Republican politicians talk about “growth” and “tax reform.” Both parties talk about “jobs.” Instead, pols would be wise to start talking about take-home pay and the middle-class squeeze.
Unemployment is high, but most voters have jobs. Growth is the precursor to jobs, but that’s an abstraction. “Tax reform” raises suspicions that the rich will get richer, and besides, this is not the 1970s, when the top marginal tax rate was 70 percent.
Two economists often cited by Democrats have it right on this one, as the Hill reports:
“Most people have a job, and their perspective on the economy is determined by whether they got a raise, and if so, how big,” said Mark Zandi, chief economist with Moody’s Analytics.
“Unfortunately, wages have been growing at no more than the rate of inflation since the recession. In other words, living standards are going nowhere.”
Jared Bernstein, a senior fellow with the Center for Budget and Policy Priorities, said the cost of gas, food, housing, college educations and childcare have outpaced paychecks of middle class families, keeping them in a dour holding pattern.
“There are a lot of people out there who haven’t gotten a pay raise,” he said.
Yes, the Obama years have been hard on the middle class. In fact, President Obama’s policies have done nothing or may actually have contributed to the problem. Obamacare is pushing up premiums for individual health-care plans. By constantly pumping federal money into the student loan program, the government is only encouraging more students to incur more debt (the payments for which will drag down new grads) and encouraging colleges to keep hiking tuition payments. And if the president had his way, energy prices would go even higher under a cap-and-trade scheme and continued pummeling of the coal industry.
In short, under Obama poverty has increased and the middle class feels besieged. Democrats, in clinging to the status quo on virtually every aspect of the current welfare state, offer few if any solutions. Conservatives have a huge opportunity if they want to seize it. Conservative reformers such as Robert Stein caution: “For conservatives to move forward, we have to come to grips with both our victories and our failures. Having substantially cut top tax rates in the 1980s, our potential gains from fighting on the tax rate battlefield are now diminished. Not gone completely, just smaller. To gain popularity for a broader conservative agenda, we need to offer something more than just updated versions of plans that have failed to gain traction for decades.”
On the tax side, that may include a larger child tax credit, as Stein recommends. Alternatively, so as to also benefit childless households, payroll tax reform that lowers the amount taken out of workers’ checks is a visible way to ease the middle-class squeeze. James Capretta argues:
An alternative solution would be to directly correct for the anti-parent bias in the Social Security payroll tax system itself. For instance, parents might get a 2.5 percentage point reduction in the standard payroll tax rate for every dependent child in the home. . . Parents with three children would thus pay a tax that is 7.5 percentage points below the standard payroll tax rate.
This approach to helping middle class parents would have substantial benefits over a larger child credit. It would directly lower tax rates on the earnings of parents, and thus reinforce the pro-growth effects of an individual income tax reform plan. It would be a very visible tax cut, seen directly in the paychecks of millions of workers, and thus add to its political potency.
It would also open the door to other important changes in the payroll tax system. For instance, workers who are already eligible for Social Security and Medicare benefits still owe payroll taxes on their earnings even though they generally get nothing back from these additional “contributions.” The imposition of this tax on these workers is a major disincentive to continued work among those age 65 and older. A serious payroll tax reform would eliminate this tax on senior citizens to encourage longer worker lives. . . .
For too long, Republicans have focused their tax reform energies on just the individual and corporate income tax systems, on the assumption that payroll taxes cannot be changed because of their connection to financing the major social insurance programs. But the largest tax most families face is the payroll tax, not the income tax. And if the major entitlement spending programs are not reformed to lower their long-term costs, the payroll tax burden on these families will rise in coming years, not fall, and could potentially offset any tax rate reductions that are achieved in the individual income tax system. If the GOP is serious about holding down overall tax burdens, the payroll tax cannot be ignored forever.
Beyond taxes, a health-care reform plan that allows people to purchase cheaper catastrophic plans would increase the amount that families have to spend on other items. Following the recommendations of Sen. Marco Rubio (R-Fla.) and others requiring universities to disclose graduation and income figures and applying student loan subsidies to a range of accreditation programs would also help. And domestic development would not only create jobs, but also lower fuel costs that affect virtually every consumer item.
Republicans would do well, therefore, to look at policy from the perspective of a family with a modest income. What tangible steps can government take to lower costs, increase take-home pay and provide opportunity to increase earning potential? Call it empathetic conservatism — seeing the world through the eyes of ordinary voters instead of through the prism of abstract theory.