Politics & Policy

A New Agenda for the GOP

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Conservatives need to rethink economic policy if they want to build a viable political coalition.

The Donald Trump who ran for president in 2016 was a populist. And, as president, Donald Trump used tariffs and slowed immigration, just as you’d expect a populist would. But when it came to tax policy, President Trump might as well have been George W. Bush.

While Bush cut the top tax rate for the highest earners from 39.6 percent to 35 percent, Trump cut it from 39.6 percent to 37 percent; while Bush cut the tax on dividends from 39.6 percent to 20 percent, Trump cut the tax on corporate profits from 35 percent to 21 percent. Six of one, half a dozen of the other.

And yet opposition to Republicans in general and Trump in particular was largely led by the people and companies for whom Trump cut taxes the most. A recent analysis by Bloomberg News shows that the employees of law firms and Big Tech companies, among other Fortune 500 businesses, all tilted their donations heavily toward Biden. Just look at the companies that boycotted Facebook earlier this year because it wasn’t being aggressive enough about muting President Trump and his supporters: Chipotle, Coca-Cola, CVS, Levi’s, Microsoft, Patagonia, Starbucks, Target, Verizon . . . the list goes on and on.

Cutting taxes was the prime goal of the economic wing of the GOP led by Larry Kudlow, Stephen Moore, and the Wall Street Journal editorial page. But why? For what? The result, we now know, was a few years of slightly faster economic growth while the managerial class supported cultural leftism at every turn.

It’s not 1980 anymore: Political capital is a limited and valuable resource and the GOP needs to stop using it to cut taxes for people who hate conservatives. The next time these companies want a tax cut, tell them to call their Democratic friends. Instead, Republicans need a policy agenda that encourages family formation, weakens public-school monopolies, stops academia from abusing its subsides, and fights cronyism in Corporate America. The goal would be to nurture an emerging multi-ethnic Republican coalition of middle-class and working-class families that respect our nation and its history.

Helping Parents

The biggest bias in fiscal policy isn’t against capital formation; it’s the perverse anti-natal incentive built into Social Security and Medicare. Those programs require every generation of adults to perform two tasks: (1) work and pay taxes so the previous generation gets to retire and (2) raise children so there are future taxpayers to pay for benefits. But your retirement benefits have almost everything to do with your work career and almost nothing to do with how many children you raise.

Don’t think this matters? Imagine living before these government programs existed, when your ability to retire at all depended on raising children, amassing sufficient personal savings, or relying on charity. Or imagine a Social Security program with benefits determined by your own kids’ earnings. No kids, no Social Security: If you want to retire, you’d better have raised an investment account. In either scenario, many adults would decide to raise more children and invest more in their future productivity.

The problem is that directly tying retirement benefits to your own kids’ earnings would introduce a great deal of idiosyncratic risk to retirement planning. Instead, the child tax credit, now $2,000, should be increased to $5,000 and taxpayers should be able to use it to offset both income taxes and payroll taxes.

In addition, the federal government should provide a fully refundable tax credit of $5,000 per child for children who are enrolled in private school or home-schooled. The goal would be to reduce government power over our kids. Public schools have become a play-toy of the radical left, having removed the heroic narrative about our nation’s founders and replaced it with an obsession about misdeeds in our national past. Want to know where many college social-justice warriors head after graduating? To public schools, to indoctrinate your kids. If you haven’t noticed it yet in your community, you will, and soon.

Among all self-designated occupations, one stood out for giving the most to President Trump during the 2020 campaign: homemakers. An astounding 96 percent of their donations went to the GOP candidate. It’s about time their families got in return for their support, not just the crumbs left over after a tax cut is designed. Will these proposals cost money? Of course, but less than the 2017 tax cut, the revenue loss from which could be redirected to better use.

Reforming Higher Education

There was a time in the U.S. when student loans were designed to help people of limited means get ahead in life. Those days are long gone. Student-loan programs are now a jobs- and wage-subsidy program for the leftists who work as administrators and professors in higher education, using young adults as “mules” (yes, the drug reference is on purpose) to carry money from taxpayers to academics who have minimal marketable skills but want to indoctrinate your kids.

A large portion of the revenue that funds academics’ salaries comes from the government. According to the GDP accounts, the value of higher-education services totaled $196 billion in 2019. Meanwhile, housing and meals at schools totaled $57 billion. For comparison, federal loans and grants totaled $134 billion in the 2018–19 school year, with an additional $13 billion in state grants. And these figures exclude direct government spending sent to colleges themselves.

