Lee’s Tax Reform

by Yuval Levin

“A good government implies two things,” James Madison wrote in Federalist 62. “First, fidelity to the object of government, which is the happiness of the people; secondly, a knowledge of the means by which that object can be best attained. Some governments are deficient in both these qualities; most governments are deficient in the first. I scruple not to assert, that in American governments too little attention has been paid to the last.”

On Constitution Day, it’s good to keep in mind Madison’s worry. The Constitution was in part intended to create an institutional structure to mitigate that worry, but it remains the case that some of those Americans most inclined to think seriously about the proper ends and limits of government are nonetheless too often prone to lose sight of the importance of means—of the particulars of policy. The Republican Party has certainly had that problem lately. 

But today also offered some cause for hope that some in the party are aware of the problem and eager to do something about it. As Patrick notes below, Senator Mike Lee this afternoon put forward a proposal for a far-reaching tax reform that would simplify and lower rates; eliminate and curtail some significant deductions, exclusions, and other “tax expenditures;” and address the tax code’s mistreatment of parents. Economists might think of that “parent tax penalty” (as Lee called it) in terms of the code’s failure to account for the investment parents make in future taxpayers, but most of us understand the need to address it in terms of better enabling families to shoulder the cost of raising children. Lee’s proposal would do that, making the code far friendlier to child rearing through a significantly expanded child tax credit refundable against both income and payroll taxes. 

The combination of reforms Lee proposes is, to begin with, good policy. It would make our tax code friendlier to growth and more supportive of prosperity, and would correct a number of iniquities in the current code, in the process easing for many the path into the middle class and upwards through it and beyond it. It’s also good politics, as offering a larger child credit would help build a broader constituency for the other tax reforms (which conservatives have long wanted) while at the same time enabling the right to show working-class families how conservatives policies can improve their lives. As Lee put it in his remarks: “For a political party too often seen as out of touch, aligned with the rich, indifferent to the less fortunate, and uninterested in solving the problems of working families, Republicans could not ask for a more worthy cause around which to build a new conservative reform agenda.”

The outlines of such a broader agenda—a conservative appeal to the working-class families to whom the Democrats have less and less to offer and to whom Republicans just haven’t had enough to say—have been taking shape among conservative wonks in recent years. Lee’s proposal clearly echoed arguments long made by Ramesh (for instance here) and others, in these pages and elsewhere, and the details clearly built on this excellent proposal by the economist Robert Stein in National Affairs. (Full disclosure: I’m the editor of National Affairs, and I commissioned Stein to write the piece.) 

But to see a prominent conservative politician take up the cause and offer the sort of vision of it that Lee did in his remarks today, is a cause for great encouragement and hope. The context in which he placed the particulars of the plan pointed toward logical next steps for him and other Republicans to take (and he suggested what some might be, higher-ed reform for instance), and a logical path toward making their case not only to the conservative voters who should hardly need convincing but to persuadable voters well beyond.

Encouraging signs are few and far between these days, but this was a big one. 

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