Enough with the Tax Cuts Already
Some of President Trump’s advisers are looking to combat the 2020 Democrats’ ill-advised, deficit-expanding policy proposals by . . . having him promote another tax-cuts package next year, the Washington Post reports.
The administration is looking at a 15 percent tax rate for the “middle class,” the boundaries of which remain vague, though one adviser offers $30,000 to $100,000 as a possible income range. “Other ideas that have been discussed include a payroll tax cut, revamping how capital gains are taxed, exempting savings from taxes, and reducing the number of tax brackets from seven to somewhere around three or four,” the Post reports.
Even with this vague mix of details, one might start to wonder how well the package will target the middle class, given that both capital-gains income and savings are far higher among the wealthy — and that, depending on how one defines this “middle class,” relatively little of its income might be taxed at a rate above 15 percent even today. A married couple can take the standard deduction to eliminate the first $24,400 it makes this year, and the next $78,950 is taxed at 12 percent or less, meaning the new rate couldn’t have any effect at all until the couple surpassed six figures. (Cut those numbers in half for single people; the next bracket is currently taxed at 22 percent.) In 2018, the median household income was about $62,000 overall, $32,000 for singles, and $94,000 for four-person households. At minimum, it seems fair to say a 15 percent bracket could benefit the upper-middle class, along with rich people, who earn some of their money in the lower brackets.
A payroll-tax cut, by contrast, would certainly help the middle class. But one of the Post’s sources says it’s unlikely to be included in the final package.
And quite frankly, it’s shocking that anyone is even thinking about tax cuts as a smart policy right now. (Politically, a brazen attempt to bribe voters makes more sense.) Our deficit has grown by a quarter since the 2018 fiscal year to hit nearly a trillion dollars in 2019, Baby Boomers are retiring, and the president has consistently said he has no intention of cutting the old-age entitlements that drive our spending. The 2017 tax law already addressed some major issues with corporate taxes and cut taxes for families and businesses alike, while adding maybe $1.5 trillion to the debt over ten years.
There are no doubt a lot of revenue-neutral reforms we could still make to the tax code, but tax cuts at this point would just add to the debt and hasten the day of our fiscal reckoning. We have a bunch of bills piling up. Let’s start paying them.
It seems rote to repeat all this yet again, but our entitlement programs are not in good shape. Social Security will soon pay out more than it takes in, and its trust fund runs out in a decade and a half. Medicare’s fund will be empty in less than a decade. We need some mix of spending cuts and tax hikes to survive this. Yet Democrats are proposing huge spending hikes while Republicans apparently still haven’t gotten their penchant for tax cuts out of their system.
Last year, writing about a report from Brian Riedl of the Manhattan Institute, I offered a glimpse of how painful the years ahead are going to be. In Riedl’s plan to stabilize the debt at 95 percent of GDP, neither seniors nor taxpayers escape unscathed. The retirement age climbs two years. Social Security benefits are cut thousands of dollars a year for middle-income retirees. Medicare premiums eat up another 4 percent of seniors’ income, and the program is replaced by premium vouchers for private plans to bring down costs. Medicaid gets chopped too. Payroll taxes rise two percentage points and the tax exclusion for employer-based health insurance is trimmed back.
Again, all this just stabilizes the debt, after allowing it to grow a little from its current level first. You might prefer a different blend of pain — more spending cuts and fewer tax hikes or the reverse — but some mix like this is going to be called for, even if we don’t enact further tax cuts and spending hikes in the meantime.
Politicians almost certainly don’t have the guts to get serious about all this until a true crisis forces them to. But at very least, they should stop making matters worse.
