Josh Barro wrote that “Social conservatives are more likely to signal openness to pro-middle class economic policies than the “hardheaded business types” who fund the party.: I think there is some truth to that, and I think that Barro’s next observation is interesting and also has some truth:
But social conservative interest in non-plutocratic economic policy looks awfully soft. When you look at the 2008 and 2012 Republican presidential primaries, social conservatives threw in their lot with the candidates pushing the most regressive economic policies. Mike Huckabee sounds good rhetorical notes about middle-class economic struggles, but he’s also a backer of the hugely regressive “Fair Tax.” While the donor base drives the Republican Party’s orthodoxy on economic policy, conservative activists are not exactly being dragged along — they, too, are opposed to pro-middle class policies.
I think that Barro is right that conservatives have, at points, supported candidates with regressive tax policies, but I don’t think that most of those conservatives knowingly supported regressive tax policies as such. Let’s look at the Herman Cain candidacy as an alternative to the radicalized Kemp-Roth and Steve Forbes-style tax proposals that otherwise dominated the Republican tax conversation in the second half of 2011. Cain proposed scrapping the tax code and replacing it with his 9-9-9 plan. The first nine was a 9% flat income tax. The second 9 was a 9% sales tax. The third nine was…we’ll get to that.
Cain rode his 9-9-9 plan to a lead in the RCP national polling average for about three weeks. The problem was that the Cain plan was worse for the middle-class than the Perry and Gingrich flat taxes or the Tim Pawlenty across-the-board income tax cuts. Cain’s 9-9-9 actually increased taxes on the middle-class while sharply cutting the tax liabilities of high earners. How did prospective Republican primary voters buy into this? Were Republican primary voters really “opposed to pro-middle class policies” on taxes.
That’s not how I see it. Cain was very persistent in how he sold his tax plan. Cain said his plan was simple and transparent. There would be no hidden taxes and every voter would know where the government’s money was coming from. There would be no special interest tax loopholes and the government would not be picking winners and losers in the market. People would save time and money since they would hardly have to much calculate their tax returns. This all sounded really good, but does it sound worth a middle-class tax increase?
Well I don’t think that most people who told pollsters that they supported Cain thought that 9-9-9 was a middle-class tax increase. Cain proposed to replace the income tax, the payroll taxes, the capital gains tax, dividend taxes, the corporate income tax, the gas tax and whatever else with just three little nines. It didn’t sound like a tax increase. My sense is that most people don’t have a very clear sense of the revenue or distributional impact of this or that tax proposal unless someone is putting a number on it for them. I sure don’t. This lack of public knowledge of how new tax proposals would operate worked in Cain’s favor for a while.
The first few times I heard about 9-9-9, my sense was that the last nine was a 9% flat corporate income tax (that’s how I understood it.) My thought was “It doesn’t sound like this plan would not raise enough revenue to fund the government.” When it became obvious that the third nine was a 9% value added tax on top of the 9% sales tax and the 9% flat income tax, my thought was “This sounds like a middle-class tax increase.” But I wasn’t confident until people whose opinions I trusted (including Josh Barro) explained that my rough guesstimates regarding 9-9-9 were right. And I follow politics more closely than most people.
My take is that most Cain supporters didn’t support Cain because they thought 9-9-9 was a middle-class tax increase. They didn’t even support Cain in spite of knowing 9-9-9 was middle-class tax increase. they supported Cain because they didn’t know it was a middle-class tax increase. You can see that Cain understood this dynamic in these exchanges from the October 18, 2011 Republican debate. The other candidates hammer Cain on the grounds that 9-9-9 contains a VAT on top of a sales tax and that it all adds up to a middle-class tax increase. Cain denies that his plan contains a VAT, claims that his plan is not a middle-class tax increase and says the other candidates do not understand his campaign’s analysis. Cain was lying about the VAT part. His own analysis described the third nine as a “subtraction method value-added tax” and as having a “basic value-added structure. [the link no longer appears to be working]” Cain just goes into the fetal position as the other candidates pummel him and then they move on. Cain kept rising in the polls for a couple of weeks after that, but if other missteps and a sex scandal hadn’t destroyed his candidacy first, the growing realization that he had proposed a middle-class tax increase would have finished him. Cain clearly understood this as he desperately tried to rewrite his 9-9-9 plan to deal with concerns about its distributional effects.
