Democrats made history last week. Not in a good way.
Going back to the Second World War, Congress has never enacted a tax increase when the economy was in a recession. Yet every single Democrat in the House and the Senate just voted to raise taxes in a recession.
The last time Congress raised taxes in a period of negative growth was in the 1930s, when Presidents Hoover and Roosevelt pushed through tax increases, contributing to a decade of economic misery. Since then, most economic experts have warned that raising taxes in a recession only results in a deeper and longer economic downturn.
Unfortunately, President Joe Biden and congressional Democrats have ignored economic studies predicting their tax and spending increase bill will cause even more economic distress.
A study by the University of Chicago found that the absurdly named Inflation Reduction Act would have “substantial negative economic effects on the U S economy.” The study, by the former chief economist of the Council of Economic Advisers, estimates the bill would “contribute to slow or negative economic growth over the next several years.” According to the study, the bill would reduce real GDP and result in the loss of about one million jobs. The tax increase would “affect Americans across the income scale,” reduce long-run wages, and possibly cause household income to fall by $1,200 a year. It would increase inflation by reducing the supply of goods and services and significantly increase federal deficits.
Washington does not need more tax revenue. Federal tax receipts through July have risen by nearly $800 billion, or 24%, this fiscal year. Individual and corporate tax revenue are at record-high levels. With inflation at a 40-year high and after two quarters of negative economic growth, now is not the time to raise taxes. If history is a guide, Congress has just made a costly mistake.
Bruce Thompson was a U.S. Senate aide, assistant secretary of Treasury for legislative affairs, and the director of government relations for Merrill Lynch for 22 years.
