Trying to stand out in a crowded field, Democratic candidates for president have so far proposed nine separate tax increase ideas totaling more than $10 trillion.
We can break them down into three basic groups.
First are tax hikes that hit banks or Wall Street—two interests without a lot of friends. The problem with these is that they make good political sound bites, but they don’t raise much in the way of revenue. They include ideas such as taxing carried interest for $15 billion and charging fees to big banks for another $61 billion. Politically, proponents of these tax increases would love it if their opponents defended the targeted interests—which isn’t likely.
Next are taxes on small business owners, the middle class and upper middle class. These can raise substantial amounts of money but will mobilize millions of Americans to express their displeasure at the ballot box. These tax increase proposals include raising the Social Security payroll tax cap to $250,000 which would bring in $807 billion, increasing the capital gains rate to raise $608 billion, eliminating the mortgage interest deduction for almost a trillion dollars, and repealing the pass-through business deduction for $414 billion.
Lastly, there are the grand tax hike plans that all Americans would feel, especially the working poor. Because they are the most broad-based taxes, they would raise the most amount of revenue and would likely be accompanied by massive wealth transfer programs to offset the burden on those making less money. There are two entirely new taxes being proposed: a tax on carbon dioxide emissions for $1 trillion and a European-style value-added tax (VAT) for $6.176 trillion. In addition, there’s a proposal to raise the gas tax and peg it to inflation which would bring in $170 billion.
The economic problem with these tax increase ideas is that if passed, they will slow economic growth. And over the long run, slower growth will not only lead to greater deficits, it will also make America less prosperous.
While President Trump and Congress are criticized for expanding the federal deficit, it’s important to note that the booming economy and record low unemployment have increased federal tax revenue. Revenue is up even though taxes were cut in late 2017, because the economy is growing strongly. Deficits are up because Congress has little desire to control spending—low taxes aren’t the problem, spending too much money is.
Because of higher taxes and a heavier regulatory burden, President Obama presided over a historically weak economic recovery.
Dozens of critics said President Trump’s claims of revitalizing the American economy were empty campaign promises. Well, now we have strong economic growth and more job openings than we have unemployed people. Anyone who wants a job can get a job.
That’s why more and more Americans approve of President Trump’s handling of the economy, with a recent CNN poll showing a record 56% registering their approval on this key matter.
And that’s why President Trump will relish running against these tax increase plans.