“I don’t think [the Republicans] would make it easier for small businesses.” “A corporation, maybe, absolutely. A small business?”- Report by the College Republicans
Those quotes from young voters give you an idea of part of the Republican party’s problems. Many young people see the Republicans as the party the already wealthy. Those young voters aren’t alone. It is not all some big mistake or liberal media plot. Republicans have put themselves in the position of seeming like the party of high-earners that depends on cultural appeals to the white segment of the working-class to be politically competitive. They can start to rectify the problem by placing the priorities and concerns of those who are (or aspire to be) in the middle-class at the center of their agenda.
Part of the problem is rhetorical. All the talk of the job creators who “built that” sure made it sound like the party was primarily interested in defending and extolling the affluent. Part of it was also policy. From the perspective of the median income, it probably does not look as if reducing the top marginal income tax rate is a pressing concern. Keeping some kind of health insurance if you should get laid off likely seems like a bigger deal. Telling those people that they won’t get laid off if the top marginal tax rate is reduced is unlikely to be convincing. It comes across like they are working backward to explain a policy designed to primarily benefit someone else. “You know what is the best thing for you? Another tax cut for him. And another one.”
The Republicans have been moving in the wrong direction for several years. Mitt Romney’s original tax plan would have cut the corporate income tax rate, but the plan’s centerpiece was cutting investment taxes on the middle-class. That was mostly gestural. A middle-class family’s tax liability is more likely to come from payroll taxes than investment taxes. What is notable is that Romney’s plan left the top marginal income tax rate unchanged at 35%.
Then, under pressure from Santorum, Romney adopted an across-the-board 20% income tax cut. This would have brought the top marginal income tax rate down to 28.%. Romney said that his tax cut could be revenue neutral by cutting deductions. Romney also make the just-barely-plausible contention that this could be accomplished without raising the tax liabilities of the middle-class.
The most highly touted populist alternative to Romney has been Rand Paul. Paul has proposed a 17% flat tax that would sharply cut taxes on high-earners and increase taxes on many middle-class working families. So in the space of several years, we have gone from a 35% top tax rate and some largely symbolic middle-class tax cuts, to a 17% top rate and a middle-class tax increase. The irony is that, as Ramesh Ponnuru pointed out, there does not seem to be much enthusiasm for high-earner tax cuts even among Republican primary voters.
The answer is not for the Republicans to become anti-business or anti-high-earner. The Republicans should remain the relatively lower tax, lower regulation party. The answer is for Republicans to reverse the priorities of their rhetoric and policy agenda. In the last election, the Republicans treated high-earners as the Sun and the rest of the population as satellites. It was all about how policies whose direct effects would benefit high-earners would eventually benefit everybody else too. There is some truth to that, and the median voter is likely to agree that there is some truth there. It just can’t be the whole truth.
Republicans should aim to put those who are in the middle-class (and low-earners who are trying to join the middle-class) in the center and build a conservative politics around them. James Capretta’s health care plan would extend catastrophic health insurance to working families through the use of a flat tax credit. It would be more pro-employment than Obamacare since employers will no longer have an incentive to keep workers part-time in order to avoid being forced to pay a fine for not offering insurance. Capretta’s plan would also cap the regressive health insurance tax exclusion that currently provides larger tax benefits for high-earners. Since Capretta’s plan would likely steer workers toward higher deductible, lower premium plans, it would (along with regulatory reforms) tend to encourage a more competitive market in nonemergency health care. It would be pro-market. pro-employment, and pro- middle-class.
Robert Stein’s tax plan would increase the take home pay and work incentives of middle and lower-middle-class parents by increasing the child tax credit and making it fully refundable against payroll tax liability. It would also cut taxes on capital while keeping the top marginal income tax rate at 35% and cutting deductions that are primarily used by high-earners. This tax plan would be pro-work, pro-family, and pro-growth.
The Republicans party would still be better for right-leaning high-earners. It would still be the party of less spending. It would still be the party of lower top marginal tax rates. It would still be the party of less regulation. That would be the background. The foreground would be how the Republicans are the party that has pro-market, pro-family answers for the concerns of the middle-class.