Yesterday I participated in a symposium hosted by the Penn Federalist Society. Unfortunately I didn’t get to see any of the campus anti-free-speech rioting I keep hearing about — even at the panel after mine, which focused on immigration and included Amy Wax — but I did get to talk about how conservatives should approach the welfare state.
My speech was a “reform conservative” manifesto of sorts. Realistically speaking we’re not going to reduce the size of the welfare state, but we can inject it with federalism, market mechanisms, and personal responsibility.
Here are my full remarks:
Good afternoon. Thanks for coming out, and thanks to the Penn Federalist Society for inviting me today.
I’d like to start out with a simple fact: We are probably not going to reduce the size of government. I’m not gloating when I say this. It disappoints me as a conservative.
I’ve become less prone to radical libertarian fantasies since my own college days, but even now, every once in a while I still imagine slashing every level of government down to its bare essentials and funding the whole thing with revenue from speeding tickets. Yet the prospects are bleak. The federal government alone has been spending about a fifth of our GDP for half a century, and there’s no sign whatsoever that the American people want it to stop.
Now, to be fair, every once in a while we right-wingers do get a chance to cut something, and when we do we should take it. Last year Republicans were swept into office with a mandate to get rid of the Affordable Care Act, and they made a valiant effort to do so. But even that didn’t happen. The party wasn’t united in its goals — with some members of Congress deeply worried about Medicaid cuts — and procedural rules in the Senate sharply restricted the policy options that were available.
And usually, major spending cuts aren’t even on the table. More than half of federal spending is on Social Security, Medicare, and defense. These programs are nearly untouchable. Indeed, it’s proven incredibly difficult to reform the entitlements even as Baby Boomers retire in enormous numbers and threaten to make them unsustainable. Frankly, conservatives will be lucky to keep spending from increasing as these programs spiral out of control, to say nothing about cuts — and to say nothing about what will happen to taxes, which already are not high enough to cover our spending. It’s a cruel irony that conservatives can’t persuade the public to spend less, but have been quite successful when it comes to slashing taxes as if they had.
So today I’d like to talk to you about what conservatives should do when they’re not greeted with a once-in-a-generation chance to strangle a newborn entitlement in its crib, as they were last year. And since my co-panelist, Jason Fichtner, specializes in the big-ticket programs like Social Security and Medicare, I’d like to talk more specifically about a conservative agenda for the middle class and the poor — which means I’ll be talking about safety-net and tax-credit programs that are often not thought of as entitlements at all.
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First, some background on the political scene. At this point I think it’s entirely fair to say that the Republican establishment has fallen out of touch with its base, and in particular with the concerns of the working class. Ten years ago, Ross Douthat and Reihan Salam made this argument forcefully in their book Grand New Party; two years ago, Donald Trump took advantage of the party’s abject failure to address the problem.
In 1984, the year I was born, the classic conservative agenda had a lot of resonance. Ronald Reagan won every state but one that year. The top marginal income-tax rate was still 50 percent, and it had been 70 percent just a few years before. When you’re earning income in a 70 percent tax bracket, the government is getting more than twice as much money as you are. It’s no surprise that many saw taxes as a major concern, and elected a tax-cutter in a landslide.
But as of today, the top individual rate hasn’t even broken 40 percent in 30 years, and the federal government hasn’t run a surplus in more than 15 — suggesting that if anything our taxes are too low relative to the amount of spending we’ve committed to. Yet even that isn’t enough to shake Republicans from their old habit of cutting taxes every time they get the chance, as we saw in their other major project last year. Rather than pursuing a revenue-neutral reform of our overly complicated tax system, they passed a bill that will increase the deficit by something like a trillion dollars over ten years. Some managed to convince themselves that virtually every independent expert was wrong, and that the tax cuts would spur so much economic growth that they’d pay for themselves.
This very well might prove popular in the short term, because the tax cuts were not as skewed to the rich as many claimed, and the typical worker is probably noticing a little boost to his paycheck right now. Everyone likes extra money. But even setting aside the question of fiscal responsibility, it’s hard to see this as delivering a big victory to the poor and middle class. It’s also not something Republicans can repeat in the future, both because we can’t afford too many victories like this, and because it’s rarely possible to enact legislation with zero votes from the other party.
So I’d like to discuss an alternative, an approach to these issues that’s sometimes called “reform conservatism” (its adherents are “reformocons”). I think it’s an approach that Republicans should pursue even when they’re in power, but it’s particularly well-suited for divided government, which if we’re being honest is probably what we’re going to see next year.
The idea is that even when conservatives lose the battle over the size of government — which we do, over and over again — our ideas remain valuable when it comes to creating a government that works. So when spending cuts aren’t on the table, we don’t have to restrict ourselves to keeping the welfare state from getting even bigger. Instead we can take the current level of spending as a given, and inject the status quo with healthy doses of individual choice, personal responsibility, family values, federalism, and free-market thinking.
