Conservatives have a chance to make the country more productive and work-friendly. But they can also throw this chance away by marinating in a politics of high-earner self-interest that ignores or openly resents the rest of the population—which wouldn’t be anything new for them.
Republican politicians don’t deserve all of the blame for past Republican fixation on the economic priorities of high-earners. Some conservative writers and activists prepared the way. The Wall Street Journal editorial board, for example, wrote that those who had no net income tax liability were “lucky duckies”—and many of them are lucky indeed with their stagnating wages and declining family stability.
The Journal also published Ari Fleischer’s complaint about the tax burden of the highest-earners (this was when the top marginal tax rate was 35 percent after two rounds of Bush tax cuts) and Fleischer’s implicit argument for raising taxes on the lower-middle-class and the working-poor. And Erick Erickson fed the caricature with his “We Are the 53%” tumblr, where people explain how they work hard and are responsible unlike you-know-who.
If you want to know the sources of Romney’s 47 percent gaffe, and the Romney campaign’s self-defeating obsession with the high-earners “who built that,” you should start with things said and written by some conservatives in the years prior to 2012. The result wasn’t just a Romney defeat. It wasn’t even having 53 percent of the voters in the 2012 exit poll saying they believed Romney’s policies would primarily favor the rich. The result also included the Republicans losing twenty-five out of thirty-three Senate races.
You would think that after the whipping Republicans received in 2012, conservative writers would have learned their lesson. But it wasn’t enough to lead the Republicans astray just once: Some of them are at it again. Over at the Wall Street Journal, Kimberly Strassel compared an expanded child credit that could be applied to a parent’s payroll tax liability to government subsidies to Solyndra. Over at Forbes, Louis Woodhill calls focusing on the middle-class “divisive,” so one guesses that proposing cutting taxes on high-earners really brings people together.
Strassell and Woodhill both rely on a mistaken reading of the Reagan years. First, they both write as if Reagan’s tax cut appeal was entirely about the economic benefits of cutting marginal tax rates on high-earners. But Reagan came out of the tax revolt of the 1970s and 1980s, which was largely driven by concerns over rising property taxes at the state and municipal level, and inflation-created bracket creep at the federal level. Cutting income taxes and indexing income tax rates to inflation offered direct tax benefits to the middle-class to go along with cuts to the (then much higher) top marginal tax rate.
Second, Strassell and Woodhill understate how a generation of Reagan-inspired tax code changes have transformed the politics of taxes. As Reihan Salam has pointed out, the top marginal income tax rate is now at 40 percent (more realistically in the mid-40s in most places with payroll and state taxes) instead of the 70 percent when Reagan became president, and so the growth effects of further cutting the top marginal rate are likely to be smaller than they were in 1981. Also, fewer Americans have a net income tax liability and so marginal income tax cuts would do ever-less to shrink the tax bill of ever-fewer people. So in speaking to the majority, this forces supporters of cutting taxes on high-earners to make implausible promises about the wonderful indirect effect benefits most people will get when taxes are cut on somebody else. There is no fooling people about the distributional effects of cuts to the top marginal income tax rate. References to Obama’s “you didn’t build that” line did not work in 2012 and references to the IRS scandal won’t get people to forget their own priorities now.
The worst part of all of this is the waste. We could be on the cusp of conservative reforms that would rival all of the domestic policy achievements of the 1980s and 1990s if some conservatives would stop trying to relive the Kemp-Roth tax cuts or else engaging in hopeless struggles to get the public to support flat taxes or national sales taxes that would either raise taxes on the middle-class or collapse revenues or both. In an era where marginal tax rates are already much lower than in the 1970s and with looming deficits, the promise that growth effects will make up for the lost revenue will only fool those who want to be fooled—and 2012 proved that they are not numerous enough.
Back in the 1990s, an economist (I believe it was Chris DeMuth) argued that health care policy rather than taxation was going to be the most important economic battleground of the future. This is a battle that many conservatives have joined too late and with too little focus. Rather than waging futile crusades for flat taxes and national sales taxes, it would make more sense to focus on the uphill struggle (against myriad interest groups) to liberalize medical services and bring competition and price transparency to health care delivery. That would do a lot more to expand free markets than cutting the top marginal income tax rate to 28 percent.
There is room for reforms on taxes beyond middle-class tax cuts. The absurdly high American corporate income tax can be reformed and somewhat reduced, but such proposals work best if paired with tax cuts that also benefit the middle class. Conservatives can try to be the party of business owners and high-earners, but a radical tax reform like the flat tax or national sales tax will not pass and conservatives will find themselves being, at most, a brake that the public occasionally uses to slow down the pace of leftist change, but such high-earner obsessed conservatives will be trusted to implement a governing alternative. That will be the price of being the party of high-earner self-interest. The 2012 election was only the first installment.
Conservatives can be the party that reduces the tax system’s bias against working parents, that uses markets to increase the productivity of our enormous health care system, and that transforms our welfare state to make work and family formation a better deal. In other words, if we want to transform America for the better, we must stop misremembering the Reagan years and forget the tax policy fantasies of a couple failed presidential campaigns.
Pete Spiliakos is a columnist for First Things. His previous articles can be found here.