As this election cycle has demonstrated yet again, Democrats are not shy about calling for tax increases. In every election cycle they call for more taxes, whether through corporate taxes or through taxes on unrealized capital gains.
Donald Trump, meanwhile, has pledged to cut some taxes. I say “some” because Trump has also pledged to raise taxes on imports.
Nonetheless, Trump ran on the idea that he would reduce the tax burden on Americans if elected.
Unfortunately, Trump has no plans to cut government spending, and this means there is little chance that ordinary taxpayers are going to experience any real tax relief.
This is because tax cuts without spending cuts don’t actually lessen the cost of government. A tax cut without a spending cut simply moves around the tax burden, and often replaces explicit taxation with the stealth tax of price inflation.
Unless accompanied by spending cuts, a tax cut simply increases deficit spending, and taxpayers will pay for deficits one way or another. Typically deficits are paid for using one or more of the following: future taxes, present interest payments, and monetary inflation. Unfortunately for the taxpayers, when it comes to paying off deficit spending, “the future” is already here. In the 2024 fiscal year, the taxpayers had to pay nearly $900 billion in interest on the debt. That huge tax bill exists because federal politicians in the past spent more than they had in revenues.
Forcing the taxpayers to pay off old debts isn’t exactly popular, however. So, federal technocrats have found a way to push down interest rates on government debt. This reduces the amount of interest owed and nominally reduces the cost of government debt.
But this also ends up costing the taxpayers bigtime because the way that technocrats suppress the cost of interest is by having the central bank buy up more federal debt. (By buying government debt, the central bank artificially drives up demand, so the Treasury doesn’t have to pay as much in interest to attract buyers.) And where does the central bank get the money to buy up government debt? It prints the money. That then leads to both monetary inflation and (eventually) price inflation.