Peter Lawler very astutely described the problems of some of the self-employed. Some of those observations also apply to much of the working and middle-classes, and especially families with minor children. The problems of these groups are much more pressing (as a matter of both policy and politics) than the top marginal tax rates for high earners. The good news is that right-leaning thinkers like Yuval Levin and Reihan Salam have been on this for quite a while, and Republicans have some policies they can offer to working and middle-class families. These policies include:
1. Family-Friendly Tax Reform – This plan would save thousands of dollars for working-class and middle-class parents and cut taxes on investment income. This plan would encourage both work and family formation among the working and middle-classes while making the tax code more efficient. This also means that some of the people benefiting would be workers in the dreaded (by Mitt Romney) forty-seven percent. That’s okay. In fact, it’s great. We want to make it easier for people in the lower half of the income distribution to support their families through work.
2. A Flat Health Insurance Tax Credit For People Without Access to Employer-Provided Coverage – If you like your employer-provided health insurance you get to keep it. If you do not have access to employer-provided coverage, you get a tax credit to purchase health insurance. It doesn’t solve everybody’s problems, but it would expands access to health insurance to some working families who don’t presently have it.
These policies aren’t everything of course. We would still need major entitlement reform and related health care reforms (among a whole lot else), but the above policies would give Republicans something real to say about the concerns of many Americans who spent the election just hearing about how the Republicans plan to cut marginal tax rates for high earners.
Republicans would also have to choose their political and policy priorities. Our fiscal situation is pretty dire. Even if we cut spending by a lot, Medicare (in some form) and Social Security will still be there. The baby boomers will still be retiring and still be getting some kind of major benefits. That is just reality and any plan that doesn’t take account of those costs is doomed to be on the margins of actual policymaking. You can make the tax code more work, family, marriage, and investment-friendly, but there will be winners and losers. Family-friendly tax reform would cut taxes on workers in the two middle quartiles and for many families with minor children in the top quartile. The plan would raise the effective tax rates on higher earners who don’t have minor children, but the top marginal income tax rate would go down to thirty-five percent from today’s 39.%.
Not for nothing, but a pro-family and pro-investment tax policy might make it easier for Republicans to sell a (gradual) spending cut-oriented entitlement reform agenda. The reverse seems even more true. To the extent that Republicans are seen as prioritizing high earner tax cuts above everything else, the less likely they will be trusted to reform the entitlements the middle-class hopes to receive when they are too old to work.