Tax Increases Could Lead to 1 Million Fewer Jobs
The proposed tax increases in the Biden administration’s infrastructure plan could lead to 1 million fewer jobs in the first two years, according to a study conducted by Rice University economists for the National Association of Manufacturers. Economists calculated the effects of increasing the corporate tax rate to 28%, increasing the top marginal tax rate, repealing the 20% pass-through deduction, and eliminating certain expensing provisions would cause large negative effects for the economy. The worst of these would include:
* 1 million jobs lost in the first two years;
* By 2023, GDP would be down by $117 billion, by $190 billion in 2026 and by $119 billion in 2031; and
* Ordinary capital, or investments in equipment and structures, would be $80 billion less in 2023 and $83 billion and $66 billion less in 2026 and 2031, respectively.
The study also notes the following:
* Investments in intangibles, or “firm-specific capital,” are highly mobile and more sensitive to marginal tax rate changes. Such investments would fall 2.7% by year two and would be down a total of 3.8% by year five.
* The average annual reduction in employment would be equivalent to a loss of 600,000 jobs each year over 10 years.
* Real wages would fall by 0.6% in the long run, and total labor compensation, including wages and benefits, would decline by 0.6% initially before falling by 0.3% after 10 years. In the long run, total compensation would also decline by 0.6%.