Fiscal Fights with Friends: We Don’t Need Two Class-Warfare Political Parties

Time for another edition of my series on “Fiscal Fights with Friends,” where I debunk supposed conservatives who advocate for statist policies.

Today’s topic is tax increases, an issue that I’ve had to address before (examples can be found here, here, and here).

There are three arguments against raising taxes in general.

• Excessive spending growth is responsible for more than 100 percent of America’s long-run fiscal mess.
• Giving politicians more money will give them an excuse to further increase the spending burden, leading to more debt.
• Higher tax burdens likely will undermine economic performance by penalizing productive behaviors such as work, saving, and investment.

There are also three specific arguments against class-warfare tax increases.

• Raising top tax rates definitely will reduce growth by discouraging entrepreneurs, investors, and business owners.
• Upper-income taxpayers already pay a disproportionate share of both income taxes and overall taxes.
• Higher tax rates undermine national competitiveness and encourage a shift of jobs and capital away from America.

Unfortunately, some supposed conservatives are urging Republicans to pursue class-warfare tax policy.

Here are some excerpts from a column in the Washington Examiner by political pundit Henry Olsen.

Recent reports suggest President Donald Trump would be open to raising marginal tax rates on the wealthy. Congressional Republicans should take his offer up: it’s good policy and good politics. The top federal marginal tax rate is currently only 37%. That’s low by international standards… It’s true that the top marginal rate, including state and local income taxes, exceeds 50% in high-tax places such as California and New York City. But that’s the fault of the progressive Democrats who run those places, not the federal government.

Meanwhile, former Trump advisor Steve Bannon has been pimping for class warfare since shortly after Trump got elected.

Here are key passages from a report in the Hill.

…onetime White House adviser Steve Bannon said in an interview he supports increasing taxes on the wealthy and corporations. …“I’m for a dramatic increase in corporate taxes. We have to increase taxes on the wealthy… Where does the tax revenue come from? Corporations and the wealthy,” Bannon said during an interview… The “Bannon’s War Room Podcast” host shared a similar stance on taxing the wealthy and corporations while addressing GOP supporters at the New York Young Republican Club… Progressive Rep. Ro Khanna (D-Calif.) agreed with Bannon’s stance on increasing taxes on companies and wealthy individuals.

Both Olsen and Bannon share some common arguments.

They make a political argument that the GOP will benefit politically if it embraces class warfare.

I’m very skeptical. If voters want that approach, they’ll go for Bernie Sanders and AOC. And I’ll observe that the Republican presidents who supported higher tax rates, Richard Nixon and George H.W. Bush, are not exactly role models of political acumen and success.

Pro-tax increase Republicans also argue that higher burdens on the rich can help finance some of Trump’s goofy tax proposals, such as no tax on tips or overtime. That’s true, at least on paper, but that doesn’t change the fact that more tax loopholes and higher tax rates is exactly the wrong direction for tax policy.

I’ll close with my own political observation. I don’t think Trump will choose class warfare, but I also think it’s very risky to rely on him.

I’m more confident that Republicans on Capitol Hill will resist class-warfare taxes. That being said, they have (with a few noble exceptions) been unwilling to oppose Trump’s suicidal protectionism. And that’s a giant tax increase on lower-income and middle-class voters, so we’ll have to wait and see what they will do if Trump also decides to penalize upper-income voters.

P.S. The risk of bad tax policy would dramatically decline if Republicans were even halfway serious about spending restraint. But they’re not. Especially Trump. So at some point in the (hopefully distant) future, Bannon and Olsen will probably get what they want.