After his losing effort to repeal and replace the Affordable Care Act, President Trump is now moving on to “tax reform.” On Wednesday, he unveiled the outlines of his fiscal package, which will include slashing the corporate income tax rate from 35 to 20 percent, lower the top income tax rate from 39.6 to 35 percent, doubling the standard deduction for individual taxpayer, and increasing the lowest rate from 10 to 12 percent. The plan will include some loophole-closing reforms, though the details of the package are not yet clear. Trump was blunt about his rhetorical strategy at a meeting with evangelical leaders, when he reportedly said that talking about “tax reform” was a smarter strategy for communicating about the initiative than talking about “tax cuts.”
Trump’s definition of tax reform reveals how much has changed in recent decades. Tax reform once meant raising tax rates on wealthier Americans and closing loopholes that benefited powerful economic interests, all with the goal of redistributing income from the top to the middle and bottom income brackets. Until the 1980s, a progressive tax system was seen as the best mechanism for diminishing the gap that existed between the wealthiest and poorest Americans, while funding a social safety net to shore up the middle class and fund the military.
Today, even most of the president’s opponents on Capitol Hill will probably not push back against Trump’s proposal by calling for the kind of robust tax-reform agenda that had once been sine qua non for American liberalism.
Before 1913, the United States didn’t even have a progressive income tax at the federal level. In times of peace, the government derived most of its income from mechanisms that fell hardest on working Americans, like consumption taxes and tariffs.
During the early 1900s, populist and progressive reformers embraced the idea of a progressive income tax as one of the most important reforms that would create a just society. In 1913, the government finally established a federal income tax with the ratification of the 16th Amendment. The tax only impacted about 1 percent of the nation, but it was still a major victory for progressive forces. The estate tax, established in 1916, was also meant to recast the tax burden toward the well-off.