Why the Reagan wing of the GOP is worried

Ronald Reagan in 1988 (AP Photo/Scott Stewart)

The Republican debate over Reaganomics is really a debate about priorities.

The question for conservative thinkers is whether former President Ronald Reagan’s supply-side economic prescription is sufficient for today’s economic problems, particularly for America’s struggling middle class.

There’s a faction arguing that Reagan’s diet of shrinking government and cutting tax rates across the board remains just as potent today as it was when Reagan took office 34 years ago. This is the group that still believes a rising tide in the U.S. economy – faster economic growth, unleashed by Reaganite policies – will still lift all workers’ boats, from the poor up to the rich.

One of the leaders of that group, the prominent economic commentator Larry Kudlow, told me in an interview that “If the average growth rate had been a lot closer to 4 percent than 2 percent” over the last several years, “a lot of these income problems would have been solved.”

Kudlow’s faction also includes Arthur Laffer, the legendary conservative economist who advised Reagan, and Stephen Moore, the chief economist at the Heritage Foundation. They’re pushing for more than tax cuts – they’d also like the next GOP nominee to work to curb eligibility for safety net programs they say discourage people from working, including food stamps and Social Security Disability Insurance.

This group thinks the economy has struggled today because of policy mistakes over the last decade and a half. Kudlow blames President Obama and his GOP predecessor, George W. Bush, for expanding safety net programs and discouraging work.

Kudlow blames those disincentives for the drop in America’s labor-force participation rate in recent years. He calls the welfare reform signed under President Bill Clinton a “powerful tax cut for the economy” because it encouraged work. He says Bush’s temporary and targeted 2001 and 2008 tax cuts failed, but that his big rate cuts in 2003 spurred a five-year “boom”.

The rival Republican faction, often represented by thinkers in the “reform conservative” camp, agrees with the orthodox wing on many – if not most – of those points. But thinkers in the reform group say beleaguered workers need more targeted help, too, to get ahead today. They’ve proposed tailored policies such as wage subsidies for low-income workers and tax credits for working families with children.

The orthodox faction doesn’t like those proposals, for two reasons. One is that, in Kudlow’s words, they empower government, by allowing it to pinpoint specific groups for help. The other is, they take money from the federal budget – money that, the orthodox group argues, would be better used reducing income tax rates for individuals and corporations.

This is the priorities problem. Even if you want aggressive government spending cuts, and even if you assume tax cuts fuel economic growth, you can still only cut tax rates so much without increasing the federal budget deficit.

“I want the lowest possible rates and the broadest possible base,” Kudlow said. Targeted policies, he said, threaten those goals.