By taking this project seriously, we can show that we actually care about the basic pocketbook concerns of the working and middle classes. And figuring out how to do this is one of the most active areas of conservative thought today, with plenty of fascinating ideas appearing in policy journals like National Affairs and more mainstream conservative outlets like the one I work for, National Review.
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So now I’d like to review a few examples of what this concept looks like in practice. A good place to start is health care, an area where reform conservatives have honed a number of good proposals. They’re ideas we can pursue as an improvement on the status quo, not just as a vanquishing of a new liberal health-care entitlement.
This is going to be a pressing issue in the near future. Even before Trump took office it was clear, as a New York Times article put it, that the law would have to change to survive. And while Republicans failed to repeal and replace it, they’ve taken numerous steps that could make the law even more precarious, such as eliminating the individual mandate and refusing to make payments that had been promised to insurers. The policy still needs serious reforms, and eventually we’ll need to find a system both parties can live with.
One approach, suggested by Senators Bill Cassidy and Susan Collins early in the debate last year, is to let states choose between keeping the law and creating their own system with the law’s funding. From the perspective of a federal policymaker, this is obviously the simplest solution, and it has the advantage of letting each state do what works for its own population. The biggest concerns are that some in Washington might not like what the states come up with, and that it’s hard to divide up the money fairly when some states chose to expand Medicaid and others did not.
The American Enterprise Institute, a conservative think tank, came up with a more intensive option as well. The centerpiece is for the law to treat employer and individual health coverage the same, with the same tax benefits given to both. This entails giving a tax credit to those who buy their insurance in the individual market and letting them buy any plan that their state has approved for sale. The plan also includes expanding the use of health savings accounts so individuals can take greater responsibility for their health-care spending.
Automatic enrollment, though, is the most innovative idea. When someone doesn’t sign up for insurance, the solution isn’t to force them to enroll by law. It’s also not to force emergency rooms to take care of them for free. The solution is to arrange coverage for them behind the scenes, giving their tax credit to an insurance company to cover them in the event that they get hurt or sick. The coverage would be minimal, but it would protect them from catastrophic expenses. This is a simple, fair, non-coercive fix, and it would ensure universal coverage, something even Obamacare doesn’t do.
Poverty is another policy area that we reform conservatives are particularly invested in. Federalism is a promising approach to this problem as well, with many conservatives suggesting turning over more welfare spending to the states. So is building on the successes of the 1996 welfare reform, which refocused the safety net around work and reduced poverty in the process. In particular, we can support programs like the Earned Income Tax Credit, which reward work and let recipients use the money as they see fit, and we can consider moving away from programs like food stamps, which can be used for the prescribed purpose only. We could also help people move to new job opportunities by letting them cash out their unemployment benefits in a lump sum if they live somewhere that such opportunities are scarce.
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Perhaps the mother of all reformocon issues, though, is the treatment of families with children, whether they’re poor or middle class. And I think we saw the GOP’s internal tensions on this issue in the tax-reform debate last year.
Reform conservatives tend to be big fans of the child tax credit. Not only does this benefit make it financially easier to start a family, but it reflects the investment that parents make in the future of our society, including in the entitlement programs that are funded by the young. The big reformocon victory of tax reform, spearheaded by Senators Mike Lee and Marco Rubio, was to double the credit to $2,000. That is a significant success, and I’m not just saying that because I have two kids myself.
What was frustrating, though, was that Republicans proved unwilling to extend that benefit to folks a little further down the income ladder. Another proposal from Rubio and Lee would have allowed the credit to be used against payroll taxes, not just income taxes, which is important because payroll taxes are the biggest taxes that lower-income workers pay.
Lee and Rubio suggested funding their amendment by cutting the corporate rate from 35 percent to 21 percent, instead of to 20 percent as originally had been proposed. Republicans voted against this tradeoff resoundingly — and not enough Democrats were willing to help out, even though they supported the goal of giving less of a tax cut to corporations and more of one to lower-income working families. The vote proved that Republicans cared more about corporate taxes, and that Democrats cared more about politics, than either party cared about these struggling parents.
Going forward, I hope the parties do a better job of working together on this, because there are promising ideas for restructuring the child tax credit in a way that better serves the poor without increasing government spending. One reform I’ve suggested is to make the credit fully refundable, meaning all parents get it regardless of income, while cutting other safety-net programs that this new benefit would make redundant.
Before I stop, I’d like to briefly touch on one other family-focused reform, paid parental leave, that I think reveals some divisions even among the folks who call themselves reform conservatives. At the beginning of this talk I made clear that conservatives should not actually expand the government — but some reform conservatives do support a brand-new program, with a new tax, to fund parental leave. I strongly disagree for a variety of reasons, but recently there’s been talk of an innovative solution to the problem.
Namely, instead of levying a new tax, we could pay for parental leave out of Social Security, and in return, those who take leave would agree to retire a little later. It’s a perfect example of taking the size of government as a given, but readjusting the system so it serves families better and gives individuals more choice about how they use their benefits.
Thank you all again for coming, and I look forward to discussing all this with you further.