The Magazine

The Party of Sam's Club

Isn't it time the Republicans did something for their voters?

Nov 14, 2005, Vol. 11, No. 09 • By REIHAN SALAM and ROSS DOUTHAT
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For those on the left, the discussion about rising economic security often ends here, with a narrative that vindicates their beliefs about free markets--that winners are few, and that the poor inevitably lose out. (Thomas "What's the Matter with Kansas?" Frank is only the latest class-war Cassandra to make his name on this kind of analysis.) Working-class insecurity, however, has roots not only in the rise of the globalized economy, but also in the decline of the family.

This decline, tellingly, is a working-class phenomenon for the most part. For women aged 25 to 34 in the best-educated third of the population, the rate of single parenthood has barely budged since the 1960s--it was 5 percent then, it's 5 percent now. But for those in the least-educated third, the illegitimacy rate has nearly tripled, rising from 7 percent in the 1960s to 20 percent today. This decline in husband-wife families, the Brookings economist Gary Burtless recently argued, accounts for 21 percent of the increase in economic inequality between 1979 and 1996 (the increase in assortative mating--high-earners marrying other high-earners, low-earners marrying other low-earners--accounts for another 13 percent). Inevitably, the brunt of these negative trends is borne by children: Had family structure remained unchanged from 1970 to 1998, Adam Thomas and Isabel Sawhill recently argued, the child poverty rate would have been 13.9 percent, rather than 18.3 percent. That sounds like a small difference, but over decades it represents millions of lives unscarred by poverty, and millions of children more likely to become productive, law-abiding citizens.

Conservatives have long emphasized the importance of these cultural factors, and rightly so--but just as culture impacts economics, so too can economic policy affect cultural trends. It's possible to imagine policies that would support a virtuous cycle, in which increased working class economic security shores up familial stability. And policies that offer government support to economically insecure families wouldn't be money for nothing. America, like any nation, depends on parents' willingness to raise healthy and well-educated children.

Without a youthful population, the costs of supporting retirees are unsustainable, and the innovation and entrepreneurial zeal that make America the world's economic leader will slowly wither. Yet the decision to raise children continues to be treated as something akin to the decision to buy an expensive automobile--a perfectly fine thing to do, but don't expect any sympathy or support when you can't afford a tune-up or an oil change. Having a large family used to be a sign that you had faith in the future. Today, outside the family-friendly exurbs that played a crucial role in reelecting President Bush, it's become a form of conspicuous consumption--or, for the poor, a mark of irresponsibility.

Crafting pro-family policies that stand against this trend is not a question of turning back the clock to some lost Ozzie-and-Harriet golden age, as critics of social conservatism often assert. Quite the opposite: Precisely because the world has changed, with the demise of lifetime employment and increasing returns to education, strong families are growing ever more important, and policies that encourage people to form them and keep them together are ever more necessary.

Yet despite the fact that families with children are among the most reliable Republican constituencies, President Bush has done surprisingly little to address their needs. As part of the 2001 tax cut, the size of the child tax credit increased from $600 to $1,000; that's a start, but it doesn't go nearly far enough. The next GOP tax cut ought to be targeted explicitly to married couples with children--or, alternatively, a creative Republican politician might champion a generous baby bonus, a pro-natalist child benefit designed to help defray the costs of children and to encourage larger families.

Quebec's Allowance for Newborn Children (ANC), implemented with considerable success in the late 1980s, might serve as a model: The program provided (approximately) $500 for a first child, $1,000 for a second, and, for a third and all subsequent children, 20 quarterly payments of $400. According to one estimate, from Kevin Milligan of the University of British Columbia, this led to a 15 percent bump in the province's birthrate, and the overall "cost" to the government of each additional child--i.e., each child who would not have been born in the absence of the ANC--was just over $15,000. That number sounds high, but it pales in comparison with the financial sacrifices that the parents will make to raise the child--the opportunity costs, in forgone wages, can top $1 million for a family of modest means--and the value of the taxes that child will pay over a lifetime.

But it's not enough to give a boost to parents when they have a child; Republicans need to make it easier to raise these bonus babies as well. Inevitably, this means doing more to ease the burdens of working mothers. To address the concerns of women, Democrats tend to focus on child care subsidies, parental leave, and other measures that are better understood as "market-friendly" than as "family-friendly," in that the goal is to make it as easy as possible for parents to maximize their time in the paid labor force. There's a good reason for this. Women's educational attainment has risen rapidly, surpassing that of younger men, and workplace success has followed. There is no returning to an economy, or a society, in which most women don't work outside of the home.

