The Democrats’ Tax Problem

By Charles C. W. Cooke

Thursday, May 04, 2023

 

The Democrats have a tax problem.

 

The conventional wisdom at present is that fiscal conservatism is on its way out. The Democratic Party is apparently trending toward socialism. The GOP is supposed to have abandoned Paul Ryan’s vision and is now flirting with industrial policy. A majority of Americans say they want to raise taxes on the rich. The Reagan era, we’re told, is emphatically over.

 

But is it? On taxes, at least, I’m not at all sure that this is the case. There, the Republicans seem as they ever were. The main fruit of the Trump Revolution was a round of massive cuts to federal corporate- and individual-tax rates. If anything, the Biden administration has made Republican legislators even less likely to acquiesce to increased taxation. In the states, Republican governors and legislatures are still happily cutting away — even when the governments that they run levied few taxes in the first place.

 

And the Democrats? Well, the Democrats seem confused. If you look back to 2017, you’ll notice that the Democratic Party’s attacks on the Republicans’ tax-cutting package came mainly from the right. In response to the GOP’s reductions, Democrats dishonestly (and somewhat successfully) attempted to convince the public that their taxes had gone up; complained that, in California and some parts of the Northeast, rich people who owned expensive homes would henceforth have to pay more to the Treasury each year; and griped that, unlike the corporate-rate cuts, the individual-rate cuts had not been made permanent. Notably, this habit continued into 2020, at which point Joe Biden, the Democrats’ presidential nominee, used his party’s first real chance to relitigate the question to promise not to raise taxes on anyone who earned less than $400,000 a year. Biden’s figure was $150,000 higher than the threshold that was set by Hillary Clinton in 2016.

 

Good as it may have felt in the moment, this pattern of behavior has presented the Democrats with an enormous political problem that, as the party attracts more upwardly mobile voters, will probably only get worse. As was typical of their ideological ilk, both Joe Biden and Hillary Clinton were keen to draw a distinction between those whom they had exempted from their potential tax increases and the dastardly, selfish “rich” people whom they repeatedly promised to soak. But, by excluding 98.2 percent of American taxpayers from his definition of “rich,” Biden rendered the sort of transformational spending that he was selling in concert all but impossible to achieve.

 

As any economist will tell you, the dirty little secret of taxing-and-spending is that the real money lies in the middle. In England, the 40 percent income-tax rate kicks in at £50,271 ($63,321) for single filers, and it is supplemented by a value-added tax (VAT) on almost all consumer products that has risen over time to an astonishing 20 percent. In the United States, there is no 40 percent income-tax rate at the federal level, and the 37 percent bracket — the highest one we have — applies only once individuals have earned $578,126. If the United States is to adopt the social programs that the Democrats insist they covet, this will have to change dramatically.

 

Which . . . seems unlikely to happen. Indeed, at this stage, it seems far more plausible that the next major alteration to the federal tax system will involve Congress’s making the GOP’s Trump-era reforms — we might call them “the Paul Ryan reforms” — permanent. In 2017, Republican lawmakers took a calculated risk. Assuming correctly that Congress would be much more likely to allow a set of low corporate-tax rates to expire than to allow a set of low individual-tax rates to expire, the GOP set the corporate changes in aspic and allowed the individual changes to sunset in ten years. In the short term, this cost them politically. In the long term, however, it has come to resemble the sort of prescient legislative hardball that is cast by conservative cavilers as the sole preserve of the Left.

 

In 2027, the core question before Congress will not be to describe the ideal tax system, but to vote “Yay” or “Nay” on allowing taxes to increase substantially. I am not especially good at making predictions, but I would be shocked if, even under a Democratic trifecta, anything but the top bracket were altered. If President Biden is still in office after 2026, his party will be penned in by his oft-stated promise to leave everyone in the bottom five brackets — and most people in the sixth — exactly as they were before. And if Biden is not still in office, then a Republican will be, and no Republican is going to turn the United States’s tax system into a facsimile of the English exchequer.

 

Much is made these days of the Republicans’ hypocrisy on a host of political questions. Often, that criticism is well-earned. On taxes, however, the Democrats are the hypocrites, with a yawning gap between how they talk when they are campaigning and what they do when they are elevated into power. The Democrats have a tax problem. Hip, hip, hooray.