Where does this leave us? I have two takeaways. First, the GOP primary electorate is pretty open to new ideas on tax policy. We don’t have to spend the rest of eternity endlessly reliving satires of the 1980 Reagan campaign or the 1996 Steve Forbes insurgency. Second, this openness is combined with very limited information on the part of the Republican primary electorate. In the short-term that will leave openings for pseudo-candidates who are using their “presidential campaign” as a vehicle for landing a radio syndication deal. The good news is that Republican primary voters are open to new information. If the other candidates do their jobs, the public will come around on the flaws of the fantasy plans.
So what if you support something like Robert Stein’s family-friendly tax reform? A presidential candidate who supported such a plan would be open to criticism. That tax plan does raise income taxes on some classes of high earners. It also cuts taxes for parents and middle-class singles while moving the tax code in a more pro-growth direction. I think you can get through the Republican primaries with such a plan and the Republican presidential nominee would be offering a more attractive tax agenda to the median middle-class voter than the one Romney offered.
Update: I changed the title of the post.
December 4th, 2012 | 12:56 am
[...] than the “hardheaded business types” who fund the party.: I think there is Source: Postmodern Conservative Category: Blogs and [...]
December 4th, 2012 | 9:50 am
1. Focusing on taxes is in large part a distraction. The problem is not taxes. The problem is spending.
2. Philosophically the tax code is a nonsensical mess. We all agree that we tax stuff like cigarettes to control people’s behavior and suppress stuff we don’t like, but then a huge chunk of people believe that taxing income has absolutely no such impact. There should at least be some slight bit of coherence on how we treat income, savings, spending, etc., to demonstrate what it is we value and want to promote vs. suppress. Right now there’s nothing of the sort.
3. Simplicity is very, very important. Lots of Americans would trade somewhat higher taxes for not having to navigate the insane maze that is the tax code. And abandon all hope those who come to the attention of the IRS, even for the most trivial and innocent of mistakes.
December 4th, 2012 | 9:54 am
So you’re really on a roll…
December 4th, 2012 | 10:11 am
Dude’s a machine.
December 4th, 2012 | 11:16 am
I bristle at your false characterization of the FairTax as regressive. The FairTax eliminates the two most regressive taxes in today’s inventory: the payroll tax and the taxes that are built into the prices of all goods you buy and all services you use.
Secondly, the FairTax features a prepayment to every person who is lawfully residing in the United States. The effect of this prepayment – from the Social Security Administration – is to cancel out the tax on essentials.
Measured properly, the FairTax benefits those at the lower and mid-range of the consumption scale disproportionately.
Do not give in to the argument that the FairTax is regressive, just because it is a sales tax. Get the facts first.
December 4th, 2012 | 11:18 am
Indispensable …
December 4th, 2012 | 12:03 pm
Jim, http://www.nationalreview.com/nrd/article/?q=OGFhOTBlOWU3ZTU4ZmU1MDQ5NWYwNDQ3Y2I0OWQ2ZGQ=
The summary:
“The middle class would also pay higher taxes. Under the FairTax plan, the federal government would give all legal residents of the U.S. a “prebate” to cover sales taxes on all purchases up to the poverty line. That would protect the poor (except for illegal immigrants; higher prices are supposed to induce immigrants to come legally so they can get their prebate). And the rich would pay less than they do now, since returns to investment typically are a large share of their income, and these would go untaxed. So if revenues are to stay the same, the middle class will have to pay more. If the change in tax policy increases economic growth, this effect will be mitigated — but it will take a very long time for it to disappear under any plausible assumptions. Governor Huckabee’s claim that voters in all income groups would come out ahead while the federal government would raise the same amount of revenue as before is of course unsupportable.”
You just can’t construct a 30% sales tax (that’s how it will appear on the reciept) that exempts the poor AND reduces the tax incidence on those with large amounts of investment income, AND is revenue neutral relative to the George W. Bush-era tax code, AND does not raise taxes on the middle-class.
It is possible to construct a consumption tax that is less regressive. http://www.nationalreview.com/agenda/285154/progressive-consumption-tax-it-left-it-right-or-both-reihan-salam
December 4th, 2012 | 1:38 pm
Don’t forget that people will be taking home their entire paychecks without deductions for federal income tax and FICA tax. If the average embedded tax cost is 12.5% (Dr. Karen Walby, PhD), and if the average working person is in a blended effective 13% bracket, they would be 26% ahead and pay only 14% more for goods and services.
Seniors would have a stable social security program and would receive income with no tax obligation on it.
That’s how it’s made fair to all.
December 4th, 2012 | 4:57 pm
I agree completly with what you say here Pete.
