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President's Council of Economic Advisers Pushes Higher Taxes on the Wealthy

The Economic Report of the President, a document that the U.S. President’s Council of Economic Advisers (CEA) publishes every winter, is finally out—and only a month late. I contributed to President Reagan’s annual reports in 1983 and 1984, when I was a senior economist at the CEA. Since then, I’ve read them most years through both Republican and Democratic administrations. 

I can safely say that the 2022 Biden report is the most left-wing in 40 years! 

Exhibit A is the report’s approving comments on higher taxes on the wealthy. On page 188, the report states: 

Recent research shows that when capital income is instead counted as income in the year it accrues, the 400 wealthiest households pay between 6 and 12 percent of their income in taxes.

Well, sure. But it’s not income in the usual sense, any more than someone’s $50,000 increase in the value of his house last year is income. 

Moreover, the people who are in the 400 wealthiest households this year are not the same people who were in the 400 wealthiest households last year. There’s a lot of churning at the top as fortunes are won or lost. 

Why does this matter? Because a lot of households in the top 400 last year will lose wealth this year. So if we follow the CEA’s methodology, we should take what those households reported as income and subtract their loss in wealth. If we did so, we could easily find some of these households paying an effective tax rate of 50 or 60 percent. 

But are CEA economists advocating letting people deduct the loss in wealth before computing their taxable income? I bet dollars to pennies they’re not. 

Why do the Biden administration and the economists who wrote the 2022 report focus so much on taxing the wealthy? Do they argue that doing so will cause the economy to grow more quickly? I can’t find that argument anywhere in the report’s 249 pages of text. 

They probably wouldn’t even try to make that argument because they know, as economists, that taxing wealth reduces the incentive to create wealth and transfers it from where it is used productively to the government where it likely won’t be used productively. That transfer causes lower growth, not higher growth. 

So why the fixation on the wealthy? It’s because they’re so concerned about inequality. Democratic administrations usually are, but this effort is extreme. 

The best way to assure higher incomes for those at the bottom is to increase economic growth. Centrist Democrats understood that fact in the 1960s and even the Clinton 1990s. But the left-wing Biden Democrats at the CEA either don’t understand it or don’t care.