Biden’s Cut Inflation Act Exposes Our Allergy to Taxes

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On Tuesday, President Biden signed the Inflation Reduction Act into law. While the measure represents a major legislative triumph for Democrats, it also exposed an allergy to taxation in the United States.

The measure is expected to generate more than $300 billion in tax revenue to fund green energy, fight climate change and improve health care subsidies under the Affordable Care Act. Still, as they enter the campaign trail, Democrats are unlikely to talk about the act as a revenue-generating measure — except to deny accusations made by Republicans like Senate Minority Leader Mitch McConnell. (R-Ky.), who argued that Democrats “want to rack up giant tax hikes that will hammer hard at working people.

Republicans accusing Democrats of wanting to raise taxes and Democrats shying away from the “tax and spend” label is one of the most familiar features of modern American politics, but it hasn’t always been so.

Americans once viewed paying taxes as a patriotic duty, and Republicans spent most of the 20th century positioning the GOP as the party of fiscal responsibility, focused more on balancing the federal budget, not cuts of taxes.

The fiscal policy of the past 40 years has made it more difficult to solve the country’s societal problems and has even come to threaten our democracy.

Income tax as we know it is the result of World War II. In 1942, Congress transformed the federal income tax from a class tax, paid only by the wealthiest individuals, to a mass tax. Between 1939 and 1945, the number of Americans subject to income tax increased more than tenfold, from 3.9 million to over 42 million.

To sell the new system, the government undertook a major public relations campaign to call the decision patriotic. The campaign featured a new song by Irving Berlin celebrating ordinary men and women “proud” to pay “taxes to beat the Axis”. The PR blitz also included radio spots, celebrity endorsements, and even Disney movies starring Donald Duck.

This campaign helped make the wartime tax system not only effective but also popular.

He was so popular, in fact, that when Republicans retook the presidency in the 1950s after two decades out of the White House, Dwight D. Eisenhower signed a bill codifying the World War II tax system and fixing the top marginal tax rate at 91 percent. Republicans viewed the adoption of this system as fiscally responsible at a time when Cold War defense spending was rising alongside national spending on priorities such as housing, highways, and education. The move was seen as both popular and vital to the national interest, as Republicans positioned themselves as gatekeepers to the US wallet.

In the early 1960s, when President John F. Kennedy proposed a massive, sweeping tax cut, the GOP, along with conservative Democrats, threatened the bill’s prospects. Rep. John Byrnes (Wis.), the ranking Republican on the House Ways and Means Committee, warned that the proposal would produce “inflationary consumption,” while joint Senate and House GOP leadership called it “the biggest economic gamble in the history of peoples. »

In the early 1970s, however, as a new group of conservatives became more entrenched in the GOP, the party began to abandon fiscal responsibility and refashion itself into the “party of tax cuts.” The Tories have clung to ‘supply-side economics’ – centered on income tax cuts – and have gradually abandoned the party’s historic commitment to balanced budgets, except as a rhetorical cudgel to push back national spending proposals.

Politics, not economics, is what really drove the GOP’s embrace of the tax cuts.

Republicans had rarely controlled both the legislative and executive branches of government since the onset of the Great Depression. Tax cuts could allow the GOP to become what a 1971 Nixon campaign strategy memo called the “visible, outspoken champion of forgotten Americans, the working people of this country.” Significantly, these voters had been aligned with the Democrats since the New Deal.

But unlike spending programs aimed at those voters, the tax cuts could appeal to working-class voters without alienating the wealthy and corporate interests that formed the GOP’s base. Coupled with an attack on the welfare state – which by the early 1970s had become linked in the public mind to poor and minority communities – the policy of tax cuts coalesced cultural resentment, racial backlash and economic policy in a way that would soon reshape the GOP.

Right-wing political entrepreneurs pushed the GOP in this direction. Jude Wanniski, who helped make the Wall Street Journal’s editorial page the leading cheerleader for supply-side economics and lower tax rates, argued in 1976 that the GOP should stand makeover as “Santa Claus of tax cuts”. Republicans’ “dumb” fixation on balanced budgets, Wanniski wrote, “shriveled” “GOP influence as a party” because it left Republicans without an economic agenda that promised to benefit the majority of voters. .

The stagflation seen under the Carter administration in the late 1970s made tax cuts a popular economic and political solution. Driven by soaring inflation in ever-higher tax brackets, and buffeted by economic headwinds that economists seemed unable to explain much less in reverse, ordinary voters were now open to previously radical economic ideas and policies. Tax-cut fever swept the country and allowed tax-cut conservatives to triumph over balanced-budget moderates in the GOP. Tax policy helped catapult conservative standard bearer Ronald Reagan to the White House with broad public support in 1980. Lowering tax rates for all Americans, though the biggest gains were on top.

The 1981 tax cut and Reagan’s anti-tax, anti-government rhetoric transformed American politics in significant and lasting ways. But even the “Reagan Revolution” had its limits. In 1982 and 1983, the self-proclaimed chief tax cutter reluctantly signed two tax hikes – bills backed by members of his own party – to address the problem of growing deficits.

Yet the transformation was underway. By 1990, the GOP had abandoned fiscal responsibility in favor of tax cuts. That year, a new generation of far-right conservatives, led by House Minority Whip Newt Gingrich (R-Ga.), rebelled against the budget deal struck between President George HW Bush and the Democrats of Congress, because it planned to raise taxes. These firebrands took control of the GOP in part by attacking its leaders as “tax collectors for the welfare state.”

Outside the halls of Congress, organizations like Americans for Tax Reform (ATR) and the Club for Growth have risen as enforcers of the new tax-cutting orthodoxy – promising primary challenges to any Republican who fails to has not signed a written agreement pledge – imposed by the ATR – which promised to “oppose any effort to increase personal and corporate income taxes”.

The result was near unanimity among Republicans that tax cuts are good policy and good policy regardless of their effect on the deficit. In fact, the only major legislative achievement of Donald Trump’s presidency was the passage of a sweeping tax cut in 2017; nothing brings the GOP together like a tax cut.

Democrats, too, have largely accepted Republicans’ framing on the tax issue. Despite its reputation for taxing and spending, the modern Democratic Party has rarely championed taxation as a positive good. This reluctance, evident even during the height of Democratic control of government in the 1960s, was heightened in the aftermath of the Reagan Revolution, as Democrats sought to win back white working-class “Reagan Democrats” and average who had abandoned the party. in the three presidential elections of the 1980s.

Given this history, it’s no wonder Democrats insist that the Cut Inflation Act is not a tax hike. They argue that its revenue provisions only fill in the gaps to make the system fairer. But Republicans’ refusal to consider new taxes and Democrats’ reluctance to defend them as anything other than necessary to balance the budget or improve tax fairness have crippled good economic and social policymaking for more than four decades. . Equally important, this tax policy has contributed to the toxicity of our policy.

This focus on costs of government rather than its benefits has distorted public opinion as well as public policy in the decades since Reagan’s presidency. While left and right have highlighted how tax eaters – whether the “welfare queens” of the right’s imagination or the corporate tax cheats targeted by the left – have thrived at the expense of hard-working taxpayers, it drives more Americans to see themselves as victims rather than beneficiaries of their government.

Taxes matter. And they do more than just fund the government. They guarantee shared citizenship and investment in the nation. As Richard M. Nixon said in 1960, taxes give “life to the people’s purpose of having a government to provide protection, services, and the stimulus to progress.”

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