Imagine if Fannie Mae and Freddie Mac had a program to buy all the mortgages that banks made to 18-year-olds who bought homes with no money down. Obviously, that would lead to excessive homeownership among teenagers, who would have little idea of the long-term consequences. Well, that’s what’s happened with colleges. Except a mortgage has a home collateralizing the loan; you can’t foreclose on a degree in victim studies.

The Democrats’ plan is straightforward: forgive some portion of student loans and move toward “free college,” which would mean even more subsidies funneled to leftist academics, but with more of the burden on taxpayers. Most in the GOP want to keep the burden off taxpayers but are okay with the subsidies for academics as long as former students pay for them, no matter how absurd, useless, or harmful the “education” they received, and no matter how these institutions impinged on their free-speech rights.

Neither party is taking on the core problem, which is the subsidies. Here are some suggestions to end the windfall for the intellectual class and make them put some skin in the game, so they have an incentive to provide students with marketable skills, not political indoctrination.

First, similar to the new banking rules that were passed after the subprime crisis, let’s require 50 percent clawbacks of federal-loan money from a college if its students don’t repay loans. If they default, students will still be on the hook for 50 percent themselves. And if a college thinks a defaulting former student could still repay the full amount, let the college go after the student for the other 50 percent. Second, colleges should lose their charitable status and no longer be tax-exempt. Third, wealthy colleges with massive endowments should be taxed like the hedge funds that they are.

Ninety-four percent of professors’ donations went to the Biden campaign in 2020. They know who butters their bread and it’s time Republicans take away the spigot of taxpayer money that makes their way of life possible.

In addition, the GOP has an acute problem with the legal profession, so let’s hit it where it hurts. The next Republican-appointed attorney general should aggressively use antitrust laws to go after the combination of bar organizations and law schools that demands three years of legal education. Two years is more than enough. The collusion in favor of three years lines the pockets of legal academics and artificially constrains the supply of lawyers, hurting consumers.

Fighting Crony Capitalism

In addition, the GOP needs to address crony capitalism, which often exacerbates the gap between the rich and poor. All else equal, more economic growth is always better than less, but all else is rarely equal. Citizens don’t just care how much they have; they care how much they have relative to their neighbors, their co-workers, their relatives, their friends, even the images they see in the media. The problem is that policies that directly redistribute income tend to deaden work incentives. Meanwhile, raising the minimum wage can throw low-skilled workers out of jobs.

One idea is to ban the use of stock options for corporate insiders. There are plenty of legitimate incentive-based reasons for a company to offer stock options. The problem is that options can also put pressure on insiders to lean on accountants or adopt business practices that temporarily fool investors into thinking a company is worth more than it really is, so the insider can cash out a massive payday. By contrast, restricted stock, where an insider has to hold stock for at least several years, doesn’t generate short-term thinking among insiders hell-bent on hitting artificial targets. Entrepreneurs who create wealth would have no problem shifting into restricted stock.

Another way to address cronyism is to gradually and dramatically raise capital standards for the largest financial institutions. Periodic financial crises have made it clear that when push comes to shove, the federal government will bail out the largest banks. One way to try to prevent a future crisis is to tightly regulate them, but regulators don’t always know what’s best, or they get captured by the industry. In addition, a tight regulatory regime opens the door to abuse, like requiring banks to pursue politically favored goals.

American taxpayers shouldn’t be in a position where they have to bail out bankers. Gradually raising capital standards would de-lever the financial system, reducing the risk of future bailouts and limiting one way the super-rich in the financial sector magnify their wealth.

Last, the GOP needs to head off the increasingly dangerous power in the hands of the largest asset managers. These asset managers possess enormous amounts of capital on behalf of clients who invest in mutual funds and exchange-traded funds. In turn, these managers are in the process of forming “cultural trusts,” by which they use their shareholder-voting power to impose leftist values on corporate America and on America as a whole through corporate America. The kinds of people that impose speech codes and harass conservatives on campuses are not content with only controlling college kids; they want it all.

Woke capitalist asset managers should not be America’s social dictators. These firms should be stripped of the right to vote their shares, which should either be voted by the individual investors who ultimately own them or not be voted at all, leaving corporate control to shareholders who own their corporate shares directly.

Which Way?

Every Republican presidential campaign since the 1990s has put tax cuts at the forefront of its economic agenda. In some cases, those tax cuts have been well-designed and successful. But cutting tax rates temporarily only to have the Democrats raise them back up is of little long-term consequence. Instead, the GOP needs to let its supporters in the middle and working classes know that it is on their side. The next cycle, 2024, offers a choice: are Republican candidates ready to take their own voters’ side in a fight or keep on offering a soft echo of 1980?

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.

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