I just want to put deficit spending on the table if we are talking about the federal government.
Folks can debate pet tax structures, but it isn’t clear to me that the best and fairest tax is to simply spend without taxing provided we are not bellow the full employment level.
So I agree with Brian…just in the opposite direction! We are taxing too much and not spending enough. The problem is what Krugman says it is…not enough spending. The timming of this deficit debate was highly off.
Brian’s #2. False…sort of.
“We all agree that we tax stuff like cigarettes to control people’s behavior and suppress stuff we don’t like.”
True, the tax code can nudge behavior. But it is hugely important to realize that cigarettes are but an option one can spend money upon. By taxing cigarettes you can shift consumer behavior to substitutes.
“but then a huge chunk of people believe that taxing income has absolutely no such impact.”
False, albeit the philosophy of the tax code starts by asking: What is Income?
If folks believed that taxing income has no such impact there wouldn’t be the debate there is on all these pet tax programs.
Albeit Income as it is currently defined by the IRS is certainly less of something that can be avoided. I am not 100% on what the substitute for cigarettes are…(pornography, booze, running a marathon-nike shoes?) But as it turns out the substitute for “income” is poverty? lesuire?(requires income).
My argument against a 30% sales tax would largely focus on all the ways it would shift consumer behavior. If you go to Wal-Mart for example, it is almost certain that such a 30% sales tax would be enforced.
But what about small business that is already frustrated with those stupid bank fees on credit card machines? Might they not go to cash, and once in cash, might they not decide to do barter?
30% sales tax might really be an anti-Wal Mart “Front Porch/farmers market” tax. Because the consumer might substitute taxed goods for untaxed goods. Large corporations would enforce it… but the key objection I have to the “fair tax” is enforceability. Lets remmember how porous our borders are(the boarder patrol also works to enforce trademark) … but a high sales tax would contribute to these difficulties! Lets not get all King George and forget the original intent of the tea party! A substitute for goods subject to a high sales tax is almost certainly smuggling, barter, (internet sales?), i.e. goods moving under a different venue (not subject to the high sales tax).
So Jim Bennet you are trading the easy collectability of the federal income tax and the FICA tax…for something that would require a much larger boots on the ground bureaucracy to enforce…
All good laws…and the tax code is a law…requires some capacity to enforce it. Interestingly enough my Keynesian view of deficit spending is essentially that it is a “tax” that requires no bureacracy to enforce.
In my view spending more and taxing less just increases the supply of money, the increase in the amount of money acts as a sort of tax. In so far as goods become more expensive and purchasing power decreases, you have essentially taxed the people without taxing them.
In this sense also when you tax and take money out of the economy…(Taxes just regulate the quantity of money) you fight inflation, because the quantity of money chasing a similar number of goods decreases (ceteris paribus).
The reason the Fiscal Cliff is stupid… congress decided arbitrarily that it wanted to take money out of the economy, so it could play its analytical game of ballanced budgets.
The truth of the matter is that you are “taxed” either way…when taxes are low and spending is high, eventually the growth in the quantity of goods(and employment to produce such goods) is outstripped by the growth in the supply of money and you have inflation. This inflation is then a tax… or something that reduces your purchasing power.
Income 50k
Tax 2k
price of new car: 48k
Income 50k
Tax 25k
price of new car: 25k
If you have something like the above example for a market basket of goods, then in truth you are somewhat indifferent to the high budget deficit vs. ballanced budget debate. In a tie a lot of americans would prefer the ballanced budget, just out of general idyosincracy in a tie I prefer the higher deficit, because the distortion effects of enforcement that come from taxing via inflation in my opinion are superior to the distortion effects of actual enforcement(i.e. the fair tax).
What both Krugman and I think is that unemployment is too high and inflation too low to be overly concerned with raising taxes or cutting spending.
In other words we think that increased taxes and reduced government spending will not increase the size of the pie and leave you with enough additional purchasing power to get you a larger market basket. We do believe that increased government spending and reduced taxes at this junction will increase the size of the pie such that it will outrun your decrease in purchasing power and get you a larger market basket. In addition it will be pro-middle class by fighting unemployment.
December 4th, 2012 | 5:11 pm
“Simplicity is very, very important. Lots of Americans would trade somewhat higher taxes for not having to navigate the insane maze that is the tax code. And abandon all hope those who come to the attention of the IRS, even for the most trivial and innocent of mistakes.”
