It does involve a concession from the anti-tax crowd.
It does involve a concession from the anti-tax crowd.
P olling increasingly shows that the GOP’s “One Big Beautiful Bill” is unpopular. There’s a simple way to reverse that and make it a political winner: Let the tax cuts for the top two income tax brackets expire.
Democrats have followed their predictable playbook in attacking the bill. They sidestep the tax cuts for many working-class voters and the precise proposed changes to Medicaid and food stamps to focus on the larger picture. They say the OBBB cuts spending on programs for the poor and working class to fund tax cuts for the rich. That’s the same class-warfare rhetoric they have used for nearly a century.
The problem for the GOP is that the charge has some basis. Making the 2017 personal income tax cuts permanent for everyone does mean wealthy people will continue to get large tax breaks compared to what they would have paid if the 2017 cuts expired. Reducing spending on Medicaid, SNAP, and other programs does help to partially make up for this revenue loss.
One can say, rightly, that the spending reductions merely trim overall rates of ever-increasing government spending. One can say, again rightly, that most of the savings will come from cutting off benefits for illegal aliens or those who cannot bring themselves to do anything significant to help themselves by working or doing community service. But so far, those arguments are not landing with the public, and the bill is unpopular.
Perhaps that will change over time. GOP arguments on both counts are solid. Once passed, members and outside PACs can circumvent the media’s characterization with well-crafted campaign ads touting the truth. But those efforts might not succeed, forcing Republican campaigns to spend money responding to Democratic attacks rather than emphasizing their own.
It’s said that in politics, when you’re explaining you’re losing. When the best GOP response to the OBBB’s unpopularity is a lengthy explanation, perhaps it should take another road.
Letting the tax cuts expire for the top two tax brackets devastates the Democrats’ entire argument. The bill does not include any significant new tax cuts for wealthy individuals other than the expansion of the SALT cap. Democrats are not likely to focus on this because it helps many upper-middle-income voters in House seats they need to retain or win in New York, New Jersey, and California if they want to retake control.
The anti-tax crowd will vociferously oppose this. They’ll say that this would irrevocably damage the GOP anti-tax brand. They’ll say that this surrenders to class warfare, which attacks capitalism itself. They’ll say that raising rates by two or 2.6 points will hurt the economy. Rich Republican donors will probably threaten to withhold their contributions in retaliation.
All of these arguments should carry some weight. None, however, overcome the basic political logic that supports letting the top rate cuts expire.
The anti-tax brand for most voters relates to their situation, not an abstract devotion to tax cuts for all. That’s especially true for the working-class voters Trump has brought into the coalition. They voted for Kerry, Obama, Clinton, and even in some cases Biden. They like Trump precisely because he’s not like traditional anti-state conservatives. Letting tax rate cuts expire for the top two brackets reinforces that new brand and thereby helps cement the new GOP majority.
Letting tax rates for the rich rise is not the same as class warfare. Class warfare denigrates the ambitious and the wealthy. The GOP and Trump do not share those views and should not use rhetoric that reinforces that baleful speech. Letting tax rate cuts expire simply acknowledges that in the difficult fiscal situation we face, those with substantial resources are better able to contribute than those struggling to get by. Again, this reinforces the new Trump GOP brand.
The economic harm point is also not dispositive. There’s virtually no evidence that economic activity is significantly affected by small changes in marginal tax rates. Clinton raised the top tax rate from 31 to 39.6 percent, yet the 1990s were economically good for all. Kansas cut its top rate on small businesses by 5 percent or more in the last decade and expected huge economic growth. Those cuts were repealed when the growth did not transpire, and the resultant tax hike did not throw the state into recession.
The Kansas example suggests that claims that letting the rate cuts expire would harm small businesses are exaggerated. It’s true that many taxpayers in the potentially affected brackets are really small business owners who are “passing through” their business profits. But a two-to-three-point rise in their marginal rate is not earth shattering.
Business owners might try to maintain their profits by cutting costs, which could mean cutting jobs. But many might not, as any effort to do that would impact a presumably successful firm. Even for those that do, the employment effect is likely to be small, and no different in kind than the employment losses that will come by cutting government spending that goes to hospitals, universities, or non-profits — all entities in the OBBB’s crosshairs.
Donors who threaten to stop donating will have to contend with a president known for his thirst for vengeance. Trump has already signaled that he’d be fine with letting those rate cuts expire. If Congress agrees, he will not look kindly on donors who want to take their ball and go home. Very few people, even really rich ones, want to be on the president’s bad side.
It’s basic logic that when you’re in a hole, stop digging. Cutting social spending in the same bill that cuts taxes for the rich is a self-inflicted political hole. GOP, stop digging.