Patrick Garry
A conservative tax policy for the common person
By Patrick Garry
March 25, 2015

For the past six years, conservatives have been on the defensive, opposing various aspects of the Obama agenda. But now that Republicans control both houses of Congress, and with the 2016 presidential campaign looming, conservatives must articulate a positive governing agenda.

Several obstacles have hindered such an articulation. First, a necessary opposition to six years of ill-considered liberal policies have rightly absorbed conservatives' attentions. Second, the principle of limited government can sometimes work against a formulation of a positive governing agenda, as this principle can be misinterpreted as a command for no government. And third, an understandable nostalgia has at times led conservatives into a passive pining for a return to the Reagan era. But the problems addressed by President Reagan – a dangerous Soviet threat, crippling inflation, and an income tax structure that stifled economic growth – are not the problems now confronting America.

The lingering though inaccurate image of conservatism as being primarily concerned about the rich can only be dispelled by a proactive policy agenda geared to the interests of the common person. Only in this way, appealing to all Americans across demographic lines, can conservatism attract a lasting governing majority. Such an agenda would include tax code changes that promote work and help support childrearing and upward mobility, and elimination of government subsidies and tax breaks that benefit the politically well-connected at the expense of the average American.

Modern liberalism has become dangerously comfortably with big business-big government collusion. Liberals even support such a monument to crony capitalism as the Export-Import Bank. They still use the language of the common person, but their policies have betrayed the interests of the average American. And this betrayal gives conservatives the opportunity to address the public on a new level.

As exit polls in the 2012 presidential election demonstrated, the public does not fully trust Republicans to represent the economic interests of the working and middle class. This was why Obama could convince 53 percent of the electorate that Romney's policies favored the rich. But without a more aggressive agenda aimed at the problems encountered by increasingly disaffected working and middle class Americans, conservatives run the risk of appearing blind to those problems.

Tax Policy Proposals

The conservative focus has often been on reducing income tax rates, just as President Reagan did in the 1980s. But tax rates are much lower now than they were in 1980, and nearly half the public pays no federal income tax, so a reduction in income tax rates holds little value for the majority of Americans. Moreover, an income tax reduction policy appears principally geared to high-income individuals, further making conservatives seem primarily concerned about the wealthy.

Conservative tax policy in 2015 should focus on the needs of the average American. This focus could include a significant increase in the child tax credit, which would do more to provide meaningful tax relief to middle and working class families than any reduction in personal income tax rates.

Currently, the tax code shortchanges parents, who have to pay just as much in taxes as childless adults, even though the costs parents incur in raising children are an additional contribution to the future of society. The child tax credit should try to compensate for this additional contribution, and it should be applied against both income taxes and payroll taxes, especially since most middle and working class parents pay more in payroll than in income taxes. This would represent the kind of broad-based middle-class tax relief that President Reagan delivered.

An expanded child tax credit is not only good for families, it is eminently fair. Our social insurance systems depend on a steady flow of new workers into the labor force. But parents who face large financial costs in raising the next generation of workers pay the same payroll taxes as everyone else. So the costs of raising children are borne almost entirely by the households doing the childrearing, even though the benefits that come when the children reach working age are broadly shared by everyone in society.

Making the child tax credit applicable to payroll taxes suggests yet another area of tax reform. For too long, Republicans have focused their tax reform energies on the individual and corporate income tax systems. But the largest tax most families face is the payroll tax, not the income tax. It is the payroll tax that directly affects the earnings of all working Americans, thus determining the effective tax burdens on working and middle class families.

Due to the realities of the tax system, only upper-income households tend to be significantly burdened by high income taxes. Therefore, any strategy of cutting income taxes plays into the liberal charge that conservatives care only about the rich. A better strategy is one focused on lessening the overall tax burden on working and middle class households.

A tax proposal aimed directly at low-income households is the expansion of the Earned Income Tax Credit. This is a much better help to low-wage individuals than an increase in the minimum wage. Whereas an increase in the minimum wage to $9 an hour would result in a loss of approximately 100,000 jobs, according to Congressional Budget Office estimates, an increase in the EITC does not cause any burden on employers. Furthermore, not all low-wage earners reside in low-income households, and an increase in the minimum wage received by a child or spouse of a higher-income individual will not do anything to alleviate poverty. However, the EITC serves only low-income households.

Corporate Policy

With respect to corporate taxes, President Obama has shown a preference for temporary tax breaks over permanent ones. But temporary tax breaks keep government constantly involved in investment decisions, and so they foster crony capitalism. They are a big handout to the tax lobbyists and the wealthy corporations like General Electric that can afford to lobby for special tax treatment. However, temporary tax breaks are a real burden on small and medium-sized businesses trying to make long-range investment decisions. Therefore, it would be better to push for a lower rate and get rid of tax credits and loopholes altogether. This would make the tax code more fair and neutral for all businesses, small and large.

In connection with their stand on crony capitalism, conservatives more generally should address the public perception that they give special protections and priorities to corporations. In the conservative creed, there is nothing special about corporations. Conservatives believe in the individual freedom to construct social institutions. And corporations are one such institution. But so are unions. What conservatives object to are special government privileges given to labor unions, as well as government coercion of individuals to join unions. Likewise, government should not give special privileges to corporations or foster distortions of power within the corporate structure.

The corporate form has proven a very effective means of channeling capital to economically productive uses in society. But aside from that, there is nothing inherently special or privileged about them. Corporations exist to serve society, not vice versa. So conservatives should be careful not to unquestioningly support existing corporation structures. For instance, workers in many corporations instinctively believe that the compensation of their CEOs has more to do with inadequate governance rules than with the economic contributions made by top management. Conservatives should make sure that the law does not create or support a cozy and self-serving relationship between corporate management and the board of directors.

The rules of the economic game should be the same for all. The government should not give preferential treatment to well-connected industries or entities. And it should not support special advantages for certain participants in the corporate organization.

© Patrick Garry


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Patrick Garry

Patrick Garry is a professor of law at the University of South Dakota, and Director of the Hagemann Center for Legal & Public Policy Research... (more)


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