I & I Editorial BoardPresident Donald Trump’s promise to send a $5,000 dividend to every American adult if the Republicans retain their congressional majority has kicked up a lot of bipartisan dust, as it should have. Vowing to both cut federal income tax rates sharply and fully overhaul Washington’s revenue-collecting system would have been a far better proposal, both politically and economically.
Handing every grownup in the country five grand would likely cost more than $1.2 trillion. What’s more, doing so wouldn’t be particularly stimulative and would likely worsen inflation. To grow the economy, we need tax cuts.
Now we’ve seen the reports that Commerce Secretary Howard Lutnick says the dividend will not be paid from tax revenues but from other sources. Even if that were the case, we’re still not sold on the idea. A one-time windfall would not have the dynamic impact that bold income tax rate cuts would generate.
History shows that income tax cuts boost economic growth, creating the “rising tide” that President John F. Kennedy said “lifts all the boats.” Income tax reductions fueled growth in the 1920s, the 1960s and the 1980s.
Cutting income taxes is, of course, difficult. Democrats don’t want Americans to keep more of the dollars they earn because tax money finances their lust for political power and their wealth redistribution schemes. It’s a drug they can’t quit. Even more difficult, though, would be restructuring the nation’s tax system. The bulk of the revenues land in Washington via the income tax, and its convoluted web of rewards and punishments — the mortgage interest deduction, the earned income tax credit, and the marriage penalty, to name a few — empowers lawmakers on both sides because they have constituencies that want to keep those tax code quirks in place.
But it’s a miserable arrangement. The income tax is inefficient, harms productivity, invites abuse from IRS agents, requires Americans to engage in busy work that saps their labor output and drains them of leisure time. The income tax is a direct assault on liberty — a truly free man does not have to provide to government the means it will use to strip him of his earnings and his privacy.
We’d prefer a national sales or consumption tax to replace the federal income tax, though we understand the perverse politics that stand in the way. A flat-rate income tax, with no deductions or adjustments, while not ideal, would still be a vast improvement over the current burden that constantly stalks every productive American. The Trump administration ought to make deep rate cuts and true tax reform a top issue over the last two months of the midterm campaign season, not a once-in-a-lifetime jackpot that will have no lasting effect.
— Written by the I&I Editorial Board
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