The Republicans And Taxes II: Do Social Conservatives Want To Raise Taxes On Themselves?

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.