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How Biden’s tax plan could impact the economy

The National Taxpayers Union Executive Vice President Brandon Arnold joins Yahoo Finance Live to discuss how President-elect Biden’s tax plan could impact the economy.

Video Transcript

AKIKO FUJITA: Certainly we've seen the president-elect moving forward with his transition plans even as President Trump and the Republicans continue to point to additional states that they believe where there are contested ballots despite any evidence to the contrary.

Let's bring in Brandon Arnold. He's the National Taxpayers Union Executive Vice President. And, Brandon, taxes, of course, certainly a central part of Joe Biden's policy, at least what he campaigned on. It seemed like when you look at the market reaction last week, the expectation was largely that his key issues on rolling back the Trump tax cuts and then sort of raising taxes on those making $400,000 or more has kind of been shelved because the Senate is still uncertain. Investors appear to be moving forward with the expectation of a divided government. Is that a safe assumption?

BRANDON ARNOLD: I think most likely we'll end up with a divided government. We'll see what happens in Georgia. Georgia used to be much more of a red state, and it's become a lot more purple, so anything is possible.

But regardless of how the Senate races play out in Georgia, I don't see there's any question that Joe Biden needs to rapidly move away from his tax-hike plan. $3 trillion of tax increases at a time when the economy is very soft, when it's absolutely still in recovery mode is a recipe for disaster. We're talking about not just raising taxes on corporations and wealthy individuals, which is what he's been claiming, but also having an impact on incomes of Americans at incomes of all levels.

If you look at the Tax Foundation numbers, they say it'll be a half million fewer jobs under this plan. It'll be less take-home pay for people at all income levels. So it's a plan that has vast repercussions. The timing of it is absolutely atrocious. He needs to move away from that and work with Republicans and Democrats alike on the Hill to start to put into place a stimulus and relief bill that will help ailing families, that will help small businesses that are entering into a pretty dark and turbulent time.

ZACK GUZMAN: Yeah, and you wonder how much moving away from that tax plan might actually sway the runoffs in Georgia considering that could be one of the key things that voters there are weighing when they think about who they're going to vote for in those. That could give control of the Senate to Democrats.

But when we think about the other element of all this too, obviously we were talking about unemployment claims off the top of the show, still historically high, and weekly numbers higher than what we saw back in the Great Recession. So when you see kind of this lopsided recovery here-- obviously hospitality and leisure jobs still impacted by all this. How important is getting another stimulus package here before the end of the year in terms of continuing this recovery for some of those hard-hit Americans? What do you want to see through on that front?

BRANDON ARNOLD: Yeah, we absolutely need another stimulus bill. There's been a lot of back and forth on Capitol Hill, and much of that, of course, was tied to last week's election. Now that we're past that election and we have most of the results in-- still a few states that are counting their votes-- I think it's clear that they need to come together, and Mitch McConnell has indicated that he wants to do so. I think Pelosi's indicated the same. Joe Biden is going to have an impact on this, even though he's not taking office, of course, until January.

But he needs to shepherd the Democrats, bring together both sides, and craft something that provides extended unemployment benefits to people that have had difficulty finding jobs and that continue in a struggling economy to do so. It needs to have small-business relief, expansion of the Paycheck Protection Act. I believe they should expand the employee retention tax credit that actually provides some tax relief on the payroll side for employers that are bringing on and retaining employees. That's really critical right now. Small businesses are going to have a tough time.

You mentioned the hospitality industry. When the weather turns cold, it's going to be a lot more difficult for people to take advantage of outdoor dining, for instance, and some of the things that are currently keeping the economy limping along. We need to take care of those people in the form of another stimulus package. Hopefully-- hopefully we can get that done in short order here in the lame-duck session of Congress. There's still a lot of hurt feelings coming from this election. There's still a lot of frustration, of course, from this president. But hopefully they can put aside some of these frustrations and do what's best for small businesses, for families, and for the economy at large.

AKIKO FUJITA: Yeah, although if you look at the environment in Washington right now, that appears increasingly unlikely. Brandon, I want to get back to what you said earlier about some of these tax policies that Joe Biden has put forward. You called them atrocious in terms of just how much it's likely to hurt businesses. But we had Gary Cohn on earlier several months ago talking about that specific plan. Gary Cohn, as you know, really instrumental in passing the Trump tax cuts, saying that essentially that he believes that going to 21% on the corporate tax rate was a little too low, that he thinks that 28% is actually maybe where it should be or somewhere in the middle.

It sounds like you disagree. Is there a compromise here, you think, that can be done instead of staying at 21% but not going all the way up to 28%?

BRANDON ARNOLD: Yeah, that gets really tricky quickly because the tax-cut bill didn't just cut the corporate rate. It did a lot more than that. It broadened the base. So it subjected a lot more income at the corporate level to taxation that wasn't previously taxed.

So if you look at corporate taxes on an effective basis relative to 2017 and before this law was passed, it would actually-- moving up to even a 25% rate-- not even the 28% rate that Biden is talking about but just moving to a 25% tax rate is probably going to be a net tax increase relative to what corporations were paying back in 2017.

So I think the stakes are very high here. It's easy to just hone in on that particular rate and say, oh, should we tweak it to 21%, to 25%, to 28%? But there are a lot of other moving parts in place here that if we just adjust the rate, then we're actually making a big tax increase on corporations.

And these tax increases, they fall not just on corporations, not just on shareholders, but they actually have an impact on workers in terms of jobs, in terms of take-home pay. So there's broader repercussions here. It's not just about the rate.