Is Biden trying to crash the economy?

A war is raging in Ukraine. Inflation has risen to a 30-year high and may have started to spiral out of control. The country is on the brink of recession, and a gaffe-prone leadership is under increasing fire. You could be forgiven for thinking that President Biden has more than enough problems right now. But he is about to make his already miserable term in the White House a whole lot worse. How? By adding a stock market crash, and the destruction of America’s best companies, to the already worryingly long list of self-inflicted disasters.

This week, Biden is set to unveil a ‘billionaire's tax’ targeted at the country’s super-rich. The President, and his small group of revolutionary economic advisers, have already had two or three goes at squeezing some more money out of the likes of Jeff Bezos and Elon Musk. So far failed to get these attempts past Congress. The latest attempt will impose a minimum tax rate of 20 per cent on everyone, sold as a way of making sure the rich pay the same as everyone else. By itself that doesn’t sound too bad. But here’s the catch: it includes ‘unrealised capital gains’.

It is worth taking a moment to look at just how batty that is. Let’s say you are the controlling founder with 50 per cent of a very successful tech company. It does well, and so does the market, and its value goes from $100 billion to $150 billion over the year. You have made $25 billion, on paper. Biden will demand you pay 20 per cent of that in tax, which comes to a cool $5 billion. The only way you can pay that bill is to sell shares to raise the cash.

That will impact the market in four ways, none of them good. First, it will trigger a wave of selling, driving down the Dow and the Nasdaq. Next, it will drive many tech companies off the stock market. It is fairly easy for a private company to fudge what it is worth, but impossible for a public one. You can see it on the share price minute by minute. Thirdly, it will drive many companies to relocate to countries with slightly more friendly tax regimes, depriving America of many of its most successful businesses. Finally, it will mean that founders of the fastest growing companies lose control of them because they have to keep selling shares to pay their tax bills. The more successful they are, the quicker that will happen. Would it really be better if Bill Gates had surrendered control of Microsoft in the 1990s, Bezos of Amazon in the 2000s, or Musk of Tesla in the 2010s? Almost certainly not. There are only a handful of entrepreneurs that can build businesses that make a real difference to an economy. If you hound them out of their companies, everyone is worse off.

In truth, it is hard to think of a single tax that could be worse for growth – or for an economy. As President, Biden has already stoked the highest inflation in 30 years with his wild spending and his reckless expansion of the state. He is now about to crash the stock market and destroy America’s best companies – and worst of all he still has a couple of years left in power.