I hate to burst your bubble, but you will pay more in taxes next year than you think.
On the surface, you wouldn’t think so. The historic tax reforms took effect on Jan. 1, 2018, which lowered the average effective tax rate in almost every income group. When Americans file their taxes next year, they will enjoy a standard deduction nearly double in size, potentially saving thousands of dollars in take-home money.
Here’s where I burst your bubble. Despite all these benefits, you are still paying more taxes than you think. While most households fixate on their tax brackets (and rightly so), the real rate of taxation is government spending.
As the late free-market economist Milton Friedman so aptly put it: “Every budget is balanced. There is no such thing as an unbalanced federal budget. You’re paying for it. If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing.”
Critics of tax reform worried that tax cuts would cause a temporary increase in the deficit, and they were right. However, they failed to realize that was the entire point.
Deficits are meant to be a signal to legislators to cut spending, much like weight gain is meant to be a signal to cut calories. When Congress raises taxes to shrink the deficit, it’s the equivalent of making no lifestyle changes and simply buying bigger clothes.
On the national level, the effects of ignoring the underlying problem and buying “bigger debt clothes” are devastating.
Tax Day is traditionally an opportunity for fiscal conservatives to sound the horn on cutting taxes. But this year, let us remember that tax cuts are only half the battle. If Congress is serious about getting the debt under control, they need to cut taxes and spending together.
No more raising the debt ceiling. No more “emergency” trillion-dollar omnibus spending bills. No more financing government with borrowed and printed money that leaves future generations on the hook to pay it back with interest.
Unfortunately, the White House does not pass appropriations bills. The Supreme Court cannot issue some decree ordering legislators to shrink the debt. Congress is the only branch of government that can get this done.
It’s our responsibility as taxpaying citizens to create a political environment that incentivizes Congress to pass good policy. To quote Friedman once more: “It’s nice to elect the right people, but that isn’t the way you solve things. The way you solve things, is by making it politically profitable for the wrong people to do the right things.”
The fiscally conservative base of the Republican Party has understood that spending is a bipartisan problem from the very beginning. At the inaugural 9/12 Taxpayer March on Washington in 2009, activists were equally frustrated with George W. Bush and a big-spending Congress as they were with Barack Obama. Grassroots activists, with the help of service centers like FreedomWorks, began using voter turnout to create an incentive for legislators in Washington to do the right thing.
The Republican Party’s electoral performance in the years since 2009 have sent a strong message to incumbents in Washington: when Republicans spend like Democrats, GOP voters stay home. When they spend like fiscal conservatives, Republicans show up at the ballot box in droves.
This political incentive structure created an environment that allowed for a once-in-a-generation tax reform bill to pass. It’s the reason the House Freedom Caucus will continue to grow in clout, whether the GOP keeps its majority after the 2018 midterms or not.
If we can keep spending down to a fraction of our income (aka taxes), worrying about the debt will be a thing of the past. If the Republican Party fails to abide by its fiscally conservative base and cut spending, the GOP as we know it will be a thing of past.
Adam Brandon (@adam_brandon) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president and CEO of FreedomWorks.
