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Class Conflicted

I'm a big fan of both Reihan Salam and Ramesh Ponnuru so I was interested in their recent article on how the GOP can make inroads among working-class voters.  I agree that the GOP should be offering working-class voters and especially working-class parents a tax cut.  The lousy economy is obscuring that the tax argument, as currently constituted, structurally favors the Democrats.  Obama won (or at worst tied) the tax issue in 2008 with his combination of tax cuts for most and a tax increase on high earners.  Ponnuru and Salam rightly point out that a 2012 tax argument that boils down to Democrats and Republicans agreeing on middle and working-class tax rates but disagreeing on high earner tax rates will tend to favor the Democrats.  Even worse would be a Republican plan that increases taxes on lower earners while cutting taxes on higher earners (or a fantasy land plan of "huge tax cuts for all and never mind the deficit wheeee!!!").

I think Salam and Ponnuru have something like Robert Stein's pro-family, pro-growth tax plan in mind.  I like the plan.  It cuts taxes on most Americans, and encourages investment.  The thing is that this plan does raise taxes on a significant number of high earners in high tax jurisdictions.  That is going to be a political problem.  Considering the political tradeoffs of other kinds of tax reform that either raise taxes on the middle and working-classes or bust the budget, the Stein plan both moves policy in a better direction and is politically doable.  The appeal of the plan to the middle and working-class is obvious but the appeal to high earners is going to have to be comparative. The Republicans are going to cut some of your deductions, but leave your rates low (and cut taxes on investments) while the Democrats are going to raise (and raise and raise) your rates until you  end up spending most of your time working for the government.  Still there be political as well as economic tradeoffs.

Salam and Ponnuru point out that Republicans should focus on having a replacement to Obamacare and I think that working-class voters would benefit enormously from a combination of a tax credit for catastrophic coverage, and state based reinsurance pools.  This would save working-class voters money while maintaining (and in some ways improving) their security of access to health care.  Now explain the ideas behind, and benefits of, these policies in two minutes using plain language.  Not easy.

While I generally share Salam and Ponnuru's policy preferences and political analysis, I think that any move by the GOP toward their kind of agenda will have to be very, very careful.  The voters are not familiar with these policies and the Democrats (as well as the various kinds of liberal-leaning media that most swing voters consume) will do their best to distort reformist conservative policies.  That doesn't mean public spirited conservative politicians shouldn't support these kinds of policies.  They should!  But defending these kinds of policies will be mentally taxing work.  

I remember reading about how when John Roberts  was an appellate lawyer, he would spend weeks trying to imagine all the objections that Supreme Court Justices and opposing counsel might offer to his arguments.  Roberts would then carefully, over weeks and sometimes months, craft concise  and convincing answers and commit them to heart.  Reformist conservative politicians will have to learn from Roberts' example if they are going to win the future.  

Categories > Politics

Discussions - 11 Comments

Ponnuru's Increasing the child tax credit is ok, but he is wrong about the morgage interest deduction.

I suppose he might be right in that both the state and local tax deduction and the morgage interest deduction is bellow the line, and requires itemization.

Potentially what would happen if you got rid of capital gains altogether?That is simply counted it as gross income and taxed it at the rate of the taxpayer.

If you really believe that folks who don't have children are free-riding on society you could I think make the child tax credit both larger and a refundable tax credit.

But Robert Stein is very sophisticated with his proposals. I catch about 30 different things which potentially would have an impact upon other elements.

For example:

"After the filer credit, the new $4,000 per-child credit comes into play, offsetting both income and payroll taxes. Moreover, with each passing year, the size of the credit would grow at the same rate as the taxable wage base for Social Security, which means it would generally grow faster than inflation."

So you want to tie a tax credit to raising the tax base on social security?

A great way to argue that increasing the tax base on social security would not raise revenue.

In fact a great revenue raising idea would be to uncap the social security tax base. Get rid of the step up in basis (thus ending the distortion on selling property only after someone dies.) Look no more death tax...but no more step up in basis...except that it is easier/more efficient to give the step up in basis and tax.

His guarantee that the tax credit would not be refundable does hardly anything to answer middle class critics.

