One of Democrat presidential candidate Joe Biden’s top campaign proposals is to repeal the Trump Tax Cuts and Jobs Act (TCJA) “on day one” as part of trillions of dollars in tax hikes.
This is a terrible idea given the success of these policies and the fact that the economy is still recovering from the Coronavirus pandemic.
Because of the strong fundamentals of the Trump economy, we are seeing signs of progress in the recovery from COVID-19.
11 million jobs have been recovered in the past five months after businesses were forcefully shuttered, meaning we have recovered more than half of the jobs lost. GDP is predicted to grow by 30 to 35 percent in the third quarter of 2020, an all-time record. The unemployment rate is down to 7.9 percent, a comparable level to the 7.8 percent rate in 2012 under Obama.
Even so, the recovery is far from complete with millions of workers still looking for work.
Moving forward we should be preserving policies that help increase the wealth of middle-class Americans and help businesses thrive so that they can invest and grow the economy.
Preserving the TCJA will be crucial to achieving both goals.
The tax cuts reduced taxes on American families with a family of four earning the median household income of $74,000 seeing a tax cut of more than $2,000.
Middle income Americans saw the greatest tax cut, with families earning between $50,000 and $100,000 seeing their tax liability drop by an average of 13 percent, more than double the tax cut seen by Americans with income above $1 million.
The bill expanded the child tax credit from $1,000 to $2,000, benefiting 35 million of American families. It simplified the code by doubling the standard deduction, so the vast majority of Americans no longer itemize their deductions.
The TCJA also reduced taxes for businesses – the corporate rate was lowered to 21 percent, a rate in line with the rest of the developed world. The bill enacted full business expensing, allowing businesses to immediately deduct the costs of new investments and updated the international system of taxation by ending double taxation on American businesses.
These pro-growth policies led to significant economic growth.
In 2018 and 2019, the U.S. was the only G7 industrialized country to record annual real GDP growth exceeding 2 percent. In fact, the growth rate of 2.9 percent in 2018 was significantly higher than other developed countries like Germany, which saw 1.5 percent growth and the United Kingdom, which grew by just 1.3 percent.
The TCJA also helped create a strong labor market.
The unemployment rate hit 3.5 percent in 2019, a 50-year low. The ratio of unemployed persons to job openings dropped to 0.9 in March of 2018 and there were more job openings than job seekers for 24 consecutive months.
Wages grew with the greatest increases being felt by lower income Americans.
In 2018 alone, real median household income increased by $4,400 in 2019, or nearly 7 percent. This wage growth exceeded gains during the entire Obama administration, which was just $3,000 or 5 percent.
This wage growth benefited Americans of all walks of life. Key demographics including African Americans and Hispanic Americans saw their median income hit record levels. Meanwhile, the bottom 25 percent of wage earners experienced wage growth faster than the top 25 percent of wage earners, according to the Atlanta Fed.
Because of these wage and job gains, the poverty rate declined to 10.5 percent, the lowest rate in decades.
The record of economic success following the passage of the TCJA is clear. While COVID-19 put an end to this prosperity, the economy is already beginning to recover.
Biden’s plan to repeal the tax cuts would threaten this recovery.
The fact is, even Barack Obama has warned against tax increases during an economic downturn. As Obama noted:
"The last thing you want to do is raise taxes in the middle of a recession because that would just suck up, take more demand out of the economy and put businesses in a further hole."
We already saw what happens when we don’t have pro-growth policies in place when we had the slowest recovery in modern history under Biden and Obama. According to an analysis by the Joint Economic Committee, this stagnant recovery meant we had six million jobs fewer jobs compared to the average economic recovery six years after the end of the great recession.
The fact is, tax hikes are no way to ensure a strong economic recovery.
While we have made strong progress toward recovering from COVID-19, more work needs to be done. As part of this, we need to preserve pro-growth policies like the TCJA to help workers and businesses benefit from low taxes.
Biden’s plan to repeal this law and increase taxes is a terrible idea and could extend the economic downturn.