By John Ubaldi, “Ubaldi Reports”
The philosopher George Santayana, once stated, “Those who do not remember the past are condemned to repeat it.” Are Joe Biden and the Democrats preparing to repeat the mistakes of the past? If Biden and Democrats implement their tax increases for the country if elected president they will be repeating the past.
Biden and the Democrats tax proposal is eerily similar to the tax increases proposed by President Franklin Roosevelt in 1935, which was expanded in 1936, then given added strength in 1937. Many historians have claimed these tax increases sent a recovering U.S. economy back into the throes of depression.
In August, Sen. Bernie Sanders while interviewed by Chuck Todd on NBC’s “Meet the Press,” stated that “Joe Biden will become the most progressive president since Franklin Delano Roosevelt. And that, in this moment, is what we need.”
Do we really need this?
The country needs to understand its history as the nation is just coming out the most severe economic downturn since the Great Depression, and just like in the mid-1930’s Democrats again are proposing similar tax increases. If these tax increases take effect we could be replicating history with disastrous results.
As the nation was beginning to emerge from the ravages of the Great Depression, by the spring of 1937, the U.S. had regained the early losses of production, profits and wages to pre-1929 levels.
Before the presidential election of 1936, President Roosevelt had proposed a wealth tax in 1935. Eventually the U.S. would pass the Revenue Act of 1935 which raised federal income taxes on the wealthiest of American’s. This act levied a progressive tax up to 75% on the highest earners of over $1 million.
The Revenue Act of 1935 further expanded the following year in 1936 by making taxes permanent on individuals making over $5 million and on the earnings of corporations, and given real teeth in 1937. By eliminating legal tax loopholes and placing burdensome regulations on businesses the Roosevelt administration created a second depression in the U.S. only to have America pullout of it with its entry into World War II.
John Nance Garner who in 1918 was serving on the House Ways and Means Committee championed a maximum tax rate of 77%, than spoke to one of his fellow Democrats by stating, “We have to confiscate wealth.” He would later serve as vice president during FDR’s first two terms in office.
With the strong pressure from Roosevelt, Congress removed all legal tax-avoidance planning with the Revenue Act of 1937. At that very moment corporate money was immediately subjected to distribution with taxes levied at an extreme high individual level. The same year also began the introduction of a 1% Social Security tax on the first $3,000 of wages.
The results were predictable as Jay Starkman wrote in the Wall Street Journal, The Dow Jones Industrial Average crashed to 114 on Nov. 24, 1937, from 190 on Aug. 14, a 40% decline. Gross domestic product fell by more than 5% between 1937 and 1938. Unemployment, roughly 12% in May 1937, climbed to 20.7% in April 1939. Industrial production tumbled 33% from the spring of 1937 to May 1938 and didn’t return to its 1937 peak until late 1939.
Various factors contributed to the sharp decline in the U.S. economy, including a contraction in the money supply, and a doubling of the bank reserve requirement ratios. The biggest reason was the passage of the Revenue Act’s with its immediate and substantial tax increases.
As Starkman wrote that without much warning, businesses and individuals had to raise large amounts of cash quickly by cutting back on workers and investments to pay taxes that would be coming due.
Fast forward to 2020, the United States is beginning to recover from the economic collapse that resulted from the coronavirus unleashed on the world by China.
History again is beginning to repeat itself, as Joe Biden has already stated that he would repeal the Trump tax cuts, restore the top federal tax back to 39.6%, and raise the corporate tax income rate from 21% to 28%. Biden’s tax plan also will limit the low capital-gains tax rate to the first $1 Million in profits, then finally tax Social Security to income above $400,000.
Even Joe Biden’s Vice Presidential nominee Kamala Harris is duplicating the positions of Roosevelt’s vice president by her tax proposals during her unsuccessful presidential run by advocating the massive raising of new taxes.
In 2011 Stephen J. Entin, then president of the Institute for Research on the Economics of Taxation, told a congressional committee that the “income tax is heavily biased against saving and investment” and that the “burden of higher taxes on capital formation falls largely on labor in the form of lower wages and hours worked.”
The taxes proposed by Biden aren’t the only taxes being advocated at this time by Democrats. Democratic Senator Elizabeth Warren of Massachusetts is advocating a wealth tax of 2% and 6% on assets valued more than $50 million and $1 billion. Wealth taxes have been abandoned in Europe, as they have had always resulted in a depressed economy.
Starkman mentions the taxes being proposed and those that already have been implemented in blue states across America. Progressive New York lawmakers propose raising the top marginal income-tax rate of 8.82% to 9.62% and 11.85% on the “super rich.” That’s on top of New York City’s 3.876% income tax. California lawmakers have proposed raising the Golden State’s 13.3% top rate—highest in the nation—to 14.3% and 16.8%, applied retroactively to the start of this year, in addition to a wealth tax. New Jersey is set to extend its 10.75% top rate to filers earning between $1 million and $5 million. The Garden State governor’s budget would also make permanent a 2.5% corporate surtax, creating an 11.5% state corporate tax.
California, the largest most populous state in the union, is already raising taxes and fees and with the upcoming election in November is considering more than $82.8 billion more as calculated by the California Tax Foundation.
If one wants to view firsthand the impact of Biden’s and Democrats tax proposals will have on the U.S. economy, one only has to look to California. California is the wealthiest state in the union but also the poorest. The state has the highest individual state tax rate in the nation, and as a result California creates the greatest income inequality of any state, the largest homeless population, and 20% of state’s population lives in poverty.
The burdensome regulations placed by progressive Democrats have resulted in cataclysmic fires that have engulfed the state, and are now the norm not the exceptions. The state faces brown outs from a shortage of energy with its failed “New Green Polices.”
The Biden-Sanders Unity Task Force document that Biden plans on enacting if elected, to understand how this plays out in real time just look to California.
If this isn’t enough New York State is considering an annual mark-to-market income tax, or M2M, in which stocks and other securities held by residents are valued annually and the gain immediately taxed, rather than waiting until a sale or exchange. A nightmare to calculate, a state-level M2M would also burden people who move to another state, resulting in a double tax on the eventual sale of their assets.
Even Progressive Democratic politicians Rep. Ilhan Omar and Sen. Bernie Sanders have introduced the Make Billionaires Pay Act. This act if passed would impose a one-time 60% M2M tax on gains in wealth between March 18 and Jan. 1, 2021, by individuals with assets valued at more than $1 billion for everyone who invests in the stock market.
For the Democrats death is no escape for paying taxes, as the Democratic Party plans on calling for raising the estate taxes “back to the historical norm.” What this means no one knows and how high no one knows.
Now not every tax will become law, but enough will pass that also goes along with a host of regulations that will be reminiscent of the Obama-Biden administrations stagnant economy with flat wage growth. This time the economic policies of the Obama-Biden administration would be on steroids and a repeat of 1937 is inevitable.
As was the case in 1937, if Joe Biden’s tax proposal’s and those of the progressive Democratic Party become law the nation would repeat the mistakes of FDR.
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