This essay is a part of The Right Way Forward, Restoring America’s new think tank debate series in which leading conservative institutions argue the defining questions of the post-Trump era. Read about the series here.
Republicans’ massive 2025 tax bill was built on two opposing theories. One should be familiar to anyone following Republican politics over the past several decades: lower tax rates, a broader tax base, and better treatment of investment. The other is newer: explicitly using the tax code to reward politically important interest groups.
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That contradiction lies at the center of the One Big Beautiful Bill Act. It also reveals a deeper question facing the American Right: Does it still believe tax reform is possible, or has it instead turned to using the tax code for social engineering, once the primary province of the Left?
For decades, Republican tax policy had a clear North Star. From the Hall-Rabushka flat-tax plan in the 1980s to Herman Cain’s 9-9-9 plan and reform proposals from then-presidential hopefuls Marco Rubio and Ted Cruz, the debate was usually about how best to move toward a flatter, simpler, more neutral tax system. The logic was so infectious that even Democrat Jerry Brown’s 1992 second-place finish to Bill Clinton included a 13% flat tax. Details differed, but low rates on a broad base were the shared goal of tax reform.
The basic insight across all these proposals was straightforward. The tax system should raise the necessary revenue to fund a limited government while causing the least possible damage to economic growth, work, and investment. To do this: keep tax rates low, treat similar people similarly, and limit the carve-outs that turn the tax code into Swiss cheese.
Much of the 2025 tax law still reflects the older philosophy. It preserves lower marginal tax rates from the first Trump term’s tax reform, maintains a larger standard deduction, improves incentives for business investment through permanent expensing, and extends some limits on itemized deductions. These are significant achievements but mostly extensions of the 2017 reforms.
The most economically important components are the lower rates and investment tax cuts. But they are not the political selling point.
The big campaign banners and TV ads highlight “no tax on tips,” “no tax on overtime,” “no tax on Social Security,” “no tax on American-made car loan interest,” and government-funded child investment accounts. In total, the law adds or expands almost two dozen targeted preferences aimed at sympathetic constituencies.
That may be smart short-term politics. But it is poor fiscal policy and will become increasingly unpopular over time.
A broad tax base with low rates treats everyone the same. But every new carve-out moves in the opposite direction. A teacher and a waiter who make similar incomes now face very different tax burdens. Up to $25,000 of the waiter’s income isn’t taxed. The teacher pays full freight.
Vice President JD Vance’s now-infamous, miserable “childless cat ladies” comment and his related suggestion that they should pay higher taxes are a perfect illustration of how perverse the tax code already is. Thanks to the child tax credit and half a dozen other child-related tax subsidies, the childless cat lady already faces a tax penalty for choosing not to have children.
Complexity breeds unfairness, and unfairness fuels lobbying for new carve-outs. Temporary breaks get extended, excluded groups demand special treatment, and industries fight to keep existing favors.
This is how tax systems decay: one exception at a time. It’s not a new problem. It’s precisely the dynamic that earlier generations of tax reformers sought to solve.
It should worry fiscal conservatives for another reason. As more income is exempted, pressure grows to raise rates on those still paying or create new taxes elsewhere.
This dynamic is already visible on the Left. Sens. Cory Booker (D-NJ) and Chris Van Hollen (D-MD) have both proposed exempting large amounts of income from tax, paired with higher taxes on high-income earners and family-owned businesses. On the Right, a similar impulse has driven many previously anti-tax crusaders to embrace century-high tariff rates and celebrate the billions in revenue they generate.
As more and more income is carved out of the tax base, the remaining taxpayers must bear a larger share of the burden. When current taxes fall short, lawmakers will add new ones: a carbon tax, a value-added tax, or new taxes on wealth and assets.
These preferences endure because their true cost is easy to disguise. Supporters campaign for them as tax relief for ordinary workers, but someone must pay. If the goal is to help workers, simple, transparent systems are better than complex, opaque subsidies embedded in the tax code.
The fundamental question facing Republicans is philosophical. Is the tax code supposed to fund a constitutionally limited government with as little economic harm as possible? Or is it simply another political tool to direct rewards and punishments? Those are very different views of what the fiscal system is for.
When the temporary “no tax on [fill in the blank]” policies expire at the end of 2028, Republicans will need to confront these two conflicting views of reform, which are really two philosophies of the role of the state in private affairs.
THE RIGHT WAY FORWARD: THE ROLE OF THE STATE IN THE ECONOMY
The old Republican consensus isn’t dead yet — far from it. Its core principles shaped most of what ended up in the One Big Beautiful Bill Act. But it now also shares space with a more populist instinct that sees every grievance, industry, or voting bloc as a candidate for special treatment.
The good news is that the older path remains open. Republicans can still return to the broad-base, low-rate, flat-tax North Star.
Adam N. Michel is the director of tax policy studies at the Cato Institute and author of the Substack, Liberty Taxed.
