In the high-inflation environment created by Bidenomics, the declining value of the dollar is critical when planning for retirement. This forces people to put their savings into investments with higher rates of return, a phenomenon known as chasing yield. If someone buys a bond with a 3% yield, but inflation is 4%, then the person’s real (inflation-adjusted) return is negative because the larger number of dollars lost so much purchasing power.
Of course, even if you lost money in real terms, you still have to pay capital gains tax on the paper gain. Strategic Wealth Partners investment strategist Luke Lloyd explains how Biden’s new corporate tax plan will impact the stock market. A 45% tax leaves our 3% bondholder with a 1.65% nominal return on investment, but a real return of negative 2.35%. The one-two punch of inflation and capital gains means saving is for suckers.
Impact on Investment and Economic Growth
The result of such punitive taxes is people will save less, meaning they will invest less, which takes away the key driver of economic growth. Investment is where an economy gets capital resources, which allow for increases in productivity and higher wages, advances in medicine and other technological breakthroughs, and a higher standard of living.
Progress in all those grinds to a halt when investment is choked off by tax hikes. The pie stops growing. Throttle investment enough and people’s quality of life will even retrograde. House Ways and Means Committee member Rep. Greg Steube discusses major hurdles facing small businesses as President Biden threatens to double their taxes.
If massive tax hikes on investment are so detrimental to individuals and the economy at large alike, why would Biden propose such a disastrous policy? In short, because he and the rest of Washington, D.C., are addicted to spending.
Just a few weeks ago, the White House proposed a gargantuan federal budget of $7.3 trillion – a level not even reached during the COVID pandemic – along with $4.9 trillion in future tax hikes. Our Heritage Foundation colleague Richard Stern has calculated that this translates into $36,000 of additional taxes per family in America.
These taxes will be paid through lower spending and reduced savings as families cut back on things like retirement contributions so they can afford necessities like food, rent or transportation costs. Much of the White House’s proposed tax increases on investment will be hidden from view, but will nonetheless hamper your attempts to save and eventually retire.
Biden’s proposed higher corporate income tax will be passed on, of course. Customers will pay higher prices, workers will receive lower wages, and investors (savers) will see lower rates of return. That means you’ll pay higher prices without seeing commensurate increases in your earnings, leaving you with less money at the end of the month to save. To add insult to injury, what you’re able to put into a retirement account will grow slower.
This may sound terribly unfair, but it’s simple mathematics. Someone must pay for trillions of dollars in government spending. The rich hire good accountants while the poor don’t pay taxes, so it’s going to be the American middle class who pays. Whether it’s capital gains tax, corporate income tax or the hidden tax of inflation, the government will get its pound of flesh – or, in this case, 7.3 trillion pounds.
