Though the 2023 tax season is now in the rearview mirror, the inflation tax remains a stark reality, and Americans are faced with a daunting prospect: the worst may be yet to come.
If President Biden has his way, much of the Trump tax cuts will lapse in 2025, adding tax-hike insult to inflation injury for millions of families and small businesses. The ongoing cost-of-living crisis makes it more urgent than ever to extend the Trump tax cut and to continue the push for taxes that are simple, low, and fair.
There are two basic ways to tackle inflation, which can be thought of as too much money chasing too few goods. The first is to address the “too much money” half of the equation by withdrawing excess demand, ideally by reversing government overspending. But it is at least as important to address the other half of the equation—too few goods—by implementing pro-growth policies that expand supply and create affordable abundance.
This recipe has succeeded in the past. The 1980s “supply-side revolution” of simple, low, and fair taxes, regulatory reform, and sound money put an end to stagflation.
The most recent success for this approach began in 2017, when the Trump administration reversed the failed stimulus-centric policies of its predecessor and worked with Congress to pass the Tax Cuts and Jobs Act as one of the centerpieces of a second supply-side revolution.
The Trump tax cuts had three primary goals. The first was to make the U.S. competitive on the world stage and incentivize businesses to reinvest in America by reducing what was one of the highest corporate tax rates in the developed world. The second was to reverse stagnant living standards and simplify taxes by lowering marginal rates and doubling the standard deduction. The third was to boost small businesses and unleash investment across the country through lower tax rates, more generous deductions, and the creation of Opportunity Zones to attract much-needed private capital to America’s highest-poverty communities.
The tax cuts unleashed a blue-collar boom.
Unemployment and poverty rates hit record lows, income gains reached record highs, and tens of billions of dollars flowed into the highest-poverty communities. The typical American family saw their real income rise by $6,000, with the biggest gains occurring at the bottom.
There is much to celebrate, but taxes are still not as simple, low, or fair as they could be. For one thing, tax complexity drains hundreds of billions of dollars out of the economy each year, diverting resources from productive activities towards compliance and bureaucracy. Fiscal and class warfare mythology perpetuated by progressives also gets in the way of low and fair taxes.
The big fiscal myth is that tax cuts starve the government of needed funds. But the government does not have a revenue problem. It has a spending problem. Federal receipts as a share of GDP have been stable for decades, and in 2022, they reached their second-highest level since World War II. Meanwhile, spending had averaged 20% of GDP for the 50-year period before COVID-19 but is now forecasted to be 23% to 24% over the next decade and rising from there.
The fairness myth is that the rich pay less in taxes than everyone else. The truth is that while the top 1% earn about 20% of total income in the economy, they pay over 40% of total income taxes — i.e., double — with that share actually increasing after the Tax Cuts and Jobs Act.
The tax code is unfair, but for very different reasons. It is unfair that the complexity of the tax code advantages those with the resources to hire teams of lawyers, accountants, and lobbyists. And it is unfair that high effective tax rates disproportionately punish people aspiring to climb the economic ladder to enter the middle class or start a business. True tax fairness pursues a level playing field, not level incomes; equality of opportunity, not equality of outcomes; and more private investment, not less.
Simple, low, and fair taxes can deliver the affordable abundance that is needed to end the cost-of-living crisis, and that begins with extending the Trump tax cuts.
Aaron Hedlund is the Director of Research at the America First Policy Institute.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.
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