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Mr. Brat’s victory is surely awkward for a new wing of the conservative movement that has taken to arguing that the whole free-market, supply-side, Reaganesque agenda is passé. Humbly declaring themselves the “reform” conservative moment, this group has … some interesting ideas, all overshadowed by the book’s central premise: That conservatives need to embrace government to better endear themselves to the “middle class.”
The authors are clear that politics, not principle, needs to drive conservative policy. Nowhere is that clearer than in the chapter by former Bush Treasury official Robert Stein on tax policy. A summary: Marginal tax rates are no longer popular because they don’t give much to the middle class. Republicans instead need to embrace redistribution and lard the tax code with special, conservative-approved handouts for said middle class—namely a giant tax credit for children, similar to that proposed by Utah Sen. Mike Lee.
… Absent from the chapter is any recognition of why Reagan, and the party, embraced tax cuts. It’s this thing called “economics.” Cutting taxes on capital—and cutting high marginal rates—spurs investment, which grows the economy, which benefits everyone, including the middle class. The good politics follows. The middle-class beneficiaries of Reagan’s economic boom showed their own appreciation by signing up for a conservative political realignment that lasted decades.
As someone who contributed to “Room to Grow,” (and someone who considers himself a fan of Strassel’s work) that’s not how I see things.
1.) The book’s central premise is that conservative economic policy should address today’s economic challenges, not yesterday’s. And those problems extend beyond tax policy. Robert Novak’s famous axiom, “God put the Republican Party on earth to cut taxes. If they don’t do that, they have no useful function,” is incomplete in a nation where (a) health care costs are rising faster than income and gobbling up wages, (b) the nation’s $600 billion in annual K-12 spending is failing to prepare students for the modern job market, (c) family life in middle-class America is growing increasingly fragile. At the same time, the job market is becoming steadily more bifurcated due to automation and globalization. Some economists fear a permanently split labor force with rising pay for a slice of tech-savvy workers, and stagnant wages for everyone else. I mean, anyway you slice it, this is not a good chart for middle-class America:
2.) Do reform conservatives argue against free-market economics? Strassel surely must know better. My bit, instance, focuses on how all manner of government interference into markets — from the “too big to fail” bank backstop to overly strict patent and copyright law among other things — has steadily reduced the US economy’s competitive intensity and business dynamism. In short, the private sector needs a lot more Schumpeterian creative destruction — and a lot less cronyism — to create good-paying jobs. And the chapters on education and health care reform center on how choice and competition can improve value and productivity in those key sectors.
3.) The core of Strassel’s argument revolves around the reform conservative approach to taxes. A few facts to keep in mind: When Ronald Reagan took office, the top marginal rate was 70% and inflation-driven “bracket creep” (consumer prices rose by more than 8% a year from 1973 through 1981) pushed middle-class wages and salaries into higher and higher tax brackets. Today, by contrast, the top rate is 40%, tax brackets are annually adjusted for inflation (which has averaged only 1.6% the past five years), and 43% of American’s pay no federal income tax (although two-thirds of those folks pay payroll taxes.)
4.) So what sort of tax reform do the above facts suggest? Well, the “Room to Grow” tax plan would, effectively, expand the child tax credit (including letting it apply to both income and payroll taxes). A married couple with two children earning $70,000 would get a tax cut of roughly $5,000 per year vs. current law. Unlike Strassel, I don’t see howletting parents — the folks who are doing the hard and costly work of creating the workers and investors and innovators and entrepreneurs and safety net-supporting taxpayers of the future — keep more of their income as government redistribution. And if this sort of tax reform creates a less anti-family tax code that helps families have the number of kids they prefer, the result could be a younger and more dynamic society. That sounds pro-growth to me.
5.) Of course, tax reform doesn’t have to stop there. Strassel wrongly assumes that since the book doesn’t lay out a comprehensive, soup-to-nuts tax plan, reform conservatives don’t care about investment or business or economic growth. Actually, reform conservatives have written quite a bit about moving to a consumption tax. As Ryan Ellis explain on his Facebook page:
… a key element of reform conservatism’s tax policy has been moving toward a consumption base while lowering business tax rates for competitiveness. The point they have made on rates is that cutting the top personal rate from its current level is simply not the highest pro-growth tax reform priority. Yes, it cuts rates on flow-through firms. But much of the “juice” is wasted cutting wages for high income earners, which at current marginal rates doesn’t get you much at all of a Laffer curve effect.”
And my chapter is also about economic growth but tries to compensate for the fact that center-right policymakers have focused too much on tax reform at the expense of all the ways government impedes growth.
As for the politics of all this, well, my primary concern is whether or not “Room to Grow” is smart policy. And I obviously think it is. Creating and promoting good ideas to make America prouder, stronger, and better is what drives me and, I would assume, the rest of the book’s authors.
But I will say this about politics: If the 2016 Republican nominee wants to make his big economic idea cutting corporate taxes at a time when corporate profits are at their highest level in 85 years and worker compensation is at its lowest level in 65 years as a share of national income … well, good luck with that. Not only does that intuitively seem like a losing message — and recent history seems to support that intuition — but there is also this recent survey from Global Strategy Group:
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