The trouble is that the contemporary workplace demands that women follow the male career track, which assumes a seamless transition from school to full-time employment, and a career path that begins in the early twenties and continues in unbroken ascent until retirement. For many women, this is an appealing model--but many more find themselves losing their best childbearing years to the workplace, and then scrambling to squeeze in a child or two before middle-age arrives.

A better way to approach the division between work and family life might be what sociologist Neil Gilbert calls a "life-course perspective," with measures that would allow a mother (or father, for that matter) to provide child care full-time for several years before entering, or reentering, the workforce. For instance, the government could offer subsidies to those who provide child care in the home, and pension credits that reflect the economic value of years spent in household labor. Or again, Republicans might consider offering tuition credits for years spent rearing children, which could be exchanged for post-graduate or vocational education. These would be modeled on veterans' benefits--and that would be entirely appropriate. Both military service and parenthood are crucial to the country's long-term survival. It's about time we recognize that fact.

Such a recognition, not incidentally, would be a recipe for continued GOP political dominance. Married couples are already the most reliable Republican voters. Policies making it easier to get married, stay married, and have more children would cement these voters' loyalties, and they would also draw wavering, culturally-conservative-but-economically-anxious voters into the Republican fold. The party of James Dobson isn't going to win back wealthy social liberals any time soon. But a pro-family economic agenda might make inroads among, say, upwardly mobile minorities, or working-class whites in increasingly up-for-grabs states like Minnesota and Iowa.

But if the Republican party really wants to shore up its majority for a generation to come, it needs to go further. A bold, pro-family GOP ought to steal a page from the Democrats' playbook and make a push for reform in what may be the greatest source of anxiety for families: the country's health care system.

Health Care First

At this point, it's obvious to all but the most delusional that President Bush's Social Security gambit has failed. Having grasped the third rail with his bare hands, Bush deserves our admiration. But he seriously misjudged the public mood. Coming alongside the slow extinction of traditional employer-provided pension plans and the demise of union-supported guaranteed employment, Bush's proposed reforms appealed almost exclusively to people who already have stock portfolios and 401(k) plans--the voters, that is, who already feel most secure about their economic prospects. Everyone else was skeptical--and some of the stiffest resistance came from loyal Republicans.

None of this is to say that Social Security reform should be abandoned--but it shouldn't be the top priority of a party concerned with the interests of working families. In this regard, President Bush repeated an error made by Bill Clinton. In the mid-1990s (as Mickey Kaus especially has argued), Clinton ought to have pushed welfare reform before turning to health care reform. By doing so, Clinton would have demonstrated his commitment to breaking with big-government liberalism, thus gaining political capital for changing the health care system. Instead, Clinton offered a nightmarishly complex "HillaryCare" proposal that convinced many voters that he was a liberal Democrat of the old school.

Similarly, by aggressively pursuing benefit cuts and voluntary personal accounts, Bush only reinforced the view that conservatives are bent on reducing economic security. What Bush missed was an opportunity to demonstrate that conservative solutions can actually increase economic security--an opportunity that could have been seized if the GOP had made a serious effort to extend health insurance to all Americans.

By now, the fact that over 45 million Americans are uninsured is familiar, as is the conservative rejoinder that many of these millions are uninsured by choice. But the 45 million figure is a snapshot--the number who are uninsured at a particular moment in time. The number who are uninsured at some point during a typical year--usually because they lose coverage while switching jobs--ranges from 57 million to 69 million. Over a period of 24 months, that number climbs to over 80 million. This means that at some point every two years, millions of American parents dread seeing their child catch a bad flu for fear of facing long lines at an understaffed, overworked emergency room. Even if this transitional period lasts only a few months, it's a period fraught with anxiety. Nor are health care anxieties confined to voters who lack insurance. Most current plans serve as prepayments for routine medical expenditures. When the unforeseen comes along, millions of families find themselves financially vulnerable.

