From the day Donald Trump descended the infamous golden escalator in 2015, he's forged a political movement defined less by a cohesive ideology than by a contrarian impulse to buck established institutions and consensuses. From trade to immigration, Trump has fundamentally remade the Republican Party in its policy prescriptions, rhetorical flair and constituency, so much so that the GOP of a decade ago bears little resemblance to what we have today.
Interestingly, while Trump has proven uniquely adept at defying Republican orthodoxy across a wide range of issues, there is one in particular in which remnants of the post-Reagan conservative consensus are alive and well: tax policy. Former president Ronald Reagan's call for timely, across-the-board tax cuts to stimulate the economy has, in the decades since the 1980s, become the sacred cow of Republican policymakers, who seem to prioritize cutting taxes for the sake of cutting taxes without regard for the impact on the deficit or economic trade-offs involved in doing so.
With the Tax Cuts and Jobs Act — the signature legislative achievement of Trump's first presidency — set to expire at the end of this year, Trump has an opportunity to remake the Republican Party once again, matching its policy to its populist rhetoric. While tax reform is a worthwhile goal, if President Trump wishes to make his new coalition a durable one, he will steer the Republican Party back toward fiscal sanity and away from tax-cutting dogmatism.
The rationale is clear and simple, and the impact on North Carolinians is profound. In an era in which deficits are projected to clock in at or around $2 trillion annually, policymakers face a binary choice between raising new revenues or cutting popular programs. In North Carolina alone, 2.6 million people rely on Medicaid for needed healthcare, and with Social Security and Medicare supposedly off the table, there is little room to trim government elsewhere.
If the plight of the needy isn't enough, the GOP has strong political incentives to adjust its approach to taxes: according to exit polls, Trump won among voters with under $50,000 in total family income while losing among voters with $100,000 or more. Upper-income voters repulsed by Trumpism are unlikely to be wooed back to the GOP by lower marginal tax rates, but working class Trump voters could very well flee the party if they see their benefits cut while income taxes are reduced for the wealthy.
Such tax cuts are sometimes advertised as inducements for needed investments that generate growth, expand the tax base and pay for themselves, but a cursory glance at the facts shows the TCJA's extensions would include trillions in lost revenue from tax cuts that do little to promote growth. Upon incorporating the role a larger debt might play in crowding out private investment, the long-run net effect on the economy would be negligible if not negative. In fact, the Congressional Budget Office's estimates suggest GDP will be 0.4 percent smaller in 2034 under a full extension of the TCJA than under current policy.
Rather than a full extension of the tax cuts, a politically savvy GOP would pass a partial extension — similar to what former President Barack Obama did with the Bush tax cuts — keeping lower rates and expanding tax credits for lower- and middle-income individuals while allowing rates to increase on the wealthy. This approach would minimize the impact of the tax cuts on the deficit while enabling further cuts aimed at working people and families, especially if Trump intends to keep his promises of axing taxes on tips and Social Security income, both of which carry a significant cost.
In short, the GOP is at a crossroads. If President Trump wants to make permanent the GOP's gains with the working class and solidify his own legacy as a transformational figure in U.S. politics, he'd do well to push the party away from an approach that repeats the same policy missteps of years past and abandons any pretense of fiscal conservatism.
