In 2017, then President Trump wanted to stimulate the decade-long stagnant economy. Looking at what presidents Reagan and Kennedy/Johnson with the federal income tax, he decided a massive tax cut was needed. But he wanted to do it fairly and in a way that would not divide the country.
He reasoned that the only way to promote unity would be to treat every income earning American exactly the same way. He convinced Congress to cut all income earners’ taxes by 10%. Everyone was treated exactly the same. No dividing the country by groups.
Of course, Trump’s opponents claimed that this tax cut was just for the wealthy. They even claimed that 83% of the tax cut went to the top 1% of income earners. That was later proven to be not quite accurate, but their point was most of the tax cut went to the highest income earners.
Of course, that’s true. If someone pays $1,000,000 annually in taxes, a 10% cut would be $100,000. If someone pays $10,000 annually in taxes, then a 10% would be $1,000.
Trump didn’t care about that, he just wanted to treat every taxpayer equally, so he pushed the tax cut through. Virtually every income earning American saw their tax bill drop by 10%. Trump viewed that as fair and not divisive. There was, however, one other criticism.
They said that Trump’s tax cut would increase the annual deficit and increase the public debt substantially. The reality was that the federal government took in more total tax revenue in 2018, with the tax cut than in 2017. And total tax revenue was even higher in 2019.
Trump was satisfied that the tax cut helped all Americans instantly and helped them even more going forward since the tax cut resulted in real wages were rising for the first time in decades. The unemployment rate was reduced to an historical low so that finding a better job was relatively easy for every skilled American.
On the other hand, the tax cut that President Biden is proposing will further divide the country. This is simply because he does not treat all American taxpayers the same. Lower income earners will fare very well. Higher income earners will see their tax liability increase.
Lower income earners will see their tax rates stay the same, but they will be able to spend less to maintain their lifestyle. That’s because Biden will offer them free services, like free health or perhaps free higher education.
For the middle class and for higher income earners, tax rates will rise. Since Biden favors a progressive income tax system, he will likely raise taxes more for the highest income earners. That will similarly be divisive since some Americans will see higher taxes and some will see lower taxes.
He will also raise corporate income taxes by one third. That will reduce dividend income for anyone who owns stocks. Others won’t be affected at all.
Biden’s tax plans divide the country into one group that earns significant income and pays more income taxes. The other group who already pays little or no taxes will receive free goods and services. One group pays more. The other group pays less and receives more. This is divisive.
The top 10% of income earners pay more than 70% of all income taxes collected by the federal government. The bottom 50% of income earners pay a total of less than 4% of income tax revenue collected.
In spite of those numbers, Biden says that while most of us pay the right share of our income in taxes, the highest income earners don’t. They should pay their fair share too. That means the rest of us should resent the fact that the rich are getting away cheaply. That’s divisive and it’s not accurate.
Biden continues to call for unity. He says he “seeks not to divide, but unify.” His tax plans will do just the opposite. His plans divide the country by raising taxes on high income earners and essentially reducing taxes on low income earners.
The way to create a tax policy that is not divisive is to treat every tax-payer exactly the same. There is a way to do that, by creating a single rate tax with no deductions. But that is probably a long way off. (single rate tax).