Happy Tax Day, and the coming fight over extending Trump’s tax cut

It’s behind the big money financing Trump’s 2024 campaign

Friends,

Happy Tax Day. As Supreme Court Justice Oliver Wendell Holmes said, “Taxes are the price we pay for a civilized society.”

But who should pay the most for this civilized society? As Adam Smith, the father of modern economics, instructed in his The Wealth of Nations, a tax system should be based on the principle of equal sacrifice. This means the richer should pay a larger share of their incomes in taxes than the poorer.

But today’s wealthy Americans are paying a much smaller share of their incomes in taxes than most Americans.

Which is why the debate that’s already begun over the 2025 expiration of the Trump tax cuts is so illuminating and important.

The major reason some very wealthy people are backing Trump is they want the Trump tax cuts to become permanent and not expire as scheduled in 2025.

As this debate unfolds, you should know four basic facts. The Trump tax cut that went into effect in January 2018 is:

1. Skewed to the rich. Households with incomes in the top 1 percent will receive an average tax cut of more than $60,000 in 2025, compared to an average tax cut of less than $500 for households in the bottom 60 percent, according to the Tax Policy Center. As a share of after-tax income, tax cuts at the top — for both households in the top 1 percent and the top 5 percent — are more than triple the total value of the tax cuts received for people with incomes in the bottom 60 percent.

2. Expensive. The Congressional Budget Office estimated in 2018 that the Trump tax cut would cost $1.9 trillion over 10 years. Recent estimates show that making the law’s individual income and estate tax cuts permanent would cost another $350 billion a year beginning in 2027. Together with the 2001 and 2003 tax cuts enacted under George W. Bush (most of which were made permanent in 2012), these laws have severely eroded America’s revenue base.

3. Budget-busting. Federal tax revenue as a share has fallen from about 19.5 percent of the total economy in the years preceding the Bush tax cuts to just 16.3 percent of the economy in the years following the Trump tax cuts. Whenever you hear Republicans complain about the federal budget deficit, bear this in mind: The Bush and Trump tax cuts are the major culprits. Moreover, the relatively smaller share of the economy financing the federal government is not enough to pay for the nation’s investment needs and our commitments to Social Security and health coverage.

4. Based on a “trickle-down” lie. Trump claimed that the corporate tax cut would “very conservatively” lead to a $4,000 boost in household income. Research shows that workers who earned less than about $114,000 on average in 2016 saw no change in earnings from Trump’s corporate tax rate cut, while top executive salaries increased sharply. Similarly, research has shown that the law’s 20 percent pass-through deduction, which was skewed in favor of wealthy business owners, has failed to trickle down to workers in those companies who aren’t owners. Like the Bush tax cuts before it, the Trump tax cut was a trickle-down failure.

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More generally, trickle-down economics — the abiding faith on the political right that tax cuts as well as deregulation are good for an economy — continues to live on, notwithstanding its repeated failures. Ever since Ronald Reagan and Margaret Thatcher first tried them, trickle-down policies have exploded budget deficits and widened inequality.

Reagan’s tax cuts and deregulation at the start of the 1980s were not responsible for America’s rapid growth through the late 1980s. His exorbitant spending (mostly on national defense) fueled a temporary boom that ended in a fierce recession.

Yet the U.S. never restored the highest marginal tax rates before Reagan. And deregulation — especially of financial markets — is a continuing harmful legacy.

The result? From 1989 to 2021, typical working families in the United States saw negligible increases in their real (inflation-adjusted) incomes and wealth.

Over the same period, the wealthiest 1 percent of Americans became $29 trillion richer. The national debt exploded. And Wall Street’s takeover of the economy continued.

Meanwhile, and largely as a result, Americans have become more bitterly divided along the fissures of class and education.

So why is trickle-down economics still with us? What explains the fatal attraction of this repeatedly failed economic theory?

The easiest answer is that it satisfies politically powerful moneyed interests who want to rake in even more. Armies of lobbyists continuously demand tax cuts and “regulatory relief” for their wealthy patrons.

But why has the public been repeatedly willing to go along with trickle-down economics when nothing ever trickles down? What accounts for the collective amnesia?

The answer is that the moneyed interests have also invested a portion of their gains in an intellectual infrastructure of economists and pundits who continue to promote this failed doctrine — along with institutions that house them, such as The Heritage Foundation, Cato Institute, and Club for Growth.

Consider Stephen Moore, the founder and past president of the Club for Growth and a leading economist at The Heritage Foundation, whose columns appear regularly in The Wall Street Journal and who is a frequent guest on Fox News.

Moore helped draft and promote Trump’s trickle-down tax. He is now advising Trump on making that tax cut permanent, if Trump returns to the White House next year.

Moore and others like him are happy to disregard the evidence and history of trickle-down’s abject failures. They simply repeat the same set of promises made decades ago when Reagan and Thatcher set out to convince the public that trickle-down would work splendidly.

The public has so much else on its mind and is so confused by the cacophony that it doesn’t remember — until immediately after the next trickle-down failure.

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If Democrats take over both houses of Congress in 2024, and Biden gets a second term, they must reverse the regressive tilt of the Trump tax law — raising more revenue while advancing the interests of low- and moderate-income families across the country rather than those of the wealthy. To achieve this:

• Tax cuts for people making over $400,000 should end on schedule in 2025. The Trump tax law’s provisions primarily benefiting high-income households are costly and do not trickle down.

• The tax system must raise more revenue from wealthy people and profitable corporations to offset tax cuts extended or expanded for those with incomes below $400,000, to finance high-value investments in people and communities, and to improve the federal budget outlook.

• New progressive tax policies should be enacted to reduce the ability of the wealthy to avoid taxes on their large unrealized capital gains and roll back the special breaks they receive when they do pay tax. Policymakers can also generate progressive revenues by extending and making permanent the mandatory IRS funding enacted in the Inflation Reduction Act, which supports revenues by increasing tax collections primarily from high-income households.

• Top priorities for extending and expanding tax provisions in 2025 should be the Child Tax Credit, the Earned Income Tax Credit for adults not raising children, and the enhanced premium tax credits for Affordable Care Act marketplace coverage. These credits have a long history of success — in stark contrast to the record of failure of the corporate tax rate cut and regressive tax cuts on wealthy individuals. This includes a marked drop in the child poverty rate in 2021 under the American Rescue Plan’s expansion of the Child Tax Credit — a policy that should be made permanent in 2025.

• Additionally, some 16 million people who work for low wages and who are not raising children in their homes received help through the Rescue Plan’s EITC expansion in 2021, and there were historic gains in the number of people receiving health coverage in the ACA marketplaces during the 2024 open enrollment season, with most enrollees able to find coverage for less than $10 per month. These should continue.

• Revenues also can be used for additional services Americans need. The costs of child care, home-based care for older adults and people with disabilities, and housing remain unacceptably high for millions of families, and federal investment in these areas falls far short of need. Higher taxes on the wealthy will help offset these costs.

  Please spread the word. While you’re at it, please make sure you know the 12 biggest myths about taxing the rich:

Again, happy Tax Day.