Tax Armageddon Day Is Coming
Benjamin Franklin famously wrote in 1789 that “our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.” Death and taxes are fated. However, are enormous tax hikes also a fait accompli? Is it a certainty – ‘an accomplished fact’ – that the White House and Congress will repeal tax reforms that worked? Tax breaks that helped small business owners and families.
For the past several days Americans have been scrambling to make the deadline to complete their 2022 tax returns. Most taxpayers will be relieved once the ordeal is done. However, here’s an unfortunate reality: if Washington fails to act, the federal tax code is headed for major changes in just a couple of years, including massive tax hikes on families and small businesses.
In December 2017, Congress passed, and Donald Trump signed an historic, comprehensive tax reform package. The Tax Cuts and Jobs Act slashed taxes for almost all Americans, substantially reduced corporate and small business taxes, and increased the standard deduction for individuals and couples.
The reforms are set to expire – and certain provisions have already expired – in 2025. Unless the Congress moves to make the 2017 tax reforms permanent, Americans will suffer colossal tax increases crushing small businesses and family budgets.
The 2017 tax cuts delivered results for the American people, despite fierce opposition and false predictions of economic ruin. Opposition to the tax cut plan was intense. It was constant and well organized. At the time, many pundits – both on the right and left – predicted that the Republicans in Congress would cower and (former) President Trump would be forced to fold. It didn’t happen.
The Job Creators Network (JCN) – a nonpartisan group founded by entrepreneurs – stood their post. Building coalitions, offering intellectual ammunition, and countering hysteria with facts, JCN informed the public discourse. In a public debate marked by false narratives and misinformation, JCN did something quaint – it told the truth and made its case based on the facts and evidence.
The JCN reminded Congress:
“Small business is the backbone of the economy with two-thirds of new jobs being created by small businesses. There are 29 million small businesses in America employing 56 million people — that’s 85 million Americans depending on the success of small business.”
In 2017 in the midst of a political frenzy, the Job Creators Network advanced the economic science. JCN followed the evidence that tax reform would benefit all Americans and stimulate the economy. No easy task – remember the piercing opposition from Congressional Democrats and the media? We were bombarded with the worst demagoguery that Washington had to offer – that the Tax Cuts and Jobs Act was designed to help the wealthiest few Americans, while leaving the rest of us stuck with the bill. It turns out – as the JCN argued – tax reform was a boon to the economy and a saving grace for America’s small businesses.
Here’s what we know happened in the five years since the tax reforms took effect. Stephen Moore (an architect of the tax plan) recently wrote in the Washington Examiner:
“We now have incontrovertible evidence that after five years since they took effect, the Trump tax rate cuts of 2017 raised revenues over this time period. The latest Congressional Budget Office report released earlier [in January] calculated that the federal government collected $4.9 trillion of federal revenue last year. This was up — ready for this? — almost $1.5 trillion since 2017, the year before the tax cuts became law. In other words, revenues were up 40% in five years. The evidence through the first three years of the tax cut finds that the share of taxes paid by the wealthiest 1% rose as well. So much for this being a tax giveaway for the rich.”
Even with the Covid crisis and the pandemic lockdowns, the American economy experienced a ‘giant Laffer Curve’ effect from the 2017 tax cuts. In other words, Moore explains “we got higher growth and higher tax payments with lower tax rates.” The 2017 Tax Cuts and Jobs Act delivered good results for the American people.
Moore’s work on the tax reform package is why the Job Creators Network awarded him with its Defender of Small Business Award.
In 2018, JCN president and CEO Alfredo Ortiz called the Tax Cuts and Jobs Act “One of the greatest legislative achievements of the decade.” He went on to say that “Steve Moore was not only a major mover and shaker that made passage possible, but he was a strong partner alongside the Job Creators Network in ensuring that small businesses were among the beneficiaries of the legislation.”
What was the economic outlook prior to the 2017 reforms?
The labor force participation rate was in an alarming downward trend – that is to say, the unemployed just stopped looking for work. Wage growth was stalled, and productivity growth was stuck at scarcely 1 percent. And new business investments in infrastructure had slowed to a meager 2.5 percent. America had entered – what the political class told us was – a ‘New Normal’ of measly economic growth and wage stagnation. However, the Job Creators Network argued that easing the tax burden on small businesses (and all Americans) would allow them to expand, hire, and reinvigorate ‘Main Street’.
What do we know today about the 2017 reforms? Another architect of the plan, Kevin A. Hassett, wrote in 2021 (four years into the tax reforms):
“Data released over the past four years have met or even exceeded our predictions. In 2019 alone, real median household income in the U.S. rose by $4,400 — a bigger increase in one year than in the entire 16 years through the end of 2016 combined. From December 2017 through the end of 2019, real wages for the bottom 10 percent of the wage distribution rose 8.4 percent, while real wages for the top 10 percent rose 5.2 percent. Real wealth for the bottom 50 percent rose a staggering 28.4 percent, while that of the top 1 percent rose 8.9 percent.”
Without Congressional action, the tax rates and reform tax structure (for 2026) will revert back to what Americans were subjected to before the Tax Cuts and Jobs Act took effect.
Alfredo Ortiz said in a February oped:
“Fortunately, the facts have finally caught up with the tax cuts’ detractors while supporters have been vindicated. A new report from the Congressional Budget Office (CBO) proves that, on top of the tax cuts contributing to one of the strongest economies in half a century pre-pandemic, the package didn’t compromise the federal budget.”
Recently in RealClearPolicy Ortiz wrote, the only way out of our current economic difficulties “is to empower small businesses through pro-growth policies like those in Job Creators Network’s American Small Business Prosperity Plan.” The first plank of the JCN’s plan is to make the Tax Cuts and Jobs Act permanent:
“The 2017 Tax Cuts and Jobs Act unleashed a tsunami of small business expansion—leading to one of the strongest economies in half a century. But now, the legislation is set to incrementally expire and effectively hike taxes on America’s small business community. Congress should make small business tax relief permanent.”
The Job Creators Network was right in 2017. The JCN was the bulwark that forced Congress to stay the course. Even as taxpayers have rushed to submit their returns and beat the IRS’s tax deadline, another deadline looms in our near future. Without legislative action, the tax cuts are set to expire at the end of 2025 and by 2026 tax rates and tax brackets will be higher for most households and small businesses.
This year everyone (who pays taxes) knows that Tuesday April 18, 2023 is Tax Day. What we need to know is that December 31, 2025, will be a devastating day for most taxpayers – Tax Armageddon Day.
As Franklin warned, “nothing can be said to be certain, except death and taxes.” However, December 31, 2025 doesn’t have to be a fait accompli, not if Congress acts and the American people go to the polls in 2024 knowing that tax hikes are coming in 2026.
Massive tax hikes don’t have to be a certainty. You get to decide.
This article was originally published by RealClearPolicy and made available via RealClearWire.