If you voted for Donald Trump last November because you believed he’d increase economic freedom, it’s safe to say you were fooled. Following a reckless tariff barrage, the White House and its allies are preparing a new wave of tax-code gimmickry that has more in common with progressive social engineering than pro-growth reform. And don’t forget a fiscal recklessness that mirrors the mistakes of the left.
Defend these policies if you like, but let’s be clear: The administration shows no coherent commitment to free-market principles and is in fact actively undermining them. Its approach is better described as central planning disguised as economic nationalism.
This week’s example is an executive-order attempt at prescription-drug price control, similar to Democrats’ past proposals. If implemented it would inevitably reduce pharmaceutical R&D and innovation.
Tariffs remain the administration’s most visible economic sin after Trump launched the most extreme escalation of protectionism since the infamous Smoot-Hawley Act of 1930. Unlike the 1930s, however, today’s economy is deeply integrated with global supply chains, making the damage extensive and far more immediate. Tariffs are only nominally imposed on imports. Ultimately, they’re taxes on American consumers, workers and businesses.
The president has made it clear that he’s fine with limiting consumer choice, blithely telling parents they might have to “settle” for two dolls instead of 30 for their children. Smug pronouncements about how much we should shop (not much) or which sectors we should work in (manufacturing) are economic authoritarianism.
They’re also indicative of a deeper government rot. Policymaking is now done by executive orders as comatose congressional Republicans, like some Biden-era Democrats, allow the president to rule as if he’s a monarch.
A full-throated, assertive Congress would remind any president that manufacturing jobs were mostly lost to technologies that also create jobs and opportunity in members’ districts. Prosperity increases only through innovation and competition and isn’t restored by dragging people backward into lower-productivity jobs.
Now, even Trump’s tax agenda — once considered a bright spot by many free-market advocates — is being corrupted. Instead of championing the broad-based, pro-growth reforms we’d hoped for, the administration is doubling down on gimmickry: exempting tips and overtime pay, expanding child tax credits and entertaining the idea of raising top marginal tax rates.
These moves might poll well, but they’re unprincipled and unproductive. They undermine the 2017 Tax Cuts and Jobs Act, which aimed (however imperfectly) to simplify the code and incentivize growth, and not to micromanage worker and household behavior through the Internal Revenue Service.
And then there are the administration’s misleading, populist talking points about raising taxes on the rich to reduce taxes on lower- and middle-income workers. The U.S. income-tax system is already one of the most progressive in the developed world. According to the latest IRS data, the top 1% of earners pay more in federal income taxes than the bottom 90% combined. These high earners provide 40% of federal income-tax revenue; the bottom half of earners make up only 3% of that revenue. Thankfully, the House of Representatives steered away from that mistake in its bill.
Meanwhile, some Republican legislators are pushing to extend the 2017 tax cuts without meaningful offsets, setting the stage for a debt-fueled disaster. As noted by Scott Hodge, formerly the longtime president of the Tax Foundation, the GOP’s proposed cuts could add more than $5.8 trillion to the debt over a decade. That’s nearly three times the cost of the 2021 American Rescue Plan, which many Republicans rightly criticized for fueling inflation and fiscal instability.
To be clear: Pro-growth tax reform is essential. But not every tax cut is pro-growth, and no tax cut justifies further fiscal deterioration. Extending the 2017 cuts, which I generally support, shouldn’t be confused with true tax reform.
Some of the provisions being floated — expanded credits, exclusions for tips and overtime, rolling back the state and local tax (SALT) deduction cap — are not growth policies. They are wealth redistribution run through the tax code, indistinguishable in substance from the kind of demand-side, Keynesian stimulus Republicans once decried.
Hodge notes that these measures would do more to mimic the American Rescue Plan than to reverse its pricey mistakes. And with the Federal Reserve still fighting inflation, adding trillions in unfunded liabilities to the national ledger is profoundly irresponsible.
None of this should surprise anyone paying attention. This administration is packed with advisors and surrogates who glorify union power, rail against globalization and scoff at the very idea of limited government. Some sound more like Bernie Sanders than Milton Friedman. Whether it’s directing industrial policy or distorting the tax code to reward their favorite behaviors, they are hostile to the competition and liberty of the free market.
Sadly, that hostility has real consequences: higher prices, greater economic uncertainty, sluggish investment and fewer opportunities for middle- and lower-class families.
Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University. This article was produced in collaboration with Creators Syndicate.
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