In Pennsylvania, Senate candidate Mehmet Oz got President Donald Trump’s endorsement for being “very strong” on tax cuts. In Georgia, Republican Herschel Walker says it’s “not right” to tax the rich. And Arizona Representative David Schweikert has proposed federal law to cap state taxes on the wealthy.
Big tax cuts have long been a core plank of Republican economic orthodoxy, appealing to the wealthy who want to keep more of their income and stock market profits.
Economists say there’s a problem: Perhaps more than ever, that message may not get across.
It’s not like the rich are suddenly willing to pay Uncle Sam more. Rather, rising interest rates and high inflation have turned tax-cut proposals into a specter of possible economic disaster, with their potential to inflate fiscal deficits. That’s a lesson former British Prime Minister Liz Truss learned quickly this month after her plan for a series of unfunded tax cuts battered markets and eventually forced her to resign.
While the US has a number of economic advantages over the UK, this year’s market turmoil in the US – which has wiped out more than $6.2 trillion in wealth from American households – shows how dangerous it is for both political parties Threat to take lightly a negative reaction from investors.
“The days of trillion-dollar tax cuts are probably over,” said Brian Riedl, a former Republican Senate adviser who is now a senior fellow at the conservative Manhattan Institute. “The deficit is just too big, spending is rising too fast, interest rates are rising too fast and tax cuts just don’t work politically anymore.”
After decades of unfunded cuts that failed to meet the GOP’s promises to pay itself, there aren’t many taxes left to cut. The corporate tax rate of 21% is the lowest since the Great Depression, and the top rate of 37% is among the lowest rates in recent history.
Efforts to cut US taxes even further may wane over time as economic reality sets in. A number of fiscal challenges lie ahead, including raising the debt ceiling next year and the threat of depletion of the Social Security trust fund in about the next decade.
Despite this, tax cuts and government spending cuts for Republicans still unite a party increasingly fractured amid former President Trump’s refusal to accept the results of the 2020 election and power struggles over trade and immigration policies.
In fact, the first point on House Republicans’ commitment to America, their campaign issue for next month’s midterm elections, is fighting inflation and raising net wages through tax cuts — principles that many economists would see as largely at odds with one another.