"Some may argue that the plan outlined here is much the same thing: a large welfare-style transfer payment. But the child credit is not a welfare check sent to unemployed adults just because they have more kids. If one has no labor income, one simply does not receive the credit. And once a household has no more income or payroll tax to offset, having more children gets the family nothing. "

This plan is just going to make the rich(upper middle class) richer. I am not sure I don't agree with it, but this is going to encourage say lawyers, doctors and teachers to have kids. It will then actually do exactly the opposite of what the Reagan tax did, encourage richer folks to work more and have fewer children.

The insight of Stein is quite excellent on several points.

But Social Security and Medicare haven't created a bias against parenthood, they have created a bias in favor of it. (the fact that it is foreseeable that it won't exist, dilutes this bias by undermining the reliance interest.)

The folks most dependent on Social Security and Medicare and safety nets are those I know who didn't go to college and say started working fast food and having children.

Seriously those who didn't go to college are the ones having children, some of them even started in high school, married or unmarried.

Social Security, Medicare, Free public education and the bias in favor of consumption over saving, and home building over business investment, are all directed at encouraging famillies.

Class conflicted is right, you actually have one class that focuses on earning money, and another class that focuses on building up familly, which is directed towards over consumption and home ownership.

That is Stein has yet to consider what exactly folks would do if dis-incentivized from working additional hours. They would move from a focus upon saving up and earning money, and move to building a familly.

Having children might be a safeguard against poverty in old age, and social security and medicaire is also.

But it doesn't follow that without social security and medicaire folks would have more children. In fact folks would have fewer children, because in order to save more money they would have to cut costs.

As Einstein said: Compound Interest is the most powerfull force in the Universe.

I am willing to take Stein's view of how much children cost. Say 8k a year.

If you took 8k a year and invested it at 7% Having a child is a serious consumption.

Without Social Security and Medicare and free public education people would have even fewer children, because the cost of having a child would increase.

Seriously folks who have children have done so by promissory estoppel upon the entire safety net structure.

The folks having children are folks who don't even come close to planning life.

It is absolutely true that if you say put the top income tax at 70%, folks who paid this much in tax would start to consider spending more time with the familly.

It is also true that if you reduce the capital gains tax rate you make it even more costly to have a child, because you get to keep even more the 8k a year investment that you would get to keep at say a 7% interest rate.

That is higher taxes rates on income and capital gains would encourage developing the familly, among the type of people for whom such economic considerations impact agency.

I prefer the idea of getting rid of the payroll tax, cutting taxes on the 50% who pay no income tax by turning the payroll tax into a (lower) income tax, and ending the myth that there's a trust fund for social security, etc.

"Most workers foresee getting enough support from the public retirement system to stay out of poverty when they get older,"

Do you honestly think I am buying that assumption?

Rather I think most workers foresee not getting enough support from the public retirement system to stay out of "poverty" when they get older. (or at least a certain more educated set(the ones not having children) do.)

Actually I think the typical high school graduate couple (those with a minimally adequate education to serve a compelling state interest,) either married or unmarried end up being the ones having the most kids, are completly dependant upon churches and government and familly. With the stock market melt down and the flat markets I am not sure they are that motivated by the prospect of lower capital gains rates either.

Now Social Security and Medicare are going to help some, maybe.... but they aren't going to be enough for a certain quality of life.

So certainly familly is important, but it isn't like Social Security or Medicare are exactly Cadillac.

Its more a question of own a Cadillac, raise a familly. Or raise a familly or travel to Italy. Its a tradeoff question.

You can have 5 kids if you think a high school education is good enough for them.

If you think they will need, or if you want them to have a Cadillac education... then maybe you can only afford 1.

The birth rate has gone down because of our progressivism. That is simply speaking we want a higher quality of life for our heirs, or potentially for ourselves.

You could have more children, but those are certainly the most expensive form of retirement insurance.

Look I think doing what Judge Roberts did is great, but if you want to persuade the middle class, maybe you could take a gander at a TV commerical. Say maybe ING "What is your number"?

Because frankly only lawyers read supreme court decisions. And reading a lot of supreme court decisions is really bad for procreation. I quoted Scalia to a girl in a bar and it wasn't good.

Lower tax rates, lower capital gains that is excellent for work. Lawyers sure as hell aren't going to deprive themselves and work 60 hours a week at a top marginal tax rate of 70% (except some will...because the supply is inflated, and a lot of them enjoy it).

