America can build its next growth surge by putting more earned income back into working families’ paychecks. President Donald Trump and Congress have strengthened incentives for businesses to invest, manufacture, innovate, and expand. When lawmakers return in September, they should strengthen household purchasing power by reducing the 10% individual income-tax rate to 8% and the 12% rate to 10%, retroactive to Jan. 1, 2026.
Real wages rose during Trump’s first months back in office. Treasury Secretary Scott Bessent highlighted gains among blue-collar workers. Bureau of Labor Statistics data show that real hourly earnings for production and nonsupervisory workers increased 1.3% over the year ending July 2025. By February 2026, they were 1.4% higher, while real weekly earnings had risen 2%.
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By July, those real-wage gains had stalled. The latest BLS real-earnings report shows that real average hourly earnings for production and nonsupervisory employees were 0.1% lower than in July 2025, although real average weekly earnings remained 0.2% higher.
The energy shock has been a major source of pressure. Energy prices remained 14.7% higher in July than a year earlier, including a 24.6% increase in gasoline prices. The encouraging news is that the energy index declined in both June and July. As the shock recedes, lower energy costs should relieve some of the pressure on household purchasing power.
Consumer spending represents nearly 70% of the American economy. Bank of America Institute reports that middle-income households alone contributed nearly one-quarter of U.S. GDP in 2024 and generate roughly one-third of spending at grocery stores, restaurants, hobby shops, and general-merchandise retailers. Its research also finds that lower-income households account for a disproportionately large share of retail spending, excluding gasoline and automobiles. For America’s small businesses, stronger household purchasing power means more customers, greater sales, and increased confidence to invest, expand, and hire.
Financial pressures are greater at lower income levels. The Federal Reserve found that only 19% of adults with family income below $25,000 and 26% of those between $25,000 and $49,999 always or often had money left at the end of the month. Among adults with incomes below $50,000, 40% could not cover even a $100 emergency expense entirely from savings.
July’s retail-sales report added a timely warning. Advance retail and food service sales fell 0.6%, the first decline in nine months, while the control group used in calculating goods consumption in GDP fell 0.4%. One month does not establish a lasting trend. Consumer spending remains essential to growth, but its momentum cannot be assumed.
A working families rate cut would allow taxpayers to keep more of what they earn. Under the 2026 IRS tax brackets, reducing the first two rates by 2 percentage points would save an individual as much as $1,008 and a married couple filing jointly as much as $2,016. Exact savings would depend on taxable income and existing credits.
Treasury could revise federal withholding tables after enactment, so the lower rates begin appearing in paychecks. Any remaining retroactive benefit could be reconciled when taxpayers file their 2026 returns. Congress should accompany the reduction with spending restraint and a clear accounting of its fiscal effects.
History provides a powerful parallel. The Economic Recovery Tax Act of 1981 reduced individual income-tax rates. Five years later, the Tax Reform Act of 1986 consolidated the rate structure, sharply reduced the top marginal rate, increased the standard deduction and personal exemptions, and expanded the earned income tax credit. President Ronald Reagan called his proposal a “ladder of opportunity” for families seeking to climb out of poverty.
A working families rate cut is not an argument against reducing upper marginal rates or pursuing broader reform. Upper rates influence entrepreneurship, investment, business formation, and competitiveness. Lowering the first two rates is a strong place to start because it rewards work across income levels while providing the greatest proportional benefit to families with the least room in their budgets.
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America must move toward a simpler and more competitive tax code that rewards work, saving, investment, entrepreneurship, and productive risk-taking. A working families rate cut would be the next step in that larger pro-growth effort, not its final destination.
The One Big Beautiful Bill Act strengthened the foundation for investment. Capital gains indexing could help successful investments move toward their next productive use. Lower individual rates would allow workers to keep more of what they earn. When Congress returns in September, the House and Senate should work with the president to put these forces in alignment. Working families would not simply benefit from America’s next growth surge. They would help power it.
Dan Varroey is an economic strategist, founder and CEO of Potomac Core, and author of Rethinking Economic Growth: How Small Businesses Can Help Consistently Grow the Economy.
