To many Americans, the 2024 election is an unwelcome contest between the felonious and the frail. Voters hear democracy is at risk, which is true but is also another potential reason for disillusionment.
Yet the stakes of their choice for the basic public policies that shape their lives are huge, if less discussed.
Nowhere is this truer than when it comes to taxes. Whoever wins in 2024, the United States is on course for the biggest, most consequential debate over future policy priorities since the Great Recession: Should the enormous, ineffective and inequality-abetting tax cuts that Donald Trump signed into law in 2017 be extended past their scheduled expiration in 2025? And should the permanent corporate tax cuts in that bill be kept in place even as it has become clear how little these business goodies have done for the economy?
This is a choice between two fundamentally different visions for our country. If the Trump tax cuts are extended — which Steve Scalise, the Republican House majority leader, recently said he would seek to do in the first one hundred days of a second Trump term — and the corporate tax reductions left undisturbed, our elected leaders will have locked in place priorities that a large majority of Americans say they oppose. Worse, the Trump tax package will exacerbate a fiscal crisis for programs like Social Security and Medicare that are highly popular, including among Republicans.
To understand the stakes, we must go back to Mr. Trump’s first year in office. Republicans had one big legislative accomplishment: the tax cut bill they squeaked through after barely failing to repeal the Affordable Care Act. The tax cuts were among the least popular major legislation Congress had considered in a generation.
To mask its price tag and comply with budget rules, architects of the bill, like Paul Ryan, the former House speaker, designed it like an exploding mortgage. The most unpopular part — a massive cut in corporate taxes — was made permanent. Most of the rest was set to expire in 2025, just when a newly elected president and Congress entered office. The idea was that these tax cuts for American households would be politically impossible to reverse. As Mr. Ryan explained after leaving Congress, “We made temporary what we thought could get extended; we made permanent what we thought might not get extended that we wanted to stay permanent.”
What Republicans thought they might not get extended were tax cuts Americans didn’t like. Polling has consistently shown that voters’ biggest complaint about the tax code is that the rich and corporations don’t pay their fair share. Most Americans want taxes on these fortunate taxpayers to be raised. Instead, Republicans dramatically cut corporate taxes and made those corporate tax cuts permanent. They also bundled small cuts for ordinary Americans with big cuts for the affluent. Among the changes friendly to rich households: sizable cuts in the estate tax, the top tax rate (which only affects married couples with at least $600,000 in taxable income) and taxes on “pass-through” business income (income that certain kinds of business owners report on individual tax returns).
The corporate tax cuts were unpopular for a reason. They showered over half of their benefits on the richest 5 percent of Americans, with most of that going to the top 1 percent (as earnings and profits go up, they get distributed mostly to rich executives and capital owners). Corporate profits rose, while corporate tax payments plummeted. Meanwhile, study after study has shown that the corporate cuts did almost nothing to boost pay or jobs — with the exception of the already sky-high pay of top executives.
But here’s the dirty secret. The rest of the tax-cut package — top rate cuts, special treatment of “pass-through” business income and a bigger estate tax exemption — was only slightly less tilted toward the affluent. In fact, extending all these provisions would offer twice as large a benefit, as a share of income, to households in the top 1 percent as it would to families in the bottom 60 percent: $48,000 a household versus $500.
No wonder the tax law wasn’t popular. After the cuts went into effect, 86 percent of Democrats and 61 percent of Republicans said the law hadn’t changed their taxes or had actually raised them. Asked who had benefited from the law, the most common answers were large corporations and the wealthy.
The disconnect between these policies and voter preferences runs much deeper. No matter how often anti-tax ideologues say it, tax cuts don’t pay for themselves. They must be financed through cuts in other programs or higher deficits — the very deficits that tax-cut advocates often cite as inflationary (supposedly their biggest economic concern) when they call for spending cuts. And here is where the tax cuts fly most directly in the face of citizen preferences.
