I’m of the view that Mitt Romney’s presidential campaign was right to offer only the barest outlines of a tax overhaul. The partisan divisions over tax policy are fairly well understood, and any president will have to craft some kind of legislative compromise. It is useful to know how a presidential candidate might approach tax policy. But to offer a very specific proposal is to tie your hands in ways that might prove counterproductive. So Romney called for keeping the Bush-era tax measures in place while adding an exemption from capital income taxes for all households earning less than $200K and, reading between the lines, an eventual transition to something like the Bush tax reform panel’s Growth and Investment Tax plan. This approach brackets a number of difficult questions and at least in theory would give Romney room for maneuver as president.
Now, facing a serious, potentially campaign-ending threat from Rick Santorum in Michigan and Arizona, the Romney campaign has decided to offer a somewhat more specific tax reform proposal.
The difficulty Romney is attempting to address is that engaged primary voters want candidates to demonstrate their ideological commitment, and tax policy is a relatively accessible to convey one’s views regarding the “strains of commitment,” a Rawlsian concept that Will Wilkinson has explained nicely:
Mr Rawls argued that a just society must be “well-ordered”. And a well-ordered society must be stable, meaning that its members must willingly comply with its terms. When the “strains of commitment” of a social system are too great, we should expect non-compliance and a not-so-well-ordered system. Rawls’ pragmatic argument against utilitarianism was precisely that it requires too much of us, overstrains our ability to prioritise the welfare of others over that of our families and ourselves. But Rawls’ own version of egalitarian liberalism may ultimately fall to the same objection.
The latter third of “A Theory of Justice” is supposed to show how a society implementing Mr Rawls’ system of “justice as fairness” can generate allegiance from its citizens and thereby pass the stability test. In a nutshell, citizens will learn to see that such a system is just, which will inspire their native sense of moral rectitude, causing them to voluntarily adhere to its rules, even when it requires some sacrifice of them.
To oversimplify, conservatives and egalitarian liberals in the U.S. have different views regarding the point at which the strains of commitment, understood as the burden taxes and regulation place on the exercise of private economic liberties, become too great. And they also have different views regarding what a just society looks like in practice.
Taxes are the easiest way to get to our gut instincts on these questions. Unfortunately, tax policy probably isn’t the best gauge. The regulatory burden is probably more relevant to the practical exercise of economic freedom in the U.S. than the tax burden, as a recent leader in The Economist suggested, yet relatively few people (small-scale entrepreneurs, etc.) have red tape foremost in mind. It turns out that Romney actually has a very good understanding of the regulatory climate, and he has offered a number of interesting and important ideas for how we might improve it.
Moreover, Romney’s quite good (if fairly broad) entitlement reform proposals indicated that he understood that the really important issue is the long-term spending trajectory. Calling for entitlement reform is, however, riskier than calling for tax reform, even if you frame entitlement reform as “win-win,” as one might under Romney’s defined benefit approach.
Next we’ll discuss the tax proposal itself.