Weekly Column: A Tale Of Two Economies: What Democrats Must Learn From Republicans' Tax Cuts Successes

Democrats’ relentless push for massive tax increases and reckless social spending suggests a disregard for the economic reality many Americans are facing.  It also ignores the booming economy that existed before the pandemic and the Republican tax policies that led to it, including meaningful reforms delivered by Congress and President Trump in the Tax Cuts and Jobs Act (TCJA), which boosted our economy and federal revenue.  Congress must learn from the past and preserve those pro-growth tax reforms to help reignite our economy, rather than continue down a path of more unsustainable taxing and spending.

Before the pandemic, lower taxes from the TCJA and less regulation translated into:

• higher wages;
• historically low unemployment;
• reduced inequality; and
• The Tax Foundation found “the TCJA reduced federal tax rates for households across every income level while increasing the share of tax paid by the top 1 percent.” 

TCJA made our tax code fairer and more progressive, reducing burdens for hard-working Americans.  Lowering taxes, broadening the base and eliminating loopholes unleashed strong economic growth, which resulted in better jobs and higher wages, especially for low-wage workers.

While lower tax rates might be expected to result in less tax revenue, the opposite is proving true.  A broader tax base paired with increased economic growth has led to the Treasury Department collecting even higher tax receipts.  In fact, as the economy has reopened and business activity has resumed, record levels of corporate tax revenues are flooding into the Treasury.  The Congressional Budget Office (CBO) estimates federal revenues have increased by 25 percent (or $418 billion) in the first six months of fiscal year 2022 alone compared to a year ago.  We are seeing historic revenue collections, including, through March, year-over-year gains of:

• 36 percent in individual income tax revenue, “attributable in part to higher total wages and salaries . . .”;
• 22 percent in corporate income tax revenue; and
• 24 percent in total federal tax receipts.

Unfortunately, the Administration has refused to learn from the pre-pandemic economy and instead is doubling down on unsustainable tax-and-spend measures.  The President’s proposals would increase taxes on American businesses by more than $1.5 trillion--in addition to the nearly $1 trillion of tax increases included in the partisan House-passed Build Back Better Act--for a staggering total of $2.5 trillion.  These proposals would hurt consumers and workers in the form of higher prices and lower wages.  The CBO estimates the House bill would add trillions more to spending, deficits and debt than advertised, once budget gimmicks are removed.  Even with gimmicks, the bill would produce hundreds of billions of dollars in deficits.  

These tax-and-spend proposals are irresponsible in today’s economy.  Inflation is high, with consumer price inflation hitting 8.5 percent in March, at a level not seen in more than 40 years.  And, inflation has accelerated since the President assumed office in January of last year, from 1.4 percent then to 8.5 percent in March of this year, partly fueled by an untargeted spending spree in last year’s partisan American Rescue Plan Act.

The runaway price increases Americans are facing are broad based--affecting items ranging from baby food to energy to lamps--and were set in motion long before Russia’s invasion of Ukraine.  Pursuing tax hikes and more inflationary spending when the risk of recession is rising is bad policy.  The Biden Administration and Congress must recognize higher taxes and out-of-control spending could cause serious and lasting harm to our economy.  It is time to learn from the pro-growth tax policies that have worked in the past to protect American families and workers from a bleak economic future.

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