As soon as it was revealed, the Trump administration’s framework for tax reform was instantly attacked by Charles Schumer, Nancy Pelosi and friends, trying to bludgeon it to death with assertions that it was just “tax cuts for the rich.” A letter from Senate Democrats said “Tax reform cannot be a cover story for delivering tax cuts to the wealthiest. We will not support any tax reform plan that includes tax cuts for the top one percent.”

Such attacks, which focused primarily on proposed reductions in corporate tax burdens, were premature, in that there were too few crucial details provided for thorough analysis. But the criticisms revealed a focus on the politics of envy rather than joint benefits to society, and reliance on assumptions that, if aligned with recent theoretical and empirical work, would undo their conclusions.

“Tax cuts for the rich,” along with cousins like “trickle down,” “voodoo” and even “déjà voodoo” economics, misdirect attention away from how voluntary market arrangements benefit all. They erroneously presume that taxing high-income earners less benefits only those high earners. This idea is reinforced by a mistaken zero-sum view that more income for some must reduce others’ incomes.

Voluntary Exchange Benefits Everyone 

When people, however rich or poor, get richer through voluntary arrangements, they do not hurt anyone except those suffering from envy. Each party is better off, as they see it, or they would not participate.

If I create a massively successful product, such as a software program, my income will jump substantially. But every buyer will also gain because I provided them better options than they had before. This holds true even if their measured share of total income is lower because my income has risen.

Unfortunately, those determined to punish higher income earners (given rhetorical cover as paying their “fair share,” which is a progressive synonym for “more”) misdirect attention from the core issue for society — are others helped or hurt? And here, the key is that facing higher income people with worse incentives induces them to do less for others with their resources.

That is why supporters of tax cuts often stress improving productive incentives where they are most adverse (i.e., where the tax and regulatory burdens are highest, even if they are imposed on those demonized as “the rich”). That is where reduced burdens most improve incentives to produce for others. Further, since investment decisions are also crucially influenced by future tax policy, they stress making those improvements as durable as possible, enabling much greater cumulative responses over time.