Reckless Tax Hikes: A Terrible Idea at the Worst Possible Time

KEY TAKEAWAYS

• Democrats are pushing for tax hikes across the economy, even though federal revenues are already at the highest level as a share of GDP in more than two decades. 
• Democrats’ $2 trillion “COVID relief” stimulus fueled inflation and forced the Federal Reserve to raise interest rates at the fastest pace in decades. The Fed has lowered its expectations for economic growth in 2022, while raising its projections for inflation, interest rates, and unemployment. 
• With the economy reeling from Democrats’ bad policies, the last thing Americans need is higher taxes.  

Democrats’ thirst for more money remains unquenchable. After years of attacking the 2017 Republican tax reform law, they are now clamoring to raise taxes to fund more reckless government spending. As usual, some inconvenient facts interfere with their progressive narrative.

Revenue Is Outpacing Expectations

Their premise initially was that the federal government needed more money, and the 2017 tax cuts exacerbated the gap. In fact, federal revenue is outpacing expectations. In 2018, the Congressional Budget Office projected that federal revenue would total $4 trillion in fiscal year 2022. Now, CBO expects it will hit $4.8 trillion – or 19.6% of GDP – this year. This would be the highest level of revenue as a share of GDP since 2000. The agency also expects revenue as a share of GDP to remain above the 50-year average over the next 10 years. There simply is no revenue problem that needs to be “solved” with tax increases.

The real issue is that taxpayer receipts – even at these highs – cannot keep up with Democrats’ eye-popping spending schemes. Last year, Democrats jammed through a $2 trillion “COVID relief” stimulus, which drove prices to climb 11.7% from January 2021 to May 2022. This rise forced the Federal Reserve to raise interest rates at the fastest pace in decades. All of this has weighed down the federal budget.

CBO’s latest forecast anticipates that total federal spending between 2021 and 2031 will be $9 trillion higher than the agency projected at the beginning of the Biden administration. Almost a third of that growth is higher interest costs resulting from Democrats’ debt and rising interest rates. Between 2021 and 2031, interest on the debt will cost taxpayers almost $3 trillion more than CBO anticipated at the beginning of last year. By the end of the budget window, interest costs will be higher than what we currently spend on national defense.

bad idea at a bad time

The U.S. economy is reeling from Democrats’ bad decisions. Inflation climbed to a 40-year high in May. Americans are paying $5 for a gallon of gas. Prices for food and housing are rising at levels not seen since the early 1980s. Summer travel is unaffordable. Consumer optimism is in freefall. Last week, the Fed revised down its expectations for economic growth in 2022 from 2.8% to 1.7%, while revising up its projections for inflation, interest rates, and unemployment.

Democrats think now is the right time to jack up the tax burden on America’s job creators and take productive dollars out of the economy. Their reckless plans would raise taxes by $1.5 trillion, and hit every facet of the fragile economy. According to an analysis from the Joint Committee on Taxation, 32% of Americans would have a higher tax bill by 2027 if the House-passed reckless tax and spending spree were to become law.

After a year of peddling inflation fiction, Democrats are trying to rebrand their reckless tax and spending spree as the solution to their self-inflicted woes. But massive tax hikes are not the answer to a looming recession. Reckless tax hikes are a terrible idea at exactly the wrong time.