Rick Scott’s Tax Hike Fails the Data Test

S enator Rick Scott (R., Fla.) is, I regret to report, still at it on his plan to raise taxes on 100 million Americans. He gave a major speech on the topic last week to the Heritage Foundation and continues to make the cable TV news rounds. The last few days have seen devastatingly good pieces on the policy and political folly of the idea from NRO’s Kevin Williamson and my old boss Grover Norquist at Americans for Tax Reform. They join several others, including a good piece on top to bottom taxation in America by Josh Barro.

In his own words, the rationale for this bizarre idea is that Senator Scott believes “there’s a lot of people that could work and have decided not to work because they figured out how to live off the government.”

Is that true? Not based on any of the data we have looking at the labor market.

Presumably, Senator Scott is not worried about minor dependents, students, seniors, stay-at-home moms, and those who are not physically or mentally capable of working. What that leaves is a pool of people economists call “prime age” workers — roughly those between the ages of 25 and 55. Almost everyone in this age cohort is out of school and too young for retirement. If there is an under-working problem in America, we should find it here.

Let’s start with the prime-age unemployment rate, the most basic spot check. The Bureau of Labor Statistics calculates the rate based on a number of factors, including age. In March 2022, the headline unemployment rate was 3.6 percent. But for prime-age workers, it was actually lower, at just 3 percent. This happens to be the same figure as the pre-Covid low, and is only a tenth of a percentage point off from being a record low in the series.

Is this because prime-age workers have left the labor force entirely and therefore aren’t being counted in unemployment data? Again, the answer is no. BLS also tracks the “prime age labor force participation rate,” the percentage of prime-age workers in the labor force. This figure was 82.5 percent in March 2022, and economists expect it to fully recover to its pre-Covid high of 83.1 percent sometime later this year. That pre-Covid figure was close to the highest we have seen this century — and really since the red-hot late 1990s.

There’s yet another dataset that BLS produces, the “prime age employment to population ratio.” This measures the percentage of a given population that actually has a job. Surely, here we will find all those people who lack “skin in the game.” Unfortunately for Senator Scott, this final metric tells a similar story to the prime-age unemployment rate and the prime-age labor force participation ratio. In March 2022, the prime-age employment to population ratio was 80 percent. This is recovering quickly to the pre-Covid high of 80.5 percent — a number that economists expect to see matched sometime this year. These numbers are the highest we have seen since the late 1990s and are some of the highest numbers in the history of the dataset.

Put it all together — the prime-age unemployment, labor-force participation, and employment to population rates — and you see an America where people are working. You also see an America with lots of job openings, but that’s not because people are slacking. Senator Scott is just wrong on the facts here. Americans do not lack skin in the game — what we really lack is enough workers, which is why you see all those shortages in restaurants.

Senator Scott’s more basic problem is that he has an outdated concept of what the tax coalition looks like in the modern conservative movement and Republican Party. A generation ago, when Republicans talked about taxes, they were thinking of middle- and upper-income workers, family-owned businesses, and large corporations. Since that time, multinational corporations have declared war on the American Middle and gone aggressively woke. Upper-income workers have become the mass affluent, over-educated Karens of the white-collar Democratic Party. And especially since Trump, millions of Hispanic, black, and lower-income white voters have found their way into the coalition.

As a result, the modern tax coalition looks a little different. It has shed any basic concern about corporations (quite the contrary) and has swapped high-income households for low-income households. That has a profound effect on the types of tax policies we ought to pursue. At the very least, we are not in favor of raising taxes on the lower income Hispanic, black, and blue-collar white voters who are giving the GOP a look for the first time thanks to the woke culture wars they are subjected to by Big Business, Hollywood, and the other elite cultural institutions.

It also means that Republicans need to be less concerned about the corporate income-tax rate and more concerned about the FICA tax rate. We should lean into lower taxes for family-owned businesses, full expensing of real property and equipment to keep and bring manufacturing to America, and an ever-larger child tax credit tied to work. Get the IRS less in the audit business and more into the customer-service business (they can start by picking up the phone). Make things a little easier for the guys at the corner bar, their bartender, and the guy who owns the place.

That doesn’t mean Republicans are indifferent to top marginal tax rates — we’d still oppose raising them. But they are pretty much fine where they are. The top income-tax rate has fluctuated between 35 percent and 39.6 percent for three decades (it’s currently 37 percent), and America has done just fine. The corporate income-tax rate used to be the highest in the world (35 percent plus states) but is now very competitive among our trade rivals (21 percent plus states) thanks to President Trump’s Tax Cuts and Jobs Act.

This can be a difficult transition for those who still think in terms of the Reagan coalition on taxes, as I suspect Senator Scott does. He fancies himself a data-driven pragmatist and executive. If he is, he should take a look at both labor-force data and polling/electoral data before continuing to pursue his crusade for a tax increase on 100 million of his fellow countrymen.