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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Post-Cliff Revenue Politics and the Republican Opportunity



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Earlier today, Ross Douthat wrote an excellent post on what he describes as “liberalism’s $400,000 problem“:

And here I think liberals have a real reason to be discouraged by the White House’s willingness — and, more importantly, many Senate Democrats’ apparent eagerness — to compromise on tax increases for the near-rich. Liberal pundits seem most worried about what this concession signals for the next round of negotiations, over the sequester and the debt ceiling. But if I were them I’d be more worried about the longer term, and what it signals about their party’s willingness and ability to raise tax rates for anyone who isn’t super-rich. As I’ve suggested before, these negotiations amounted to a test of liberalism’s ability to raise revenue, and it isn’t clear that this outcome constitutes a passing grade: If a newly re-elected Democratic president can’t muster the political will and capital required to do something as straightforward and relatively popular as raising taxes on the tiny fraction Americans making over $250,000 when those same taxes are scheduled to go up already, then how can Democrats ever expect to push taxes upward to levels that would make our existing public progams sustainable for the long run?

Ross goes on to cite center-left writers who believe that the electorate will grow more inclined to embrace tax increases over time, and he counters by making the following observation:

Nor is this tax-wary caucus likely to grow weaker with time: It exists because many Democratic lawmakers represent (and are funded by) a lot of affluent professionals in wealthy, high-cost-of-living states, and that relationship is only likely to loom larger if current demographic and political trends persist.

Moreover, if wage stagnation persists, and as less-skilled and mid-skilled young people come of age and form families, resistance to the kind of broad-based tax increases that can provide a stable foundation for center-left governance will likely harden.

I should stress that this isn’t exactly great news. If there were a painless, revenue-centric way to achieve long-run fiscal sustainability, that would be great news. But the political limits of a revenue-centric approach leave us with a series of unattractive options: (a) to make the case for unpopular entitlement reforms; (b) to make the case for an unpopular broad-based revenue source, like a VAT; (c) to make the case for some mix of both; or (d) to allow public debt to reach Japanese levels and hope for the best.

But Ross’s take on the center-left’s revenue dilemma does create an opportunity on the center-right. Sen. Marco Rubio (R-FL) was one of the small handful of Republican senators to oppose the cliff deal that passed by an overwhelming 89-8 margin, and his opposition has generally been interpreted as an entirely opportunistic move that was all about 2016 positioning. It is also true, however, that Rubio’s chief of staff, Cesar Conda, is one of more innovative center-right policy thinkers, who collaborated with Robert Stein in 2007 on a smart pro-family tax reform proposal:

[S]crap the individual alternative minimum tax and every itemized deduction except two: mortgage interest and charitable donations. Make these two deductions available to all taxpayers, not just itemizers. Reduce the limit on the principal amount on which interest is to be deducted, but only to keep the total amount of mortgage interest deductions the same as under current law. Similarly, for the charitable deduction, adjust minimums, maximums, and verification standards to keep the amount the same as under current law.

These are changes that would obviously face resistance, but that would would advance conservative objectives:

After deductions, individuals face only two income tax brackets: 15 percent and 32 percent. Make the 15 percent bracket twice as wide for married couples as singles to acknowledge that husbands and wives share their incomes. Then apply credits based on family size to reduce taxes owed.

Replace the standard deduction and personal exemption for each filer with a nonrefundable credit of $2,000. (Married couples get up to $4,000; singles up to $2,000.) Replace the personal exemption for children, child credit, child care credit, and adoption credit by a new $4,000 credit per child that offsets both income taxes and payroll taxes. (Citizenship requirements would apply, and those taking the earned income credit could not take the child credit too.) Dependents not covered by the $4,000 credit get $500 instead. Given the generosity in the child credit, eliminate the “head-of-household” filing status and treat them as singles. Index the 15 percent brackets and filer credit for inflation; index the child credit for wages, like the Social Security tax base.

These changes would make a huge difference. The typical married couple with two children would get a tax cut of more than $5,000 per year. [Emphasis added]

The Conda-Stein approach effectively shifts the tax burden from middle-income households with children to high-income households without children — from those with a limited ability to bear the burden of paying for entitlements to those with a greater ability to do so. This is a coherent, conservative approach that is not likely to be embraced by the center-left coalition — which relies more heavily on unmarried adults and households without children than the center-left coalition — but that has the potential to unite the center-right coalition, as it is both family-friendly and growth-friendly.

It should go without saying that congressional Republicans are a million miles away from backing something like Conda-Stein. But Sen. Rubio will find a large and appreciative audience in the country at large if he is willing to make the case for it.



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