President Trump’s most significant first-term accomplishment was the 2017 Tax Cuts and Jobs Act (TCJA). It reduced tax rates across all income levels and doubled the standard deduction to $12,000 for single filers ($24,000 for married filing jointly). Consequently millions of lower- and middle-income Americans no longer pay federal income taxes. According to the latest IRS figures, Americans with adjusted gross incomes below $50,000, accounting for 50% of the 161 million tax returns filed pay only a combined 3% of total individual income taxes collected. Most of them pay nothing and some, who qualify for the Earned Income Tax Credit (EITC), actually get a “refund” check from the IRS (of taxes they didn’t pay).
Democrats feign outrage that “the rich “ benefited from the tax rate cuts, too. Duh? That’s because upper income Americans pay the bulk of all individual income tax revenue. The top 5% pay 61% of that total, while the top 1% pay 40% of income taxes collected. These are the geese that lay the golden eggs. In return, Democrats would ring their necks.
In their endless pursuit of class warfare and the politics of envy, a constant Democrat tactic is to muddy the waters between reductions in tax rates and tax revenues. Reductions in tax rates do not automatically produce a reduction in tax revenues. It’s often quite the opposite. The TCJA tax rate cuts for all boosted the economy with the prospect of higher after-tax incomes on work and investments, leading to increased federal tax revenues. These same incentives inspired Ronald Reagan’s economic boom driven by fiscal policies that cut tax rates for all and produced an increase in tax revenues. Similarly, JFK cut the top marginal tax rate of 90% down to 70% in the 1960s. Increased tax revenues followed that too.
When the TCJA was passed in 2017, some of its provisions were scheduled to expire after 2025. Fortunately, one provision that was made permanent was the reduction in the top corporate income tax rate from 37% to 21%, matching the European average. That stemmed the tide of corporations moving their headquarters overseas to avoid crippling U.S. taxes and brought many businesses back home, resulting in the doubling of business tax revenues.
The centerpiece of Trump’s proposed “One Big Beautiful Tax Bill,” which congressional Republicans seek to pass, would likewise make permanent the existing TCJA tax rates for individuals. Opposition Democrats are trying to block that, calling them “tax cuts” that will reduce tax revenues (omitting the operative word “rate,” of course). And they’re not tax cuts, they’re just an extension of the same tax rates we’ve had for the last eight years. Democrats would replace this with a tax rate increase, especially on “the rich” and corporations, in line with their inbred socialist obsession.
But the tax rate increase Democrats propose won’t automatically increase tax revenues. It will more likely discourage productive incentives and lead to an economic downturn. It’s the nature of progressive Democrats to prefer incentives that encourage people not to work but rather to become dependent on government handouts instead. This ignores the economic maxim that “what you tax you get less of and what you subsidize you get more of.”
Analogously, when a department store seeks to increase its profits it doesn’t raise prices, rather it holds a big sale and cuts them. The same concept applies to income taxes. Businesses, investors, and individuals care about their after-tax income. Higher tax rates are a disincentive and a price increase on productive work and investments.
The Congressional Budget Office (CBO) serves Congress in preparing and analyzing the federal budget. Its staff is officially described as “non-partisan” but it tends to lean left, especially when the Democrats are in power. When the CBO scores (or prices) a presidential budget request it prefers a “static” econometric model that assumes reductions in tax rates automatically reduce tax revenues. This is a mathematical assumption, not an economic one.
The Office of Management and Budget (OMB), serves the president and his budget policies. Under a Republican president, OMB prefers a “dynamic” econometric model that assumes lower tax rates may raise incentives, stimulate economic growth, and produce greater tax revenues. When you hear Democrats and the liberal media mock “trickle-down” economics and falsely claim Trump and Republican policies will reduce tax revenues and widen the deficit, keep that in mind.
Longtime KOA radio talk host and columnist for the Denver Post and Rocky Mountain News Mike Rosen now writes for CompleteColorado.com.