It's no surprise, then, that Americans consistently rank health care as among the most pressing issues--far ahead of Social Security, and eclipsed only by the threat of terrorism and the war in Iraq. Nevertheless, the Bush administration has failed to offer any comprehensive proposals on this front. The prescription drug benefit was an ostentatious and hugely expensive sop to the elderly, and seems to have left Republicans with a positive aversion to useful reform. Democrats, chastened by their previous failures, have been slow to seize the opportunity, but that's unlikely to last. If conservatives aren't careful, anxieties over health care could yet provide an opening for liberals to impose a system more rigid and stultifying even than HillaryCare.

To forestall such a disaster, Republicans need to deliver a market-friendly health care reform, and simplify the current hodgepodge of command-and-control and laissez-faire. Instead of approaching health care reform as the left does, as a problem for the uninsured--a matter of charity for those less fortunate--conservatives should cast the health care crisis as what it really is: a problem for the insured, for people whose insurance plans will lapse if they lose or shift jobs, whose plans don't cover expensive crises, and who must pay extra, in the form of higher premiums, to cover the medical bills of the permanently uninsured.

And instead of uncritically accepting the liberal insistence that reforming health care would require the government to spend vastly more money, conservatives should realize that the health care system has become so complex and inefficient that a real reform could be crafted that would eventually pay for itself. In 2003, federal, state, and local governments poured out almost $730 billion on health care, and the tax breaks handed out for employer-provided health care came to almost $190 billion. With this level of spending, it ought to be possible to move to a more rational, market-oriented health care system that would provide portable coverage for all families, without spending an extra cent of government money.

For instance, Mitt Romney has proposed in Massachusetts that health insurance be made universal by making it mandatory. Allowing individuals to forgo coverage encourages the young and healthy to live dangerously, giving them a free ride on the public purse when things go awry, and making health care more expensive for everyone else. If you expect government to step in when the going gets tough, you have an obligation to make a contribution.

But if purchasing health insurance is to be mandatory, it needs to be cheaper. To drive down prices, and free up money to subsidize insurance for the poorest Americans, anticompetitive practices in the health care sector would have to be attacked. As professors Michael Porter and Elizabeth Teisberg have argued, the health care industry is designed to reduce costs borne by intermediaries--hospitals, health plans, physician groups--rather than increase value for patients. So there is a relentless drive to shift costs onto individuals, and to minimize competition through network restrictions that prevent consumers from finding the best care. Medical providers collude to suppress information about the quality of care, a practice that would be considered intolerable in any other industry. By negotiating for steep discounts from provider groups, large employers and the government make the individual insurance market intolerably expensive for most Americans. Eliminating these bottlenecks will, over time, go a long way towards reducing costs, while increasing consumer choice.

Driving down costs will also enable Republicans to sever health care coverage from employment. As GM's continuing woes suggest, American industry is being hobbled by health care costs. In 2004, employers spent $443 billion on health care, and even small and midsized corporations are forced to maintain miniature welfare states, with all of the administrative costs and hassles that entails. It's hardly surprising that the Chamber of Commerce is joining liberal groups in seeking some kind of solution, and there's every reason to believe that corporate America will stand behind a smart reform. More important, severing health care coverage from employment will eliminate the gaps in coverage that occur when workers move from one job to the next. Workers will no longer be shackled to jobs they despise, thus offering a tremendous boon to productivity.

Finally, the goal of any health care system ought to be security against catastrophic expenditures. Individuals can choose to pay for comprehensive coverage, but the responsibility of government should extend only to making sure that all Americans purchase a high deductible policy--rather than subsidizing gold-plated plans for upper-income Americans, which the current system often does.

All these reforms would have salutary effects on family life. If your coverage were portable, you'd feel more secure in moving your family to a community with a lower cost of living, or where you're more likely to find remunerative employment. At the same time, making health care more universal and affordable would reduce the costs of child rearing, encouraging family formation and offering a sense of security to parents debating whether to have a second (or third, or fourth) child.

And by passing a reform along these lines, the Republican party would gain the credibility it needs to modernize Social Security, and to reinvent that program so that it works to further conservative goals, rather than undercut them. At present, we have the worst of both worlds: an expensive and inefficient health care system that discourages child rearing and economic risk-taking, and an increasingly expensive pension system that does the same. The latter is popular, but the former isn't--and that should be a clue for conservative reformers.

