How to tax capital without hurting investment

GOVERNMENTS RAISE most of their money by taxing wages, but President Joe Biden has his eyes fixed on the rich, big business and Wall Street. He proposes to fund his $2.7trn infrastructure plan in part by raising the corporate-tax rate from 21% to 28%. And to help pay for more spending on child care and support for parents, he wants to roughly double the top rate of federal tax on capital gains and dividends. For Americans earning more than $1m per year, he would bring levies on capital income into line with the top rate on wage income, which he wants to put up from 37% to 39.6%. That is about double the rate that is currently levied on rich investors, who are only a small fraction of the population but a large proportion of shareholders.

Many investors, from Wall Street to Silicon Valley, are up in arms, claiming that Mr Biden will crush economic growth. That is an exaggeration; America can bear higher rates of capital taxation. Yet levies on capital can have unintended economic consequences. If he is to avoid them, Mr Biden should improve the design of his plans.