Simplicity is important, but undefinable and therefore, unattainable. As soon as some one finds a way to minimize their tax obligations through the novel or unanticipated use of the law and its found to be legal by the Courts,
the chattering classes will all rush to the microphone to exclaim indignity about this “loophole”. This is what gave us the alternative minimum tax (AMT)-it was literally designed for a handful of people-and now affects millions.
The other aspect of high rates people don’t understand is that it increases the value of a deduction. So if the tax rate goes up from say, 30 to 35%, there’s more incentive to petition Congress for exemptions or deductions-each one adding to complexity making you a more eager supplicant to the federal master. Complexity also ensures a division among the citizenry, preventing a reaction against oppressive government.
Because the tax code is arbitrary and there’s no agreement or measurements of desireable aspects of the code (equity, simplicity, effectiveness, etc) and change (think the 1986 Act) is fragile.
Not only is there no way to get to a better tax code, there’s not even an incentive. Being able to “sell” deductions and exemptions is one of the best arrows in a politician’s quiver (not to mention the ability to spend the proceeds on conspicuous “bread and circuses” in one’s district or state).
Forget revising the code, because every revision is one election from erasure. (Ponnuru is right about the “fair tax”.)
The only way to fix the tax code is to abolish it. (i understand the likelihood of that is nil) The Sixteeth Amendment is, in my estimation a soon to be century old disaster. If the principal tax entity was the state, then the power to enact arbitrary tax laws would be limited-because noxious or undesireable tax laws would be limited by the potential of taxpayers to vote with their feet.
December 4th, 2012 | 8:19 pm
“The problem is what Krugman says it is…not enough spending.”
So John. Just out of curiosity how much spending IS too much spending? Is there a limit beyond which it isn’t prudent to add to our debt? Or, according to you, Krugman and company, should we just go all in and spend regardless of the debt we acrue?
December 4th, 2012 | 9:09 pm
Jim, “Seniors would have a stable social security program and would receive income with no tax obligation on it.”
Nonsense. Most seniors pay zero income or payroll taxes on their Social Security benefits. The effect of the FairTax would be to slap a 30% sales tax on whatever they purchase with their benefit checks. They would also pay that 30% as they spent down their accumulated savings. Assuming revenue neutrality, moving to a sales tax makes the Social Security system neither more nor less sustainable though it does shift the tax burden in important ways.
Here is an analysis on the distributional effects of the FairTax. Short answer: even with a demogrant, the middle-income tier loses. http://www.taxpolicycenter.org/briefing-book/improve/retail/burden.cfm
December 5th, 2012 | 5:17 pm
So Pete, any thoughts about the emerging narrative and characters as the new Presidential campaign gets underway?
http://www.nationalreview.com/articles/334890/moving-editors
December 5th, 2012 | 6:43 pm
Pseudoplotinus, it’s a good editorial. I’ve read about the recent Rubio and Ryan speeches but I haven’t seen them yet. 2016 is just too far away this week. I’m more focused on recriminations at this point. I also think that a lot of the most important work is best done between election years by noncandidates for public office.
December 5th, 2012 | 9:00 pm
Yeah, 9-9-9, now that’s a blast from the past: http://www.youtube.com/watch?v=sqg0YdxFpQA
December 5th, 2012 | 9:24 pm
Pseudo: I’m pretty sure that in the last week or two Mr. Lewis wrote, in response to a post of mine, that there was no reason why the government couldn’t, or even shouldn’t, run a debt-to-GDP ratio of infinity. It’s difficult for me to tell whether his posts are Swiftian satires or Krugmanesque bits of unintentional comedy, so I may be mistaken, but I believe that was the gist of it…
December 5th, 2012 | 11:50 pm
Brian, my suspicion is that Mr. Lewis is a former mortgage broker because I heard very similar reasoning during the gravey days of the real estate boom. After all, ‘housing values always go up so if you’re in over your head just flip it for a profit!’
That’s the problem with extrapolating from a closed system of risk assumptions, reality always turns out to be more complicated. But hey, maybe this time it’s different.
December 6th, 2012 | 10:58 am
“I also think that a lot of the most important work is best done between election years by noncandidates for public office.”
True. I just hope part of that work includes some reflection about what appeared to be a serious “narrative deficit” between Republicans and Democrats these last two presidential elections.
From what I’m hearing a majority of the voters in the exit polls supported most of the Republican positions, but favored Obama based on the belief that he “cared” more for them than Romney.
You’re definitely spot on about the need to get our policy straight, and be able to articulate that policy coherently. But I suspect our challenges lie equally in the elusive realm of “public perception”.
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