“The Republican tax bill rigged the system against working people,” Stacey Abrams said Tuesday night in her Democratic response to President Trump’s State of the Union speech. “Rather than bringing back jobs, plants are closing, layoffs are looming, and wages struggle to keep pace with the actual cost of living.”
There are several implications to Abrams’ disjointed proclamation. The first is that the 2017 Tax Cuts and Jobs Act, which Trump signed a year ago, harmed middle- and lower-income workers. This rhetorical flourish cannot be taken seriously. The tax reform did not raise the tax burden of middle- or lower-income earners either by absolute dollars or by share of the burden. It lowered the tax burden for nearly all those people by dramatically increasing the standard deduction and the refundable child tax credit.
The only people who might reasonably complain about the reform being “rigged” against them are the very wealthy living in high-tax states and localities such as New York, New Jersey, Illinois, and suburban California. Such people rose in rebellion in the 2018 election and handed Democrats a net 14 House seats. These high-income households had previously taken advantage of the unlimited deduction for state and local taxes paid. Now that this deduction has been capped at $10,000, they are paying more nearly their fair share of federal taxes.
Abrams’ overarching assertion goes beyond all that, and even beyond the more reasonable, and apparently false, proposition that the tax reform failed to help the economy. She is arguing that tax simplifications and reductions have somehow harmed the economy. This is a bizarre assertion. Few have dared make such claims because no data backs them up.
The economy just isn’t experiencing the spike in mass layoff events or job losses that Abrams described. Indeed, the last nine months comprise the first period in recorded history in which there have been more jobs available than there have been job-seekers. The economy produced a striking and surprising 304,000 new jobs last month, plus a 3.2 percent wage increase, in spite of the long partial government shutdown. On every side, there are more jobs being created than destroyed, which is how things should be. As for wages, they have been rising at their fastest clip in a decade, a welcome and long-awaited change from the glacial recovery presided over by President Barack Obama.
The tax bill probably has something to do with these successes. But it cannot have caused wages to lag behind the cost of living, as Abrams alleges, if wages are not in fact lagging behind the cost of living. This is a lesson not in economics but in logic.
There is one area where critics of the tax bill might have a point. The tax cuts have resulted in a decrease in federal revenue. Recall that Trump and his Republican allies opted in 2017 to go for a tax cut rather than just the revenue-neutral reform that had been under discussion. Despite the wishful thinking of some Republicans, tax cuts only “pay for themselves” in very special cases.
Still, it is worth noting that, according to the nonpartisan Congressional Budget Office, this tax cut has paid for about 30 percent of its own cost. As tax cuts go, that’s not too shabby.
It is not a good thing to add to the current federal deficit. But the deficit doesn’t exist because we are undertaxed. The federal government consumes more than enough, and more than the historically normal portion, of its citizens’ bread. The deficit is a symptom of a spending problem, not a revenue problem, as the CBO makes plain.
This is where Trump and the Democratic Congress can and should get serious. They should press for thorough reform of the budget process, including at the Pentagon, and force accountability where previous presidents of both parties have failed. This is something Democrats have long supported, and Trump has been voicing his own support for it since before his inauguration.
Although a grand bargain on entitlement reform is probably impossible amid current political hostilities, not least because Trump promised not to try it, there are surely many other economies that can be achieved before any discussion of ratcheting up workers’ tax liabilities. Democrats are proposing raising the tax on jobs in order to expand federal benefits — in other words, as ever, tax and spend.
To judge by Abrams’ response, the Democrat’s message for taking on Trump in good economic times is based on fiction and thoroughly unsure of itself. They’ll have to do better if they want to make Trump’s next State of the Union his last.
