politicians) is not the same as economic cost-benefit analysis.

From an economic perspective, the foregone economic growth is a cost and the additional tax revenue for politicians also is a cost.

And I’ve augmented the table (again, in red) to show that the additional spending is yet another cost.

In other words, politicians are the main winners from Biden’s tax hike, and some of the interest groups getting additional handouts also might be winners (though I’ve previously pointed out that many of them wind up being losers as well in the long run).

P.S. The Tax Foundation model only measures the economic damage of higher taxes. If you also measure the harmful impact of more spending, the estimates of foregone economic output are much bigger.

The welfare state and the so-called war on poverty has been very bad news for taxpayers.

But it’s also very bad news for poor people, in part because various redistribution programs can lure them out of the productive economy and into total dependency on government (and this will become an even bigger problem if Biden’s per-child handouts are approved).

But it’s also bad news because redistribution programs can result in very high implicit tax rates for low-income people who try to improve their lives by climbing the economic ladder.

I shared an example back in 2012, which showed how a single mother in Pennsylvania would be worse off with $57,000 of income instead of $29,000.

In other words, she would be dealing with a de facto marginal tax rate of more than 100 percent.

If you want to understand how this happens, Professors Craig Richardson and Richard McKenzie wrote about this topic in an article for The Library of Economics and Liberty.

…by expanding public assistance programs, the President’s plan will unavoidably impose a higher, hidden tax rate—known as an “implicit marginal income tax rate” (which we shorten to implicit tax rate)—on low-wage workers who receive welfare benefits. Those workers will pay an implicit tax rate because many welfare benefits are reduced as earnings rise.Ironically, the poorest Americans often pay implicit tax rates that are far higher than the IRS’s explicit marginal income-tax rates imposed on the country’s highest income earners. …Consider a household that receives benefits from only two welfare programs, with one tapering off at 20 cents for each added dollar earned and another tapering off at 40 cents for each added dollar earned. Those cuts create an implicit tax rate of 60 percent, which means the worker has only 40 cents in additional spendable income for each added dollar earned. This implicit tax rate can be expected to affect work incentives in much the same way that a federal income tax rate does.

The authors cite a real-world example.

…consider a real-life, low-income single mother of two children in Forsyth County, North Carolina earning $10 an hour in a full-time job, which means she has a monthly earned income of $1,600 (or $19,200 annually). Suppose the single mother receives monthly benefits from five welfare programs: $425 in food stamps, $1,471 in subsidized childcare, $370 in housing subsidies, $180 in WIC benefits, and $493 in an earned income tax credit (EITC). Her monthly welfare benefits will total $2,939 (or $35,271 a year). Now, suppose the single mother takes a new job paying $15 an hour, a 50 percent increase. Her monthly earned income will rise by $800 to $2,400 (with her annual income rising to $28,800 a year, an annual earnings increase of $9,600). However, she will face decreases in four out of her five monthly benefit streams, with each benefit reduction based on the same $800-increase in earnings (a problem known among welfare researchers as the “cumulative stacked effect”). The single mother will lose $231 in food stamps, $80 in childcare benefits, $216 in housing benefits, and $166 in EITC. Her total decrease in monthly benefits will reach $694 (which means her annual benefit total will drop by $8,328).4 Her implicit tax rate on her added monthly earnings of $800 is 87 percent—more than two times the highest explicit marginal tax rate proposed for the rich. …In addition, the single mother will be required to pay an added $185 a month in federal and state income taxes on her added earned monthly income of $800, which is an explicit tax rate of 23 percent. Adding the 87 percent implicit tax rate to the 23 percent explicit tax rate leads to an overall tax rate of 110 percent. Her raise has left her $79 per month poorer in lost wages and benefits—surely a strong disincentive for her to take the higher paying job.

Here’s a table showing those results.

If you want more evidence, check out Chart 7 from this columnand Figure 8 from this column.

And the same problem exists in other nations as well.

P.S. Obamacare may have lured as many as 2 million people into full dependency.

P.P.S. I already mentioned how Biden’s per-child handouts could lure many more into full dependency, but “basic income” could be far worse.

I sometimes try to go easy on the IRS. After all, our wretched tax system is largely the fault of politicians, who have spent the past 108 years creating a punitive and corrupt set of tax laws.

But there is still plenty of IRS behavior to criticize. Most notably, the tax agency allowed itself to be weaponized by the Obama White House,using its power to persecute and harass organizations associated with the “Tea Party.”