Beyond Welfare Reform

The last great conservative reform came almost a decade ago, when a Republican Congress delivered exactly what it promised--reduced welfare rolls and increased employment rates. It's curious that Republicans have since shied away from pursuing further reforms aimed at low-income Americans. There's certainly room for them: Despite its success in reducing illegitimacy rates and putting welfare recipients to work, welfare reform has done little to reverse the collapse in marriage rates among the working poor, or arrest the growth of child poverty. And while conservatives have fought hard to eliminate perverse incentives that discourage marriage, a far more serious problem looms--the dire shortage of marriageable men in poor communities. Exhorting single mothers to find husbands, and prospective husbands to enter the workforce, can only do so much good when less-educated men continue to see their wages stagnate or decline--and when so many end up incarcerated.

Republicans have long celebrated entrepreneurship and the idea of self-help. But among the very poor, the obstacles to self-help remain formidable. President Bush recognized this in calling for a more "compassionate conservatism." But the language of compassion strikes the wrong note: It speaks to middle-class empathy, not to the aspirations of poor Americans with the drive to succeed. Republicans need to recast their policies for the poor as a self-help agenda, with less emphasis on warm sentiments and more on offering tools for advancement. The earned-income tax credit is one policy that's worked brilliantly. By rewarding poor mothers and fathers who work for a living, it has made a serious dent in child poverty. But the EITC does little for childless workers struggling to make ends meet, particularly the less-educated single men who are at the root of the poverty problem.

One tool that Republicans might consider promoting is a program of wage subsidies, like that proposed by Columbia University economist Edmund Phelps, which would help less-educated single men make ends meet, thereby making them more desirable marriage partners. Given the right boost, poor young men could become working-class fathers. There's no question that a serious wage subsidy would be expensive--Phelps figures up to $85 billion a year--but the cost would be reduced if it lowered incarceration rates and reduced outlays of other government benefits. Far from being a new entitlement, wage subsidies would be an anti-entitlement, with government helping only those who are already helping themselves. Indeed, such a subsidy could be accompanied by further cuts in benefits to those who are fit to work and don't--thus increasing the incentives for holding down a job and raising a family, and leaving shirkers at the mercy of family and friends, or private charity.

The contrast with the Democrats, again, would be instructive. While the left bashes Wal-Mart, which creates more jobs and more savings for non-college-educated workers than a million pressure groups, wage subsidies would recognize that low-wage employers aren't the enemy when it comes to fighting poverty. By working with these employers--instead of imposing higher wages by fiat, as a minimum-wage increase would do--conservatives can deliver results where liberals have failed. Low-income strivers, on their way to the middle class, will take notice--and so will centrist voters alienated by the corporation-bashing of Howard Dean's Democratic party.

Then there is the elephant in the room--immigration. No other issue separates the Republican base so starkly from the Republican elite, and with good reason. Simply put, large-scale immigration from Mexico has made the rich richer and the poor poorer. The college-educated have reaped the benefits of a steep decrease in the price of labor-intensive services, while working-class Americans, exposed to increasingly stiff competition, have seen their earnings stagnate and even dwindle.

But Mexico is more than a source of cheap labor. It's the ancestral homeland of a large and growing number of Americans. Remembering the lessons of Pete Wilson's doomed anti-immigration crusade, many Republicans, from President Bush on down, are reluctant to travel that road again. Such considerations drive the Bush administration's proposed immigration reform, which would offer a path of earned legalization to those already in the country. Bush is half-right: Few Americans would support a program of mass expulsion (which would probably destroy the Republican party's electoral prospects for a generation), and there needs to be a greater effort to Americanize Hispanics (as we used to say). But taken on its own, Bush's quasi-amnesty would in all likelihood increase the size of the unskilled influx, further damaging the economic prospects of low-income native-born workers, and raising the likelihood of a revolt by the Republican base.

To forestall this possibility, the GOP needs to find a way to split the difference between the anti-immigration hawks and the advocates of open borders--by predicating any earned legalization program on increased spending for border control and serious sanctions for employers who hire undocumented workers. Would such measures put an end to illegal immigration? Of course not. But they would do something to slow it, and more important, seal a fissure that's opening within the party.

In the long run, though, the GOP needs to recognize that clumsy pandering on immigration isn't the best way to win Hispanic voters (especially since many of the workers being hurt by unfettered immigration are themselves native-born Latinos). If Republicans are going to continue making inroads among Hispanics, they need to address their economic aspirations, not their ethnic loyalties. It's upwardly mobile second-and third-generation Mexican-Americans, not recent immigrants, who are likely to turn to the GOP--and wage subsidies for low-income workers, a health care reform that drives down costs, and government support for large families are all more likely to win them over than any amnesty proposal.