Advocates of the tax cuts say the United States has a spending problem, not a revenue problem. But that has it backward. Yes, the United States needs to make critical investments in the future, and yes, an aging population will put pressure on popular programs like Social Security, Medicare and Medicaid. But right now, it is low revenues that are primarily responsible for persistent deficits. Indeed, we could finance those investments and programs relatively easily if we could get revenues back up to where they were before the Bush-Trump Republican tax-cutting spree.
That’s because of a remarkable and often overlooked success story: Health care cost growth has slowed so dramatically that federal health spending keeps coming in under projections. Medicare spending per beneficiary has been essentially flat for more than a dozen years — a cumulative savings to the federal government of nearly $4 trillion. In 2012, the Congressional Budget Office projected that federal spending would be 22 percent of the economy in 2035. Seven years later, it projected that spending would rise to 21 percent of the economy by that date.
Because of the Trump tax cuts, revenue projections have gone the other way fast. That 2012 forecast said federal tax revenues would represent 23 percent of the economy in 2035, producing an actual surplus. After the tax cuts, the budget office projected that revenues would pull in just 18.5 percent of the economy. Since 2018 (excluding pandemic years), federal revenues have averaged less than 17 percent of the economy.
Extending the 2017 law would make things worse. According to the Congressional Budget Office, a full extension would blow a $4.5 trillion hole in the budget during the decade between 2025 and 2034. To put that number in context, the bipartisan infrastructure law of 2021 provided new investments of just over a half a trillion dollars.
If the tax cuts are made permanent, there will be no way to sustain, much less improve, the programs that Americans say they want and need. In poll after poll, Americans put Social Security, Medicare, Medicaid and even the distinctly unsexy goal of deficit reduction ahead of tax cuts. If tax cuts win, it will represent a clear failure to respond to the concerns of the American people.
Why do Republicans think they can win? Because they have before. In 2001 and 2003, they passed the largest tax cuts since the Reagan years. These tax cuts were less skewed to the rich than Mr. Trump’s, but they were still extremely tilted toward the affluent and flew in the face of public fiscal priorities. Yet, despite Democrats regaining control of the House and the Senate and the election of Barack Obama in 2008, more than 80 percent of these tax cuts were made permanent — leaving a deep gulf in federal revenues that Mr. Trump’s tax cuts have only deepened. If you want to understand why the United States has faced such a backlog of investment and such threadbare social programs, look to those choices.
It has proved too easy for Republicans to frame the debate as one of whether you favor tax increases or not. Democrats have been leery of the accusation that they are raising taxes. And of course some Democrats are not immune to the political pressures applied by powerful interests who benefit from those tax cuts.
They need to do better this time. Next year those who want a fairer system will have a unique moment of leverage. Republican backers of extending the 2017 law should have to justify and negotiate every aspect of the tax bill they rammed through in 2017, including the permanent corporate tax cuts they passed to appease business lobbies and donors.
So far, President Biden has taken a reasonable position — no tax cut extensions for households with incomes of $400,000 or greater, and a higher (but still modest) corporate tax rate — and Democrats in Congress seem mostly in line.
They are in a strong position because of what higher tax revenues can do. Letting the tax cuts expire for the rich is an extremely popular position on its own. It’s even more popular when it’s coupled with new initiatives of the sort President Biden has staked out, including universal pre-K, help for new home buyers and paid family and medical leave. All these ideas have majority support not just among Democrats, but also among Republicans.
Especially important is expansion of the Child Tax Credit (which cut child poverty almost in half when it was expanded for a year in 2021) and increased tax credits for health insurance under the Affordable Care Act. These ideas can be framed as tax cuts, and that’s important, because too often Democrats fight against tax cuts for the rich while promising abstract benefits in the future. The fight would be easier if it pitted tax cuts for ordinary Americans against tax cuts for the rich.
The struggle over taxes that will take place in 2025 won’t just be about creating a fairer tax code that can finance the government that Americans deserve. It will also be about democracy — whether our elected officials will pursue an agenda that is responsive to what Americans desire.
Jacob S. Hacker of Yale and Paul Pierson of the University of California, Berkeley, are political science professors and the authors of “Let Them Eat Tweets: How the Right Rules in an Age of Extreme Inequality.”
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