In Pennsylvania, Senate candidate Mehmet Oz earned President Donald Trump’s endorsement for being “very strong” on tax cuts. In Georgia, Republican Herschel Walker says it’s “not right” to tax the wealthy. And Arizona Representative David Schweikert has proposed a federal law to limit state taxes on the rich.
Grand tax cuts have long been a centerpiece of Republican economic orthodoxy, appealing to the well-to-do who want to keep more of their income and stock-market gains.
There’s one problem, economists say: Now perhaps more than ever, that message might not resonate.
It’s not that the wealthy are suddenly willing to pay more to Uncle Sam. Rather, rising interest rates and high inflation have made proposals to reduce taxes a specter of possible economic calamity, with their potential to drive up fiscal deficits. That’s a lesson former U.K. Prime Minister Liz Truss quickly learned this month, after her plan for a slew of unfunded tax cuts tanked markets and ultimately forced her to resign.
While the U.S. has a number of economic advantages over the U.K., market turmoil this year in the U.S.—which has erased more than $6.2 trillion in American household wealth—shows just how dangerous it is, for either political party, to take lightly the threat of a negative reaction from investors.
“The days of trillion-dollar tax cuts are likely over,” said Brian Riedl, a former Senate Republican aide who’s now a senior fellow at the conservative Manhattan Institute. “The deficit is just too big, spending is growing too fast, interest rates rising too fast and politically tax cuts just don’t pack much of a punch anymore.”
After decades of unfunded cuts that failed to live up to GOP promises to pay for themselves, there aren’t many taxes left to reduce. The 21% corporate tax rate is the lowest since the Great Depression and the 37% top individual rate is among the smallest settings in recent history.
Pushes to lower U.S. taxes yet further may fade over time as economic realities set in. A series of fiscal challenges lies ahead, including raising the debt ceiling next year and the looming depletion of the Social Security trust fund in roughly the next decade.
Even so, for Republicans, tax cuts and reducing government spending still unite a party that has grown increasingly fractured in the wake of former President Trump’s refusal to accept the results of the 2020 election, and due to infighting over trade and immigration policy.
In fact, the first item on House Republicans’ Commitment to America, their campaign talking points for the midterm elections next month, is to fight inflation and increase take-home pay through tax cuts—principles that many economists would view as largely in conflict with one another.
An end to the tax-cut era would be a blow to corporations and wealthy individuals who have spent decades and tens of billions of dollars building up lobbying infrastructure to push for reductions, which has consistently paid off when Republicans control the White House.
Federal lobbying spending in 2022 is set to reach records, based on expenditures so far this year. Citigroup Inc., FedEx Corp. and Intel Corp. were three of the 1,715 companies and industry groups that reported lobbying on taxes in 2022 disclosures, according to OpenSecrets. Billionaire Charles Koch’s Americans for Prosperity group continues to advocate for tax cuts at both the state and federal level.