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Tax the Fruit, Not the Branches

A Supply-Side Answer to the Deflation Warning

Treasure vs. toil

Anthony Pompliano dropped a clear warning this week. Truflation’s real-time dashboard shows U.S. inflation at 1.21% year-over-year-down sharply, well below the Fed’s lagging 2.7% BLS print for December. He’s been saying it for months: the real threat isn’t runaway inflation. It’s deflationary pressure from weak demand, delayed purchases, and a middle class that’s pulling back.

He’s right to sound the alarm. We’re seeing the early signs: job additions crawling at roughly 50,000 a month, openings near multi-year lows, consumers waiting for lower prices on big-ticket items. In a K-shaped economy the top keeps climbing-AI stocks, luxury spending, asset gains-but the middle is squeezed. That squeeze feeds the very demand destruction Pomp is pointing to. If it accelerates, we risk the classic spiral: falling prices make fixed debts heavier, businesses freeze hiring and investment, wages stagnate or worse, and the whole system tightens.

The Fed’s January 27–28 meeting is days away. They may hold rates again, talk tough on data dependence, but history shows central planners are as clumsy as they are stupid when the signal is disinflation rather than overheating. Waiting for them to thread the needle is not a strategy.

There is a better path-one that doesn’t rely on rate cuts alone or more government tinkering. It’s supply-side, pro-growth, and proven: dramatically slash capital gains taxes and repeal the 3.8% Net Investment Income Tax (NIIT) on qualifying domestic gains.

I’ve laid this out before. In April I modeled a tiered structure that rewards long-term commitment to American companies: 7.5% for holdings of 1–3 years, 5% for 3–5 years, 2.5% for 5–10 years, and 0% after 10 years-with no NIIT applied to those domestic gains. In June I urged including a capital gains cut in the One Big Beautiful Bill during reconciliation. In October I argued it beats one-time rebate checks every time-sustained investment over short-term handouts.

The principle is straightforward: tax the fruit, not the branches.

Don’t punish the tree for growing. Don’t levy extra taxes every time an investor or entrepreneur wants to realize a gain and redeploy that capital into the next opportunity. High capital gains taxes and the NIIT lock money in place. Owners hold rather than sell and reinvest. Capital turnover slows. Startups wait longer for funding. Existing businesses delay expansion. The creative destruction that clears out inefficiency and births innovation gets choked.

When we cut those taxes sharply-as we did in 1997 (from 28% to 20%)-the economy responded. The Nasdaq took off. Millions of jobs were created. Wages rose across the board. The same dynamic played out after the 2003 reductions. Lower rates on gains don’t just help the wealthy; they free capital that funds the productivity gains that lift everyone.

In today’s environment, this move directly counters the deflationary pressures Pomp is highlighting. Freed capital flows faster into AI infrastructure, energy projects, manufacturing reshoring, biotech-sectors already showing strength. That investment creates jobs, increases competition for workers, and pushes wages up from real output increases, not printed money. Supply-side growth delivers the “good” deflation: lower prices from efficiency and abundance, not from demand collapse.

Fiscal offset is already in place. Tariff revenues, even under conservative estimates, are projected to bring in $1.2 trillion to $2.5 trillion over the decade. Dynamic scoring-factoring in higher growth-turns the static revenue loss into surpluses in most scenarios. We’ve modeled it. The numbers hold.

The window is reconciliation. Republicans still have the tools to move this through with 51 votes. If we let the moment pass because of deficit hawkery or political caution, we miss the chance to turn a warning into a boom.

In North Texas right now the split is visible every day. Luxury lots full, Walmart aisles full of deal hunters. Cheaper eggs are welcome, but real relief comes when the middle class has more jobs, better wages, and confidence to spend without second-guessing tomorrow’s price tag.

Tax the fruit, not the branches. Let the tree grow tall. The gale of creative destruction will do the rest.

That’s how you answer a deflation warning with strength, not more central planning.

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James K. Bishop

James K. Bishop is a conservative writer and raconteur hailing from Texas, known for his incisive and often provocative takes on political and cultural issues. With a staunch commitment to originalist constitutional principles, he emphasizes limited government, individual liberties, and traditional American values. Active on X under the handle @James_K_Bishop, he frequently engages his audience with sharp critiques of progressive policies, media narratives, and overreaches by the federal government. His style is direct, often laced with humor and wit, which resonates strongly with his conservative followers.