Galt’s Gulch was the secluded community of innovators and industrialists participating in the “great strike” depicted in Ayn Rand’s “Atlas Shrugged.” They fled to escape a society that stifled their innovation, burdened them with excessive regulations, and confiscated the fruits of their labor. President Joe Biden would do well to note what could happen when society pushes its most productive members too far — they may choose to withdraw their talents altogether.
Biden’s latest budget proposal, which aims to hike the capital gains tax rate to an unprecedented 44.6%, threatens to do just that. The proposed figure has sent shivers down the spines of investors, small business owners, and the economically literate alike. What is particularly galling about this proposal is not just the sheer audacity of the higher tax rate but the fundamentally flawed economic rationale underpinning it.
If Biden’s policies prevail, one can only wonder how long it will be before our own ‘Atlases’ decide to shrug, leaving us a poorer society that has driven them away.
First, let’s dissect Biden’s proposal. The increase includes a bump in the top individual income tax rate from 37% to 39.6%, combined with an expansion of the Net Investment Income Tax from 3.8% to 5%. In practical terms, long-term capital gains and qualified dividends above $1 million will be taxed at ordinary income rates, effectively raising the top federal tax rate on these earnings to 44.6%. When combined with state taxes, the total could soar to nearly 60% in high-tax states like California and New York.
This is theft.
Consider the implications. A couple spends decades building a small business, investing their blood, sweat, and treasure, and ultimately deciding to sell their life’s work as they retire. Under Biden’s proposal, their reward for years of hard work and risk-taking would be a punitive tax rate stripping away nearly half of their gains. This isn’t “taxing the rich.” It’s looting America’s employers and entrepreneurs.
The administration argues that these tax hikes are necessary to fund its ambitious spending plans, which include expanding the size and scope of the federal government to fund projects like the Green New Deal, Medicare for all, and sending your tax dollars away to fight in distant proxy wars. This justification rings hollow, however, considering that the United States doesn’t have a revenue problem; it has a spending problem.
Federal revenue as a percentage of GDP is near historical averages, while post-pandemic spending remains above historical averages and is projected to grow to record-high, unsustainable levels. Biden’s proposed tax hikes are a thinly veiled attempt to finance an ever-growing bureaucratic behemoth at the expense of the productive sector of the economy.
Investment is the lifeblood of economic growth. By taxing investment income more heavily, we inevitably get less of it — and fewer jobs for hardworking American families. The Tax Foundation estimates Biden’s tax increases could lead to nearly one million job losses. Fewer investments mean less economic growth, fewer jobs, and a slower increase in living standards. In a global economy, where capital is highly mobile, such punitive tax rates will drive investment to countries with more favorable tax climates.
The 2017 Tax Cuts and Jobs Act, passed by congressional Republicans and signed into law by President Trump, successfully created a favorable tax environment for U.S. businesses by encouraging more investment and profits to remain in the United States and stopping corporate inversions. Biden’s tax proposals would undo our progress and move our economy and tax code in the opposite direction.
It’s worth noting that the proposed top capital gains tax rate in the United States would be more than double that of China. While China is actively courting investment and striving to become the world’s economic powerhouse, the Biden administration seems intent on punishing success and driving away the very investment that fuels innovation and growth.
Biden will argue that his taxes will only hit the wealthy, a means of ensuring that the rich pay their “fair share.” But the Biden family’s own track record of tax avoidance shows how little he believes his own rhetoric. In 2017 and 2018, Joe and Jill Biden avoided payroll taxes on nearly $13.3 million in income from book royalties and speaking fees by classifying this income as S-corporation profits rather than taxable wages. This maneuver allowed them to dodge nearly $500,000 in Medicare and Obamacare taxes — funds that would have supported the very programs Biden claims to champion.
President Biden’s capital gains tax proposal represents an assault on the principles of free enterprise and individual achievement that have long been the cornerstone of American prosperity. If enacted, it will stifle investment, slow economic growth, and ultimately make us all poorer. This is not the path to a brighter future. The American people deserve better.
Just as the participants in John Galt’s great strike retreated from society, we too may see the most successful Americans withdraw from an economy that punishes that success. If Biden’s policies prevail, one can only wonder how long it will be before our own “Atlases” decide to shrug, leaving us a poorer society that has driven them away.
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