The way I see it law school is a fixed cost you have to recover, as with all things fixed cost, once you have it you keep working until you hit your variable cost.

I want the gov. to soak the rich to pay down the deficit hopeing these guys retire to spend more time with the familly.

In the long run is a high tax rate horrible for economic productivity? Absolutely!

But I also think that in the long run a low tax rate is horrible for economic productivity and this follows from recognizing this:

"Economic man is also a family man, and the next generation of tax reform should address the ­distortions and burdens our fiscal policy imposes on American families." (does he have any bloody clue why a certain set of economists don't want to, or can't go down this road?)

Maybe you need to explain what the social security trust fund is, as it is something the CBO projects will be depleted by 2052.

That is its "mythness" is only a discrepancy in understanding.

It is altogether interesting that we can form ideas of mythical creatures. A dragon is a myth. But a dragon is not an orange and edible taproot that is a source of Vitamin C. A Dragon is a fire breathing creature with wings that hoards gold. In Shrek a Dragon can mate with a Donkey. But a Donkey is a real creature. Donkey's like to eat carrots. Donkey's are also stubborn and you must use both sticks and carrots to motivate them.

Democrats are also Donkey's, but this is more of a trademark type thing. It is a myth that Obama is a Donkey, but it is not necessarily a myth that the tax code has "sticks" and "carrots" and that the american people are "donkey's".

Don't get me started on the Elephant in the room.

Of course we could take the simple way out and actually start following the Constitution. Then we wouldn't have to worry about trying to fix the unfixable (SocSec, Medicare, any other Federal entitlement programs), we would only have to figure out the most equitable way to end them. We wouldn't have to worry about how to tweak the tax code this way or that: the Fed gov't would be shrunk to a reasonable size, requiring much less in tax revenue, instead of being the vast gaping sucking maw of a black hole that it is today.

Was no one else stricken by the condecension towards the "working class" expressed in both Reihan Salam's and Ramesh Ponnuru's essays (and to a lesser extent by Pete Spiliakos). The proposals are written as though by an "elite" cohort deciding how to bestow their wisdom about taxes on a group of people incapable of understanding what is good (or bad) for them, or of having any opinions on the matter, or even of being able to understand their plight.


More constructively - it is too bad that the Bush tax cuts (I prefer to call them the existing tax rates) were extended. Nothing would have concentrated the minds of the "working class" more than a reduced January pay check as higher rates kicked in. This would have also provided the impetus for the Republicans to permanently extend the pre 2011 tax rates or prefereably to address the inequities in a tax system in which 50% of the population has no stake, except to perpetuate their tax exempt status and lobby for continued government largess on the backs of the most productive members of society.

Yes, Jim, I tend to agree -- as painful as it would have been to see those tax rates jump up, I think the GOP leaped to compromise far too quickly here. I guess they were afraid of being smeared as "the party of the rich," although that has been so frequent that I fail to see how much damage it could really do.

Jim, I think I've figured it out. It is condescension to suggest policies that will increase the take home pay of working parents in the bottom half of the income distribution. It is not condescension to pretend to forget that many working-class people pay payroll taxes and are therefore not "tax exempt." It is not condescension to describe the political incentives of the working-class as being "to lobby for continued government largess on the backs of the most productive members of society." Gotcha.

It's not the policies that I find condescending; its the tone of the articles. I generally agree with the policy proposals, but they are presented - well, it's sort of like the family gathering at Christmas and talking about the crazy uncle in the third person, while the crazy uncle sits there in the room with everybody else.

The problems are real enough - how to broaden the tax base to include those in the lower 50-percentile of the economic ladder so that they have a stake in the government and its budget, while their self interest dictates that they (and the politicians who represent this consituency) support the status quo and the continuation of unsustainable government largess.

Or am I being condescending?

Merry Chrismas to all, and to all . . .

Well I think we can disagree about Ponnuru and Salam's tone (I am too biased to be a judge in my own case.) I think you can make the tax system both a little more progressive, more growth-oriented and still win support for a market-reform agenda. The working class does pay taxes (payroll taxes), and in a context of stagnant living standards and often perverse work incentives. I think the best way for conservatives to win over the working-class on economic issues is to offer policies that will improve their living standards. That could include tax changes, health care and education reform and no doubt lots of stuff I haven't thought about.

Merry Christmas!!!

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