At the Senate Democrats‘ weekly caucus press conference, there was good news, bad news, and even worse news. The good news was that Majority Leader Chuck Schumer is finally very concerned about inflation. The bad news is that his plan to fight inflation is to raise your taxes. And the even worse news is that President Joe Biden, with a massive giveaway to his richest donors, won’t give up on making inflation even worse.
“If you want to get rid of inflation, the only way to do it is to undo a lot of the Trump tax cuts and raise rates,” Schumer said after Democratic senators met for lunch Tuesday. “No Republican is ever going to do that. So the only way to get rid of inflation is through reconciliation.”
Schumer is absolutely right that no Republican is going to raise taxes at a moment such as this. But he is dead wrong when he claims raising taxes is the only way to fight inflation. Democrats could cut spending to fight inflation — but to twist Schumer’s phrase slightly: “No Democrat is ever going to do that.”
Instead, Democrats want to “undo” former President Donald Trump’s tax cuts. At the time they were passed, Democrats falsely claimed that the Tax Cuts and Jobs Act would only benefit the wealthy. The IRS has since released actual data on this, and it turns out they were not being truthful. As every objective observer recognized at the time, the Trump tax cuts have benefited all income groups.
Specifically, IRS data show the Trump tax cuts reduced average effective income tax rates for taxpayers in every bracket, with the largest reduction in rates going to lower- and middle-income households. As a result of these cuts, according to separate data from the Congressional Budget Office, the percentage of all federal taxes paid by the top 1% of taxpayers actually rose from 25.5% to 25.9%, while the bottom 20% of taxpayers saw their overall share of the total federal tax burden (not just income taxes) fall from 13% to 12.5%.
In other words, the Trump tax cuts were quite progressive. They reduced the share of federal taxes paid by the poorest households while increasing the share paid by the wealthiest households. And now Democrats want to repeal these tax cuts — to raise rates on everyone and increase the share of taxes paid by the poorest households?
That doesn’t seem politically wise nor does it seem advisable to erase the debts owed by college and graduate school borrowers. According to the Committee for a Responsible Federal Budget, the lowest quintile of earners pays just 2% of all student loan payments each month, while the highest-earning quintile pays almost 40%. Canceling these payments would be a huge cash infusion for the wealthy and privileged and a massive new driver of inflation eroding everyone else’s savings.
As Larry Summers, former President Barack Obama’s National Economic Council director, recently noted, “student debt relief is highly regressive, as higher-income families are more likely to borrow and to borrow more than lower-income families.” Worse, Summers added, “relief also promotes spending in the near term when the economy is clearly supply constrained, thereby contributing to inflation pressures.”
In other words, not only would Biden’s proposed student debt bailout be a giveaway to the wealthiest among us, it would actively hurt the majority of people who didn’t go to college by making record inflation even worse.
The U.S. economy is already teetering on the brink of recession. The last thing it needs is a massive regressive tax hike coupled with an inflationary bailout of the wealthy. Unfortunately, that is exactly what the Biden Democrats want to do.
