When President Donald Trump took office in 2017, economists around the world had accepted the fact that the US economy had entered the “new normal” where economic growth would be low, and wage growth nonexistent. Trump’s team argued that deregulation, trade policy and tax cuts could bring us back to the old normal or, more memorably, make America great again.
The economy’s response to these policies confirmed everything Trump said would happen, and the Democrats’ rush to reverse his policies with their misnamed “Build Back Better” plan is the highest form of science denial.
Democrats argued, for example, that the corporate tax cuts would lead to a collapse in tax revenue. That hypothetical collapse is a key excuse for the huge tax hike they now contemplate. Yet corporate tax revenue in 2017 was, according to the Congressional Budget Office, $297 billion. The CBO now estimates that 2021 revenue will be $370 billion.
Even if one adjusts for economic growth by expressing the numbers as a share of GDP, corporate revenue has climbed proportionally by 7.2 percent. Just as Trump promised, the dynamic effects of the corporate tax reduction led to revenue going up, not down.
The point was not to make businesses rich. Trump’s team argued that the explosion in the business sector would benefit workers, famously promising that a typical family’s wages would jump $4,000 in three to five years. That assertion was widely ridiculed by the same Democratic economists now pushing the Build Back Better plan. Yet before the pandemic struck, wages were well ahead of that schedule, jumping about 50 percent more than that, $6,000.
The booming economy especially benefited those less fortunate. Seven million people were lifted off of food stamps. Poverty rates for Hispanic and African Americans reached record lows, as did their unemployment rates. Income inequality declined by the most in decades. Blue-collar wages rose faster than white-collar wages.
Wealth inequality even declined, with the bottom half of the wealth distribution seeing their wealth increase by 40 percent, in part because home ownership skyrocketed. The share of African Americans owning their own homes climbed from 41.7 percent to 46.4 percent.
One could go on and on. Against that backdrop, the Build Back Better campaign is nothing short of a factually challenged policy reversal that promises to harm the American worker.
The massive corporate tax hike planned will chase jobs, incomes and factories overseas, while the green spending binge accomplishes practically nothing. Democrats will lift the top marginal income tax rate to the highest in the developed world, penalizing noncorporate businesses even more than corporations. Trump killed the “new normal” for a while, but Biden is intent on bringing it back.
What stuns the most is the profound lack of intellectual curiosity required to roll back these policies. Trump’s team had a theory of how things would turn out if their tax cuts were passed. The subsequent data matched that theory.
If Democrats don’t want to give those policies credit, then at the very least, they should put forward their own theory for why the lower and middle classes flourished after the tax cuts. Why is corporate tax revenue so much higher now despite the lower rates? Why did income inequality decline so much, while incomes climbed five times more in the Trump years than they did under President Barack Obama? Why will lifting marginal tax rates increase capital formation as opposed to magnifying supply disruptions and increasing inflation?
Of course, there is no reasonable alternative explanation grounded in economic science. Which makes support for the bill despite all of the latest evidence unconscionable.
Kevin Hassett served as chairman of President Donald Trump’s Council of Economic Advisers and is vice president of the Lindsey Group and a distinguished visiting fellow at the Hoover Institution.