In the ongoing battle of words between media outlets and the economic policies of the Trump administration, a familiar argument has resurfaced – the threat of inflation if Trump’s tax cuts are made permanent. The New York Times recently sounded the alarm, reminiscent of similar warnings made against Reagan’s tax cuts over four decades ago.
Back in the 1980s, the New York Times and prominent Democrats like Paul Krugman and Larry Summers forecasted an inflationary disaster with Reaganomics. President Jimmy Carter even labeled it as one of the most inflationary ideas ever presented. However, history proved them wrong. After Reagan’s tax cuts and tightening of the money supply under Federal Reserve chief Paul Volcker, a rapid period of disinflation ensued.
The same pattern repeated with JFK’s tax cuts in the 1960s and with Trump’s tax cuts in 2017. The key concept that critics continuously fail to grasp is the supply-side effect on the economy. Lowering taxes on work, investment, and production leads to increased output, not increased prices. This surge in production drives prices down due to a greater supply of goods and services.
Trump’s energy policy and Biden’s conflicting approach to domestic energy production provide a clear example. Trump’s pro-drilling policy led to lower oil and gasoline prices, while Biden’s stance caused prices to spike by 50%.
The argument against Trump’s tax cuts is centered on the belief that they would cause deficits to rise, subsequently leading to inflation. However, data shows that corporate tax revenues increased despite the tax rate reduction, as companies repatriated money and operations. Even the wealthiest 1% ended up paying a larger share of the total income taxes.
Interestingly, the claim by the New York Times about potential inflation under a Trump administration seems to ignore the lower inflation rates during Trump’s presidency compared to the current rates under Biden. The media’s apprehension over Trump’s proposed 10% across-the-board tariff increasing prices may hold some truth, but it overlooks the potential offset with tax reductions.
The contradictory narrative presented by the media regarding Trump’s policies reveals a glaring economic misunderstanding or a biased perspective often associated with “Trump Derangement Syndrome.” With historical evidence pointing to a different outcome than predicted, the debate continues over the impact of economic policies on inflation.
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