NRO's Ramesh Ponnuru has made it his personal mission to let no criticism of reformocons—and their beloved Rubio-Lee "family fairness" tax plan (the first stab at translating the reformocon vision into a governing agenda)—go unanswered. So he took another "shot"—to use a word he used for me—at my Friday response to his rejoinder.
Recall that the Rubio-Lee plan is marketing itself as a huge middle-class tax relief plan. To that end, it collapses the current seven-bracket tax code into two—with individuals under $75,000 and couples under $150,000 paying a 15 percent income tax and those above, 35 percent. It would eliminate all deductions—even for state and local income taxes—except for home mortgages and charitable donations. It would replace the current standard deduction with a universal $2,000 personal tax credit. It would also offer a $2,500 per child tax credit to parents in addition to the $1,000 one they already receive.
Among various other criticisms of this plan (including that it'll break the federal bank and the sharp 20-point tax cliff would create a barrier to middle-class mobility), I had noted in my column that:
The big losers (under this plan) would be the many families making between $150,000 and $411,500—or the vast middle and upper middle class who are supposed to be the beneficiaries of these reforms. Rubio and Lee's proposed 35 percent tax rate would constitute a big tax hike for these families (from 3 to 7 percentage points). Some of the increase would be mitigated if they have children and can avail themselves of the child tax credit. But still, it'll be a tax hike.
Using reasonable assumptions about mortgage interest and the like, the document projects that a household making $200,000—and thus in the top 5 percent—would get a tax cut of $12,300 from the plan. That example assumes the household includes two children. Assume the couple has no children, though, and the tax cut would still be $7,300. They don't sound like big losers to me.
I noted that her generalization is not true even for the people in the income range she identified. I cited examples involving families making $200,000. Her response to that point: "Look at the said table [p. 23 here] and you'll see that this $200,000-making couple would need to have two children and charitable donations of $10,000 before it comes out ahead under the Rubio-Lee schema. Otherwise, they lose." This is simply false. The table shows no such thing. As I noted in that earlier post, if the couple had no kids its tax bill would still drop by $7,300. Assume they gave nothing to charity and had no kids, and they would still come out ahead by $6,600.
First, a mea culpa: Yes, Ponnuru is right, I overstated my point. I should have said that a couple making $200,000 would "potentially" lose if you took away their child tax credits and charitable contributions, not that they would lose.
That said, Ponnuru's suggestion that such a couple would necessarily come out a winner isn't based in verifiable reality.
Ponnuru does not tell us where he got the $6,600 savings for the childless couple with no charitable donations. The table he mentions doesn't say that. (More on that later.)
But there is also a larger issue: Are the assumptions behind these four illustrative examples on page 23 really "reasonable" as Ponnuru claims? That is very unclear because the duo don't offer much information.
Take, for example, the hypothetical joint filer family with two kids earning $50,000 that Rubio-Lee claim would save $4,500 under their plan compared to the current tax system. But how?
According to the IRS's 2012 Statistics of Income table, the average filer who is married, filed jointly, and earned between $40,000 and $50,000 (the closest income bracket to the hypothetical example) paid on average roughly $1,400 in income taxes in 2012, the latest year for which data are available. To realize the $4,500 savings, this hypothetical Rubio-Lee family will have to get a $3,100 check from the government. But the Rubio-Lee plan caps the refundable amount to the taxes owed and does not create a negative income tax. So how exactly will this couple realize these savings?
Now let's return to the Rubio-Lee's $200,000 joint filer who would allegedly save $12,300. This assumes a $10,000 charitable contribution or 5 percent of the couple's income. But again separate IRS Statistics of Income table for 2012 shows that joint-filers between $100,000 to $200,000 income range make average charitable contributions of about $3,900. For filers in the $200,000 to $500,000 income range, the average annual contribution was just under $5,700.
This calls into question just how reality-based the assumptions behind the Rubio-Lee saving estimates that Ponnuru accepts at face value really are.
Consider another aspect of the $200,000-joint filer example. The couple is said to be from Utah, a state with a 5 percent income tax. But they don't indicate whether their $12,300 figure takes into account the fact that, under their plan, the couple will lose their state tax deduction. And why did they pick Utah in the first place? If the couple were from any number of other states, say, Hawaii (11 percent) or Vermont (8.8 percent) or Oregon (9 percent), would the results still be so rosy? Information rather than spin would be nice.
But why is it so important to Ponnuru—and Rubio-Lee—to declare $200,000 couples as winners under the proposed plan?
Because a non-trivial number of losers in the lower end of the $150,000 to $411,500 range would doom the plan politically. Reformocons have got to insinuate therefore that all the losers (and they don't deny that there will be losers, mind you) are concentrated in the upper end of that bracket because that'll make it much easier to throw them under the bus.
What's more, the more the conversation remains bogged down in minutia, the more Ponnuru can avoid squarely answering the big questions that I and others such as Nick Gillespie, Veronique De Rugy, Amity Shlaes, Kim Strassel, John Hayward, Scott Lincicome, Ben Domenech, and even Rush Limbaugh have raised with the Rubio-Lee plan – not to mention the reformocon project in general.
Questions such as the following:
One: Does it behoove the party of limited government to use the tax code to play class favorites or offer handouts to people who make life choices that the government considers socially useful? If reform conservatives want to call themselves conservative, they can knock themselves out. But if they are going to use the tax code as a tool of social engineering, can they at least stop doing so under the rubric of limited government and free market? Indeed, they should come out and repudiate limited government as forthrightly as Ethics and Public Policy Center's Henry Olsen (whom E.J. Dionne has dubbed "one the most creative Reformicon thinkers) has. Olsen says:
"If American principles simply require hands-off government, then American principles have not been part of our politics for a very long time. A hands-off approach is not what American politics and principles require; it is a parody of what America and American conservatism mean."
