Peter Schiff: Republicans Opposing Tax Hikes Are Hypocrites
Last week, President Biden announced a plan to significantly hike capital gains taxes on the wealthy. Republicans are predictably opposed to the hikes, but in a recent podcast, Peter Schiff said the GOP is mired in hypocrisy.
The Biden plan would raise long-term capital gains taxes to 39.6%. For those earning $1 million or more, the new top rate, coupled with an existing surtax on investment income, would jack up the tax on wealthy investors as high as 43.4%.
The stock market reacted negatively to the news. As Peter pointed out, higher capital gains rates effectively diminish the value of US stocks.
That reduces the present value of corporate earnings by the higher tax rate. And that means that those companies have a lower value and that would be reflected in a lower share price.”
It’s hard to determine the exact impact of the Biden plan, but there are a couple of things we can say for certain.
Corporations, in general, US corporations, will have less value as a result A. of higher taxes on the corporate level and B. higher taxes on the individual level through higher taxes on dividends and capital gains. So, all of this diminishes the income, the returns, that investors can earn by purchasing US stocks. And therefore, the price of those stocks, all else being equal, has to come down.”
The Republicans have generally united in their opposition to the higher taxes. They say the tax hikes will have a negative impact on the economy, kill job creation, and stifle investment.
I do not have issues with any of the criticisms that the Republicans have about higher taxes and why they’re a mistake. I completely agree.”
But Peter takes issue with the Republicans because they supported the stimulus spending. And it was the stimulus spending that made the budget deficits even larger.
You can’t have your cake and eat it too. You can’t be in favor of bigger government. You can’t be in favor of making government more expensive because you now have more spending and more programs. You can’t favor that but then be against the higher taxes necessary to pay for government.”
There’s no doubt that higher taxes will hurt the economy. But if the government is going to spend money, higher taxes are eventually going to be necessary.
If you want bigger government, you have to hurt the economy, which is why Republicans need to be against bigger government. So, if you don’t want higher taxes, you have to make sure the government doesn’t spend more money because that’s what necessitates the higher taxes. So, you’re a complete hypocrite if you’re on the one hand opposing these tax hikes, but then you supported increases in spending.”
Peter didn’t pull any punches, saying that if you’re a Republican, and you’re not pushing for cuts in government spending, but you are opposing the tax hikes, you are a hypocrite.
To not be a hypocrite, you must be advocating government spending cuts to balance the budget. Because for all the damage that taxes do to the economy, the deficits that you have when you don’t have the taxes do even more damage. That’s what these Republicans don’t understand. The damage is being done by the spending, not by the taxing. Once the government has decided to spend money and it spends that money, that is what’s damaging the economy.”
Once you’ve conceded that we’re going to have some damage to the economy, well, now how do you cover the costs? Direct taxation is just one way of covering spending. You can borrow. (And the Fed can print money to monetize the borrowing,) But borrowing money that might otherwise have been used to grow the economy damages the economy as much as taxing people and businesses.
I would argue that paying for government spending with debt and inflation exacts a greater burden on the economy than raising the capital gains tax. So, if you are not advocating for cuts to government spending, then you should support higher taxes. Even if you don’t like the taxes, the taxes are a necessary evil to finance the spending that you supported.”