This week, Treasury Secretary Janet Yellen will testify before the Senate Finance Committee and the House Ways and Means Committee on President Biden’s Fiscal Year 2023 Budget Proposals. Combined with the tax increases in the Build Back Better Act (BBBA), which the budget assumes becomes law, President Biden would raise revenues by $4 trillion on a gross basis over the next decade. The Biden tax increases in the budget and BBBA would come at the cost of economic growth, harming investment incentives and productive capacity at precisely the wrong time.

The major tax proposals include:

• higher top rates for individual income, corporate income, and capital gains income;

• ending step-up in basis by making death a taxable event;

• expanding the base of the Net Investment Income Tax (NIIT) to apply to active pass-through income and making the active pass-through business loss limitation permanent;

• major changes to international taxation; and,

• a laundry list of new minimum taxes for individuals, businesses, and international corporations.

Another revenue raiser includes government-set pricing for certain prescription drugs, enforced by an excise tax of 1,900 percent on drug sales.

The tax increases in BBBA alone would reduce long-run GDP by 0.5 percent, and the tax increases in the budget, including a higher corporate tax rate of 28 percent (up from the current 21 percent) and international tax changes, would further discourage domestic investment and reduce the productive capacity of the United States. For example, raising the corporate tax rate to 28 percent would reduce long-run GDP by 0.7 percent and eliminate 138,000 jobs.

The magnitude of the tax and revenue increases on the table is unprecedented. The Tax Foundation estimated BBBA would raise $1.7 trillion of gross revenue over the next decade:

• $470 billion from corporate and international tax changes;
• $516 billion from individual tax changes (excluding changes to the State and Local Tax deduction);
• $517 billion from other revenue increases; and,
• $148 billion from IRS enforcement.

Biden’s budget assumes the BBBA increases take effect, and would pile on another $2.5 trillion of tax increases—$1.6 trillion from corporate and international tax changes, $780 billion in individual tax changes, and $170 billion from other revenue increases.

Altogether, President Biden is proposing raising revenue by more than $4 trillion primarily from new taxes on U.S. businesses and individuals, exceeding the magnitude of his proposed tax hikes during the 2020 campaign ($3.7 trillion on a gross basis). The gross tax increase would be reduced on a net basis by increases in tax credits for certain individuals and economic activities.

The budget proposes several new tax increases on high-income individuals and businesses, which combined with the BBBA would give the U.S. the highest top tax rates on individual and corporate income in the developed world:

• Raising the top marginal tax rate on individual income to 39.6 percent and applying an 8 percent surtax on MAGI above $25 million would bring the combined top marginal tax rate on individual income to 57.3 percent, up from 42.9 percent under current law and above the OECD average of 42.6 percent.

• Taxing capital gains at ordinary income tax rates would bring the combined top marginal rate in the U.S. to 48.9 percent, up from 29.2 percent under current law and well-above the OECD average of 18.9 percent. Further, Biden’s proposal for a complicated “Billionaire Minimum Tax” would bring unrealized gains into the tax base on an annual basis, which is also out of step with international norms.

The proposed budget also creates several minimum taxes that would greatly increase complexity within the tax code, including:

As our colleague Daniel Bunn has emphasized, “Minimum taxes layer additional rules on top of the already complicated foundation of the tax code. … Rather than introduce one new minimum tax after another, Congress should have the courage to fundamentally reform and strip away the complexity from our tax code.”

At a time when U.S. policy needs to prioritize expanding the productive capacity of the economy, the Biden administration’s proposals would raise more than $4 trillion in new revenue for the government at the cost of the economy, raising the tax burden on work, saving, and investment and putting us out of step with our competitors.