In other words, America's limited government traditions are hooey—a myth with little basis in history. This is radical revisionism and, if this is what reformocons seriously believe, they ought to say so upfront instead of couching their vision as pro-limited government and pro-free enterprise.
Two: The liberal welfare state has created dependency among low-income folks, especially minorities, trapping them in poverty. Would not expanding government handouts risk creating a similarly dependent middle class? Why do reformocons believe that a government whose unintended consequences they have long blamed for the decline of poor, inner-city communities would be an effective tool for regenerating an allegedly stagnating middle class? (Is it any wonder that Big Government liberals absolutely love their child credits, praising them as even better than Obama's credits which, after all, apply only to child care.)
Three: Is this plan even politically viable? Do reformocons seriously believe, as I asked last week, that the new class warfare between the middleclass and the upper middleclass would fare much better in an upwardly mobile society like America's than the liberal class warfare between the rich and the poor? The American dream is based on an expectation of getting ahead, climbing up the income ladder. People have a stake not only in the bracket that they inhabit but also the one they aspire to. Declaring war on the upper middleclass, in essence, is like declaring war on the aspirations of the middleclass. And it represents a serious loss of faith in the promise of America – and the ability of unfettered individuals to realize the American dream.
Four: Is expanding the welfare state to a whole new class of people when the country is already buckling under the existing welfare state fiscally responsible? The child tax credit has a price tag of $173 billion annually with zero growth benefits. Isn't its opportunity cost unacceptably high? Wouldn't it make more sense to use this money instead to, say, lower the 35 percent upper tax bracket, up the income level where it kicks in, or pay down the national debt – all measures that would potentially stimulate the economy.
Five: Newt Gingrich once disparaged Bob Dole as a tax collector for the welfare state. (The quip resonated because Dole represented a Republican Party that for the nearly half-a-century between the New Deal and the Reagan revolution had accepted that it must work within the confines of the existing political bargain rather than fundamentally rewriting it.) But now reformocons seem to be turning the GOP into the party of the welfare state.
They hold President George W. Bush's prescription drug plan for seniors—aka Medicare Part D—as a model of success because it deployed "market forces" to deliver a senior boondoggle (and buy elderly votes) rather than technocratic micromanagers. The child tax credit now attacks the other end of the lifecycle, basically launching the reform conservative version of cradle-to-grave Life of Julia, given that it is hardly the only item on their wish list of government handouts. They have one for literally every phase of life. Got a problem? Uncle Sam has a solution:
- American Enterprise Institute's Michael Strain, a reformocon in good standing, joined liberals two years ago in pleading that federal unemployment benefits be extended beyond the original 26 weeks, provided that the unemployed kept looking for work rather than dropping out of the labor force. He advocated this despite admitting that suspending these benefits would cause the unemployment rate to drop. Subsequently, he outlined a plan in National Affairs, the premier reformocon journal, to offer jobless folks federal cash bonuses when they found employment—apparently to prevent them from giving up.
The job gains of the last six months have destroyed much of his "jobs agenda." But if the GOP had actually taken his advice, the GOP would have eroded whatever is left of its limited government brand with nothing to show for it.
- Strain has likewise proposed "billions of dollars" in infrastructure spending (which is actually a pet reformocon project these days), particularly with an eye toward boosting the mobility (transportation not income) of low-income folks. He said:
"We could simply buy buses, have them pick up workers in lower-income, outer neighborhoods and exurbs, and then run them express from those places—not stopping along the way in middle- and upper-income neighborhoods—all the way into commercial centers. In larger cities, we could run the buses express from low-income exurbs to the last stop on commuter rail lines; basically, we could give low-income workers a fast lift to the train, connecting residents of exurbs with the labor markets of major cities."
But blacks moved en masse from the south to the north in search of auto and other factory jobs during the Great Migration without targeted transit programs. Now, apparently, "we" need federally funded bus lines to transport people a few miles. Wouldn't simply ending the bad governance and crony capitalist schemes that have killed local jobs in cities like Detroit be a more effective free market approach to connecting low-income people with jobs?
- NRO's Reihan Salam, another prominent reformocon, has long favored expanding the Earned Income Tax Credit program and replacing it with wage subsidies in order to boost employment. Others have even spoken approvingly of implementing a guaranteed income scheme.
- Room to Grow, a reformocon manifesto, recommends not scrapping Head Start, the federal Pre-K program for low income kids, that has wasted billions of dollars of taxpayer money without producing any lasting educational gains, but voucherizing it. Now, it's one thing to voucherize an entrenched system like K-12 to give parents more control over their education dollars. It is quite another to entrench a questionable program by voucherizing it.
This is far from an exhaustive list of all the government handouts that reformocons favor, but it is enough to show that they are not offering limited government or market solutions—just cheaper and more efficient statism than liberals, if that. (That's why I previously called their vision a "triumph of liberalism.") It would be a sign of the right's intellectual bankruptcy if the reform conservative vision is the best that it can muster after two presidential terms in the political wilderness in which the country has watched the birth of a monstrosity like Obamacare, trillion-dollar stimuluses, TARP bailouts, and a burgeoning national debt. But the danger of reform conservatism is not that it'll ultimately succeed, but the damage it'll do even as it careens towards failure—namely, undermining this country's inner defenses against the growth of government.
It is only natural therefore that their agenda—a radical departure from principles that have set the moral compass of the GOP—is raising a great deal of suspicion among right-of-center folks. If all Ponnuru and others do is trivialize these growing concerns by nitpicking and ignoring the fundamental issues, they'll have only themselves to blame if they encounter more resistance and opposition going forward.