A Closer Look at Proposed Tax Revisions

In the aftermath of the August Democratic National Convention and the ascension of Kamala Harris as the party’s presidential nominee, not much changed with respect to where Joe Biden had stood on taxes. We anticipated that Harris would make it crystal clear that she wants to raise taxes on corporations (by a third, from 21 percent to 28 percent), as well as raising taxes on capital gains. She even suggested adding taxes on unrealized capital gains. Maybe a little less shocking was her plan for tax increases on dividend income (up to 44.6 percent). 

She also suggested that stock buybacks should be taxed at 4 percent (four times the current rate) and that Medicare taxes currently 3.8 percent of employee paychecks) should rise by nearly one-third to 5.0 percent. She also called for higher excise taxes on electricity and energy, which would almost certainly increase utility costs as well as gasoline prices. Maybe she thinks Americans will happily accept $5 trillion in various tax increases if she delivers them with a smile.

In addition to that huge aggregate tax increase, Harris revealed her “federal ban on price gouging on food and groceries” before the convention so that “big corporations can’t unfairly exploit consumers to run up excessive corporate profits on food and groceries.” But a big problem is emerging already—namely, that large food producers such as Hormel and Tyson Foods rely on immigrant labor and actively help their immigrant workers achieve legal status in America. 

In other words, some of the biggest beneficiaries of the Biden Administration’s open-border policies are major food processors that actively facilitate immigration applications for green cards. So, essentially, the Harris campaign is threatening food companies that actively help immigrants achieve legal status. As a result, I suspect that the Harris plan to punish major food companies will fizzle as her powerful forces of political support come into conflict.

Also in August, with a little hocus-pocus and mirrors and smoke, the Bureau of Labor Statistics confirmed that only 2.08 million jobs had been created, not 2.90 million, in the 12 months through March 31, 2024. This is the largest negative annual revision to payroll data since 2009, the peak of the Great Recession. While this massive downward revision became known during the Democratic National Convention, they did not bring it up! Surprise, surprise.

That astonishing downward revision effectively means there were 818,000 fewer job gains than first announced by the government (from April 2023 through March 2024). That means 68,166 fewer jobs were added per month than the government previously reported. On Wall Street, this is called “painting the tape”—artificially manipulating data to create a better narrative than really exists.

So, instead of adding a robust average of 242,000 new jobs a month, about which the Biden administration had been so gleefully chirping, the nation gained a more modest 174,000 jobs a month, according to that latest estimate. This huge downward revision was heavily in professional and business services. It was followed by a 150,000-job downgrade in leisure and hospitality and 115,000 more in manufacturing.

Another embarrassing recent revision acknowledged that the Biden economy was slowing down. The Atlanta Fed revised its third-quarter GDP estimate to a 2 percent annual pace, down from its previous 2.4 percent estimate.

We also learned that non-farm pay-roll additions during July totaled only 114,000, well below the consensus of 170,000. This latest report even calls into question what the real number might be. In response to that report, the Dow dropped 1,000 points in a panic attack during the first week of August. Remarkably enough, Wall Street eventually responded by driving the market even higher in September.

Of course, some economists at Goldman and other firms are saying that the downward revision in employment numbers is overstated because it does not consider the 1 million or so jobs that went to illegal immigrants. Isn’t that great?  

Now, the government is supposed to adjust for the underground—that is, cash-only—economies. That is not at all reassuring to me!