That grotesque abuse of power largely was designed to weaken opposition to Obama’s statist agenda and make it easier for him to win re-election.

Now there’s a new IRS scandal. In hopes of advancing President Biden’s class-warfare agenda, the bureaucrats have leaked confidential taxpayer information to ProPublica, a left-wing website.

Here’s some of what that group posted.

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. …ProPublica undertook an analysis that has never been done before.We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period. We’re going to call this their true tax rate. …those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.

Since I’m a policy wonk, I’ll first point out that ProPublicacreated a make-believe number. We (thankfully) don’t tax wealth in the United States.

So Elon Musk’s income is completely unrelated to what happened to the value of his Tesla shares. The same is true for Jeff Bezos’ income and the value of his Amazon stock.*

And the same thing is true for the rest of us. If our IRA or 401(k) rises in value, that doesn’t mean our taxable income has increased. If our home becomes more valuable, that also doesn’t count as taxable income.

The Wall Street Journal opined on this topic today and made a similar point.

There is no evidence of illegality in the ProPublica story. …ProPublica knows this, so its story tries to invent a scandal by calculatingwhat it calls the “true tax rate” these fellows are paying. This is a phony construct that exists nowhere in the law and compares how much the “wealth” of these individuals increased from 2014 to 2018 compared to how much income tax they paid. …what Americans pay is a tax on income, not wealth.

Some journalists don’t understand this distinction between income and wealth.

Or perhaps they do understand, but pretend otherwise because they see their role as being handmaidens of the Biden Administration.

Consider these excerpts from a column by Binyamin Appelbaum of the New York Times.

Jeff Bezos…added an estimated $99 billion in wealth between 2014 and 2018 but reported only $4.22 billion in taxable income during that period.Warren Buffett, who amassed $24.3 billion in new wealth over those years, reported $125 million in taxable income. …some of the wealthiest people in the United States essentially live under a different system of income taxation from the rest of us.

Mr. Appelbaum is wrong. The rich have a lot more assets than the rest of us, but they operate under the same rules.

If I have an asset that increases in value, that doesn’t count as taxable income. And it isn’t income. It’s merely a change in net wealth.

And the same is true if Bill Gates has an asset that increases in value.

Now that we’ve addressed the policy mistakes, let’s turn our attention to the scandal of IRS misbehavior.

The WSJ‘s editorial addresses the agency’s grotesque actions.

Less than half a year into the Biden Presidency, the Internal Revenue Service is already at the center of an abuse-of-power scandal. …ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans. …The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. …The timing here is no coincidence, comrade. …someone leaked confidential IRS information about individuals to serve a political agenda. This is the same tax agency that pursued a vendetta against conservative nonprofit groups during the Obama Administration. Remember Lois Lerner? This is also the same IRS that Democrats now want to infuse with $80 billion more… As part of this effort, Mr. Biden wants the IRS to collect “gross inflows and outflows on all business and personal accounts from financial institutions.” Why? So the information can be leaked to ProPublica? …Congress should also not trust the IRS with any more power and money than it already has.

And Charles Cooke of National Review also weighs in on the implications of a weaponized and partisan IRS.

We cannot trust the IRS. “Oh, who cares?” you might ask. “The victims are billionaires!” And indeed, they are. But I care. For a start, they’re American citizens, and they’re entitled to the same rights — and protected by the same laws — as everyone else. …Besides, even if one wants to be entirely amoral about it, one should consider that if their information can be spilled onto the Internet, anyone’s can.…A government that is this reckless or sinister with the information of men who are lawyered to the eyeballs is unlikely to worry too much about being reckless or sinister with your information. …The IRS wields an extraordinary amount of power, and there will always be somebody somewhere who thinks that it should be used to advance their favorite political cause. Our refusal to indulge their calls is one of the many things that prevents us from descending into the caprice and chaos of your average banana republic. …Does that bother you? It should.

What’s especially disgusting is that the Biden Administration wants to reward IRS corruption with giant budget increases, bolstered by utterly fraudulent numbers.

Needless to say, that would be a terrible idea (sadly, Republicans in the past have been sympathetic to expanding the size of the tax bureaucracy).

*Financial assets such as stocks generally increase in value because of an expectation of bigger streams of income in the future (such as dividends). Those income streams are taxed (often multiple times) when (and if) they actually materialize.