Over the last few years, a new bit of orthodoxy has formed on the Right: that it is dangerous to take poor people off the income-tax rolls. The concern has been that people who don’t pay income tax will think that they are getting big government for free, will therefore want more of it, and will vote accordingly. (The worriers assume that people associate their payroll taxes with their future Social Security benefits, or don’t notice those taxes at all since they don’t fill out payroll-tax returns or write payroll-tax checks.) It follows from these thoughts that tax-cut packages should try to avoid provisions that wipe out people’s income-tax liability, such as expansions of the Earned Income Credit and the child credit.
The Wall Street Journal notoriously editorialized along these lines, calling non-taxpayers “Lucky Duckies.” Senator Jim DeMint has promoted the idea that our tax policy is promoting dependence. I have promoted it, too, in my own small way. But I am beginning to think that my worry was unfounded.
The worry hasn’t been based on data, but on plausible suppositions. Those suppositions, however, conflict with two other points that conservatives often make.
The first is that life-cycle effects matter more than immediate ones. Conservatives note that the distribution of wealth and income looks less unequal when adjusted for age. A lot of what looks like class inequality, in other words, is really a byproduct of the fact that households headed by 50-year-olds have more than ones headed by 25-year-olds. A tax cut that seems to benefit “the rich” is partly just benefiting “the middle-aged,” and some of the people who now seem to be left out from it will yield direct benefits from it later (and may yield indirect benefits from it now, but that’s a different argument).
The second is that Americans are economic dynamists. When surveys show that a fifth of the American public thinks it’s in the top one percent of the income distribution, and another fifth thinks it’s going to be there soon, conservatives generally applaud the public’s confidence and optimism. Conservatives’ political strategy has depended on these traits’ being widespread. The estate tax is an unpopular tax both because people regard it as wrong in principle and because they hope they will one day be in a position to pay it. If opposition were confined to the people who actually do pay it, its repeal would not be on the table.
If conservatives’ economic policy and political strategy depend on people’s ability to move ahead in life, and their ability to see that they can move ahead, then doesn’t that undercut conservative fears about the income-tax-free poor and lower middle class? Let’s say, for example, that we were considering a proposal to expand the tax credit for children. Set aside the supply-side objections to such a proposal (that it wouldn’t increase growth, that it’s social engineering, etc.). Let’s assume, further, that we were talking about non-refundable tax credits available to high-income taxpayers, so that we’re not talking about raising anyone’s marginal tax rates. Let’s say conservative legislators had reasons to vote for this tax cut. Should they refrain from doing it because they worry that it would increase the constituency for liberalism?
I think not. They should, rather, pass the legislation with the confidence that parents of small children are capable of seeing that even if they don’t pay income taxes now, they very well may pay them later. They will not be much less likely to support conservative, anti-tax politicians. (If we believe that a pro-family tax policy would actually increase the number of people who become married parents, we might well conclude that the number of conservative voters will increase.)
The fact that Bush’s tax-reform commission is set to report in June is what makes these issues more than theoretically important. If the commissioners worry about taking people off the tax rolls, they will reduce their options–and they will especially shrink the opportunities for a pro-family tax reform.