One Big Beautiful Deduction
How Democrats can call for a simpler, fairer tax code
A bill sent to Congress by a Republican president would cut taxes for the rich, gut public programs for the poor, and increase the federal budget deficit and the national debt. In other shocking news, water is wet and fire is hot. Apart from tariffs, Donald Trump’s economic policy isn’t all that different from that of Ronald Reagan and George W. Bush (and his own first term).
The One Big Beautiful Bill would also not make the tax code noticeably less complicated. Even with tax prep software, filing your annual income tax return can still be frustrating: checking to see what you can deduct and what you can’t, what the limits are, when a particular benefit starts to phase out and how quickly. All along, you’re probably worrying there’s something important you missed, some mistake you made that will cost you big money.
Democrats rightly talk about making the tax code fairer, but their proposals are often little more than tinkering. Raise the top income tax rate a few percentage points. Raise the corporate rate a few points. Eliminate stepped-up basis. Close the carried interest loophole. All of these would be good changes, but they lack real ambition. It’s particularly strange that progressives so often get enthusiastic about closing the carried interest loophole, because doing so would only save about a billion dollars per year (the budget deficit is over a trillion dollars).
At a time when Americans’ trust in their national government is very low (and not without good reason), it’s worth proposing something radical, something that will really get people’s attention. There’s an opening for Democrats on both simplicity and fairness. While Trump’s regressive budget-buster will probably become law, if Democrats rally around something to replace it with in 2029, they can make it a bill that cuts taxes for middle and working class families, raises taxes on the rich, reduces the budget deficit, and makes filing your return a hell of a lot easier.
What if Congress replaced all current deductions in the federal income tax (the standard deduction, itemized deductions, above-the-line deductions) with a zero-percent bracket at the bottom of the ladder? Instead of every taxpayer having to figure out what deductions apply to them, a zero-percent bracket would apply to everyone, rich and poor and in between. Effectively, have one big beautiful deduction. This kind of simplification would make the tax code fairer, by making the affluent pay more.
The largest deductions generally benefit well-off taxpayers, the upper-middle class as well as the megarich. The mortgage interest deduction helps the owners of large, expensive homes. The pass-through deduction, sometimes defended as an aid for small business owners, gives more than half its largesse to people earning more than a million dollars a year. It’s good to donate to charity, but the deduction for doing so rewards affluent donors (who will likely still give to nonprofits to get their names on buildings and other strokings of their egos), rather than those who are middle or working class. And given that the Democratic Party thinks of itself as representing ordinary Americans against the rich and powerful, it’s always frustrating to see Democrats defend the state and local tax (SALT) deduction, a boon for people who don’t need tax breaks.
A sufficiently large zero-percent bracket could replace both these regressive deductions and those that actually benefit the middle class, like the deductions for student loan interest and retirement account contributions. In addition to massively reducing headaches in the runup to every April 15, this would show Americans that their leaders trust them to spend their own money wisely. A simpler tax code would be a less paternalistic one. It might also induce lawmakers to find other, more straightforward ways to help families pay for college and save for retirement. Congress could cap tuition at the maximum Pell Grant, for example, or require all employers to contribute directly to their employees’ retirement accounts. Doing these things directly would surely be better than requiring citizens to navigate the tax code for help with tuition or savings.
If necessary to ensure reduction of the budget deficit, the consolidation of deductions could be paired with increases in the higher income tax rates. At a bare minimum, the current top three rates of 32%, 35%, 37% could be all be raised to at least 40%. There’s also a lot of revenue to be gotten from taxing all dividends and capital gains as ordinary income - in 2024, the longtime practice of putting lower tax rates on these cost the government as much as $225 billion. At a time when those who are already wealthy keeping amassing greater and greater fortunes from stocks, bonds, and the like, slowing down this stockpiling while reducing the deficit makes a lot of sense.
Democrats are always right to be angry at Republicans for cutting rich people’s taxes. But making the tax code fairer doesn’t have to be limited to a few tweaks here and there. To really grab the attention of a public cynical about their government and skeptical of the prospects for change, a call for a better tax code should include something radical: saving taxpayers a lot of time.