OPINION:
During his campaign, President Trump pitched a vision to win over working-class Americans and seniors that included a potent mix of tax cuts and ironclad protections for Social Security. He promised to extend the 2017 tax cuts and wipe out taxes on tips, overtime pay and Social Security benefits. Mr. Trump promised there would be no cuts to those benefits or increases in the retirement age, and he had a plan to shore up the program through economic growth and the elimination of fraud. It resonated with voters feeling squeezed by inflation and uncertainty.
Now it’s time for Congress to deliver on those promises.
For Congress to enact Mr. Trump’s tax cuts without substantially increasing the deficit, it must find offsets and reduce spending. Critics, including economists and fiscal hawks, warn that simply adding to the deficit to pay for the president’s tax plan could hasten Social Security’s insolvency, already projected for 2031, when benefits could face a 33% cut absent reform or new funding.
Congressional Republicans are scrambling for solutions that won’t balloon the national debt. The options floating around threaten to undermine the cornerstone of Mr. Trump’s campaign promise of robust economic growth and opportunity for all. Some Republicans are considering capping the corporate state and local tax deduction, which The Wall Street Journal reports has businesses sounding the alarm. By limiting corporations’ ability to deduct certain state and local taxes, this plan would effectively increase their tax bills, resulting in higher prices for consumers, as the tax burden would be shifted to the goods and services they buy.
The Tax Foundation’s analysis shows that eliminating the corporate state and local deduction for income and property taxes would reduce long-run economic output by 0.6% and cut hours worked by 147,000 full-time equivalent jobs. That’s a tough sell for a party that has long championed tax-friendly policies.
Meanwhile, the White House may be mulling a different tack: raising the top income tax rate from 37% to 39.6% to fund tax relief on service-sector tips. It’s a nod to Mr. Trump’s working-class base and a jab at Democratic claims that Republican tax cuts favor only the rich. Like the corporate state and local tax approach, this move risks fracturing the party, as conservatives have built a brand as a low-tax party and most recoil at any whiff of tax increases.
Blending Mr. Trump’s campaign promises with pro-growth, low-tax conservatism was always going to be a tightrope walk in today’s fiscal climate, but it’s not impossible. Republicans should start with the low-hanging fruit by slashing corporate subsidies. This move checks all the boxes. Subsidies distort markets by propping up politically favored firms, often at the expense of more innovative or efficient competitors. When unprofitable ventures get a lifeline, resources get trapped, dragging down economic dynamism. Worse, these handouts siphon billions of dollars from taxpayers. Ending them would boost growth, shrink the deficit and strike a populist chord by leveling the playing field. It’s a rare policy that aligns Mr. Trump’s promises with political and fiscal reality.
The Inflation Reduction Act, a misnomer if ever there was one, is a prime target. Passed with zero Republican votes in Congress, the act was sold as a climate fix, pumping massive subsidies into green energy. Yet those handouts, favoring costly wind and solar generation and electric vehicles, are poised to jack up energy prices for everyday Americans. The results so far? Scandals, not solutions, with costs growing far beyond initial projections. Current estimates peg the cost at $936 billion to $1.97 trillion over a decade, potentially soaring to $4.67 trillion by 2050.
Here’s the kicker: The Tax Foundation calculates that scrapping the Inflation Reduction Act’s green energy tax credits could save taxpayers $851 billion over 10 years. Supporting those estimates, analysis from Ernst & Young suggests that eliminating the Inflation Reduction Act’s electric vehicle tax credits alone would save roughly $300 billion from 2026 to 2035. That’s not the whole fix, but it’s a solid start toward offsetting Mr. Trump’s tax cut agenda without breaking the bank or his promises.
Some Republicans might balk, despite voting against the Inflation Reduction Act in the first place, because it was structured so that some of these subsidies flow to conservative districts to buy their support. They shouldn’t. Scraping this bloated law is fiscally sound and politically savvy. It delivers on the Republicans’ growth agenda, protects Social Security by easing budget pressures, and hands working-class voters a win by ditching handouts to corporate cronies and liberal pipe dreams.
Candidate Trump sold a vision of prosperity and security. The Inflation Reduction Act, with its runaway costs and dubious priorities, stands in the way. Republicans have a choice. They can cling to a failed spending experiment or seize this chance to fund Mr. Trump’s agenda the right way. Zeroing out the Inflation Reduction Act is the best way to deliver on reconciliation without leaving taxpayers to pick up the tab.
• Tom Pyle is the president of the Institute for Energy Research.
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