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REPORT: Dems Urge Repeal of Tax Reform That Led to Largest Wage Gains for Lowest Earners

September 30, 2021

While Democrats wrangle over the details of their massive $3.5 trillion tax and spend agenda, a new report by economist Joseph A. Lavorgna finds a better approach to fixing the economy in the Tax Cuts and Jobs Act (TCJA), which “usher[ed] in fast, noninflationary growth that benefited all Americans, but particularly those at the lower income rungs.”

President Biden’s pledge to reverse TCJA, the report finds, would have “severe negative consequences for the U.S. economy,” Lavorgna warns:

Raising corporate and individual tax rates at this particular time (emerging from the pandemic when unemployment is still elevated) places the United States at a serious strategic disadvantage to our economic competitors, potentially doing irreparable damage to the U.S. economy.”

CLICK HERE to read the full report.

Here’s how the report shows TCJA worked to help all Americans: 

The largest gain in history: “[O]ver the two years following the passage of TCJA, real median household income rose $4,942 or 3 percent per annum. This is the largest gain in history.

The lowest earners saw the greatest gains in living standards—and the wealthy saw the least gains. “When analyzing the data by income quintile, there were record gains in living standards at the lower- and middle-income levels. Since passage of TCJA, average real income for the lowest fifth of wage earners grew at a 4.9 percent annualized rate. The second fifth rose 4.8 percent, the third fifth increased 3.8 percent, and the fourth fifth advanced 3.7 percent. The highest fifth was up only 3.2 percent, by far the weakest growth rate among the income quintiles. This performance was matched by the top five percent of earners. They also experienced a 3.2 percent increase in wages in the two years following passage of the tax bill.”

Small businesses thrived and led to low unemployment. “Small business optimism skyrocketed. In the 2017-19 period, small business sentiment was higher than what was experienced under any previous president (NFIB, 2020). Hiring plans and capital investment plans both boomed. This kept the U.S. jobs engine running. In fact, the fundamental health of small businesses allowed the economy to produce a record run of employment gains. This led to a historic low in unemployment. Before the onset of the pandemic, the national unemployment rate stood at 3.5 percent, a level not seen in over 50 years.”

Additional Background:

Democrats’ Tax Hikes Hurt Middle Class Families. According to the AFPI report, “payroll taxes on individuals earning more the $400,000 per year will go significantly higher.”

  • A new analysis by the Joint Committee on Taxation, Congress’s non-partisan tax scorekeeper, shows the Democrats’ tax bill will hit Americans of all income levels, directly violating President Biden’s pledge to not raise taxes on anyone making less than $400,000 per year.
  • This is supported by the left-leaning Tax Policy Center, which already determined that President Biden’s overall tax plan will raise taxes on 75 percent of working families next year.

READ: Congressional Scorekeeper: Dem Tax Hikes Hit Middle-Class Earners Between $40k and $400K

Biden’s Capital Gains Tax Undermines Our Investment Infrastructure. The AFPI report finds that raising the capital gains tax “bodes ill for future gains in worker wages. The upshot is a decline in household living standards.”

  • Studies show that the capital gains tax alone would shrink the economy by $124 billion.
  • The Tax Policy Center found that Biden’s proposal raises taxes far past the amount necessary to maximize revenue. Past analyses by the Congressional Budget Office and the Joint Committee on Taxation agree.
  • Larry Lindsey, a former Federal Reserve governor, said it’s “taxation purely as a form of punishment and is even willing to sacrifice revenue to carry it out.”

TOOLKIT: Fighting President Biden’s Crippling Tax Hikes on Middle Class, Small Businesses

GOP Tax Reform Worked for America’s Workers. The AFPI report described the TCJA as “a historic piece of legislation that meaningfully lifted lower- and middle-class living standards while at the same time making the U.S. tax system more globally competitive.”

  • Analysis of CBO data by the Tax Foundation found that Republican tax reform reduced federal tax rates for households across every income level–while increasing the share of taxes paid by the top 1 percent.
  • More than 6 million people were lifted out of poverty, dropping the poverty rate to 10.5 percent, the lowest level in U.S. history.
  • Income and wealth inequality fell after TCJA, as real wages for the bottom 10 percent grew nearly twice as fast as the top 10 percent and real wealth of the bottom 50 percent of households rose three times faster than that of the top 1 percent.

READ: The Pinocchio Six: Myths, Lies, and Debunked Claims About Taxes