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Don't Forget Who Voted You In


 

The Republican Congress and the middle class.

 

Irwin M Stelzer
Published February 2nd, 2015, Vol. 20, N0. 20

Congressional Republicans can reasonably be accused of prioritizing issues about which middle-class voters care little. The president can reasonably be said to have his priorities perfectly in order, with counterproductive proposals that won't achieve them.

 

The millions who knocked on doors in 2014, and the few who spent millions backing them, got what they were after: Republican control of both houses of Congress. So how are the Republicans in Congress doing? Not too well, according to NBC/Wall Street Journal polling. Only 23 percent of those polled approve of the job they are doing, and the GOP's rating has fallen significantly since the elections. Poor priorities might be one reason.

 

As a first step on the road to the White House, Republicans agreed in the lame duck session to an omnibus bill that had buried in it a modification of the Dodd-Frank law, the b�te noire of Wall Street. The provision allowed banks that are still too-big-to-fail to take more risks, secure in the knowledge that if they once again manage themselves to the brink of failure the good old taxpayer will stump up bailout funds. It was a bipartisan effort, with Elizabeth Warren and a few objectors the only ones trying to prevent this silliness, and it's a long way to 2016, so perhaps Main Street voters who did notice that they were once again being readied to be plucked in an emergency will forget.

 

Republicans then decided, when the new Congress convened, that the most important thing they could do for a middle class that has barely shared in the tepid recovery would be to pass a bill authorizing the construction of the Keystone XL pipeline to bring more crude oil (some already arrives by train, some by other pipelines) to the United States. Nothing to do with any shortage of oil here: We are already hip deep in the stuff, the industry hoping that Congress will find a way to allow its export. Nothing to do with national security or that will o' the wisp, energy independence: That oil will find its way onto international markets whether it comes here or not, further diluting the power of the oil cartel. Nothing to do with a major increase in jobs: Once built, the line can be operated with relatively few twists and turns of some dials and a handful of maintenance men who already have no problem finding work. And certainly nothing to do with the middle classes who are hoping Republicans will find something to do for them. Private sector companies, fracking on private lands, have already given them the gift of cheaper gasoline.

 

Ah, but the middle classes are interested in tax reform, aren't they? Yes-and Republicans are focused on lowering the corporate tax rate. There will be offsetting business loophole closures, but of the arcane sort that few voters will understand. So Republicans will go to the voters in 2016 as the party that lowered corporate taxes? Why not use the money saved by closing loopholes to cut taxes on low- and middle-income earners? Because, says the GOP leadership, cutting corporate taxes will give corporations more money to invest and create jobs. But these corporations already have $2 trillion in cash that they don't know what to do with, and some already have effective tax rates close to zero. Guess what most voters would say when asked whether they would like their taxes cut, or prefer to wait for the wonderful effect on their lives of lower corporate taxes. Ask most economists which approach, given the present condition of the economy, is more likely to stimulate growth, and they will say increasing incomes of cash-poor families is likely to do more than increasing the incomes of corporations already awash with cash.

 

If that's not enough to burnish their friend-of-the-middle-class credentials, the Republican leadership plans to give Obama fast-track authority to negotiate trade agreements with Pacific rim countries and with the EU. Business interests dearly want these deals done so as to ease the movement of their goods and services between countries. Some of those countries will continue to bar or minimize, directly or indirectly, the three A's in which America has a competitive advantage-agricultural products (unsafe genetic modification), audiovisual products (destructive of French culture), and airplanes (too competitive with made-in-Europe planes). Others will insist that their state-owned enterprises buy only domestic-made software. Not for Republicans Adam Smith's interdiction: "Revenge... naturally dictates retaliation... when some foreign nation restrains... importation of some of our manufactures."

 

The good news is that it is a long way from here to the polling booths in November 2016. There is still time to dare the president to veto

  • a revenue-neutral bill reducing taxes on many families, funded by eliminating capital gains tax treatment for hedge funds' so-called carried interest. Better to get the needed funds by eliminating inefficiency-creating gifts to business than by raising taxes on work, as Obama proposes.
  • a bill that mandates tax refunds be sent to taxpayers within 30 days;
  • a bill that incorporates long-held conservative preferences for consumption taxes by imposing a carbon tax and simultaneously using the revenue to reduce payroll taxes;
  • a bill that lowers the tax rate on, say, the first $10,000 of wages earned by workers already on Social Security to provide them with an incentive to return to or remain in the labor force, funded perhaps by revenues from a tax holiday for repatriated corporate earnings; measures that seriously address the problem that is sapping support for capitalism-rising inequality. Smith again:
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    No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, cloath and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.

     

    None of this is a suggestion that conservatives rally to the cause of protectionism, or concoct a massive income-redistribution program, or pass legislation that is unsound on the merits. It is a suggestion, first, that conservatives consider reordering their priorities and, second, apply longstanding conservative values to a rethink of policies to increase jobs and wage growth and reduce inequality. These are things that matter. 

     

    And addressing them, rather than the wishes of corporate America, is more important than ever now that the president has laid out his proposed solutions. Sure, these proposals are DOA. And, yes, polls show that the majority of the public does not share the president's priorities. But with Obama's poll numbers improving (approval of his management of the economy is at its highest level since right after the 2008 election), and jobs at the top of the list of concerns of 85 percent of Americans, he will have a potent stick with which to beat Republicans. By trying to redistribute income from the 1 percent to the middle class, Democrats will contend, they are moving cash that would likely be stuffed under mattresses by a sated few into the hands of hard-pressed families who will spend it and create jobs, and to the government, which will use it to finance community college education for underprivileged kids. Never mind that they would be creating a new group of dependents on an ever-growing entitlement state, which is always a goal of big government progressives, if not always stated.

     

    In contrast, they will contend, congressional Republicans used their new majorities to try to enrich businesses by giving them a new pipeline to get oil to their refineries, easing bank regulation, and wasting legislative time passing bills containing heaven knows what provisions that they and lobbyists have long lusted after.

     

    The president has quite cleverly dressed his old redistributionist policies in new tax reform clothes, proving that he is willing to make words mean what he wants them to. Tax reform is supposed to have three features.

     

    The first is revenue neutrality. Tax cutters and tax raisers are not reformers: They have competing views of the proper size of government and the portion of the nation's income that can be commandeered without putting the golden-egg-laying goose into the ICU. Obama's plan is many things, but revenue neutral it is not.

     

    The second is simplification of the tax code. The president's plan is anything but a move toward simplification. Middle-class families, defined as working couples meeting certain income tests, will file forms with an IRS that cannot process the workload it now has, and approved community colleges-imagine the requirements for approval-will be paid partly by Washington and partly by the states to accept students the government decides, after examining their financial circumstances, are worthy of help. Nothing simple about the thousands of pages of regulations that would be produced to effectuate those policies.

     

    Finally, any tax reform should improve the efficiency of the tax system by eliminating special benefits that distort investment in favor of lower overall rates that leave it to consumers and investors to direct their capital by their individual choices. Special breaks for the oil industry or wind farms, for example, direct investment to those industries that a free capital market would not. Drop them, and those funds will go where individual consumers and investors decide is their most efficient use. Obama does not even nod in that direction, and with reason: Although he might not agree with the special-interest features now in the tax code, he agrees with the idea that markets cannot be trusted to move capital to where it is most needed. His idea of reform is to substitute his special interests for the special interests already represented in the code.

     

    Still, redistribution has its charms for those on the receiving end, and for left-leaning politicians who know that bankers and what Teddy Roosevelt once called malefactors of great wealth are not at the top of the pops right now. Jean-Baptiste Colbert, France's minister of finance under Louis XIV, famously said, "The art of taxation consists in so plucking the goose as to get the most feathers with the least hissing." Obama has selected for plucking those geese, "the rich," whose hisses will not resonate with the mass of voters-an open ticket for "progressives" to tout Obama's grow-the-government program. Which makes it even more urgent that Republicans, who control Congress, be able to explain to the middle class in 2016 that by applying conservative principles to the development of policy, they can do more for most Americans than an already bloated government bureaucracy.

     

    Irwin M. Stelzer is a contributing editor to The Weekly Standard and a columnist for the Sunday Times (London).


    For Questions or Comments please email Irwin Stelzer at irwin@stelzerassoc.com  

     

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