Rethinking Taxes

Finally, taxes. For 30 years, the heart of Republican political success has been tax cuts. By embracing steep rate reductions, President Reagan made a decisive break with decades of defeatist fiscal orthodoxy. Instead of depressing squabbles over how to slice a shrinking pie, the GOP offered the vision of a thriving entrepreneurial economy. But like aging hippies who never quite got over Woodstock, many of those young Reaganites, now safely ensconced in the GOP establishment, view across-the-board tax cuts as a permanent ticket to political power. And here, too, the party risks losing touch with its base.

Right before the Reagan tax cuts, a median-income four-person family paid about 12 percent of their total income in taxes--and reducing that burden, predictably enough, yielded a political windfall for Republicans. But over the intervening years, the burden borne by these voters has sharply decreased, and today a median family of four enjoys an income tax burden lower than at any time since 1957. Inevitably, political support for tax cuts has declined, as middle and working class voters weigh the costs and benefits of government spending and increasingly find that they're coming out ahead. Slashing tax rates to the bone has limited appeal for these voters, and a GOP that talks in that language--rather than the more appealing language of tax reform and simplification--will be hard-pressed to maintain its current majority.

To his credit, President Bush seemed to recognize this when he announced that a revenue-neutral tax reform, rather than further across-the-board cuts, would be a major second-term priority. But such reform has taken a back seat to the ill-fated Social Security gambit--and the proposals offered by President Bush's tax-overhaul panel, while sensible, have been disappointingly timid.

What would a sweeping pro-family tax reform look like? For one thing, it would keep taxes lowest for those entering the workforce and preparing to have children, and for young families making investments in their offspring. As workers gain experience and enter their peak earning years, it makes sense for the tax burden to increase. A payroll tax offset for children--another form of the "baby bonus" we recommended earlier--would be one way to achieve this effect. But another, still bolder choice would be to remove all families earning less than $100,000 from the tax rolls. For those who want to see a daring tax reform that leaves an impression in voters' minds and pocketbooks, this would be an avenue worth exploring.

Recall that the income tax was originally designed as a single-rate tax on a relatively small number of high earners. We still have something like it today, in the form of the alternative minimum tax (AMT), which was designed to ensure that the affluent pay at least some income tax. Bush's tax commission has called for the abolition of the AMT, which isn't indexed to inflation and will start biting into middle-class paychecks within the decade. But perhaps the GOP should consider an alternative: Why not reform the AMT and abolish the regular income tax instead?

Michael J. Graetz of Yale Law School, hardly a wild-eyed utopian, has called this the "back to the future" plan. Graetz would raise the AMT exemption to $50,000 for single-earners and $100,000 for joint returns, and impose a single rate of 25 percent on all earnings over those thresholds. To replace the lost revenue, he would also--and this is the controversial part--introduce a consumption tax of 14 percent.

The benefits of such a proposal would be considerable. It would reward people for saving and investing early in life. It would hit the idle rich--affluent retirees drawing down their savings, trust fund babies buying penthouse apartments--hardest, while the productive rich, and their income from investments and business ventures, would emerge considerably less scathed. And best of all, the consumption tax would be relatively easy to collect, and the $100,000 cutoff would eliminate 100 million of the 130 million income-tax returns filed every year.

But for a pro-family Republican party, this proposal would only be a starting point. For example, Graetz would preserve a wide array of tax deductions--for state and local taxes, charitable contributions, home mortgages, and employer-provided health care. Republicans could pick and choose from this list, targeting deductions to key constituencies. We have already argued that the deduction for employer-provided health care should be eliminated. The home mortgage deduction could be limited to low-income couples and families with children--after all, it hardly makes sense for the government to be subsidizing the McMansions of childless dual-income families. Taking a page from President Bush's tax-overhaul panel, state and local tax exemptions could easily be axed--and the subsequent revenue enhancement used to finance measures to help child-rearing families when they need it most (with deductions for college, health care, etc).

Admittedly, there would be losers from such a reform. Affluent, childless couples and middle-aged singles would undoubtedly face stiffer rates, as would the wealthy residents of high-tax states. But faced with the real cost of bloated budgets, well-off rentiers in Blue States might think twice before voting for tax-and-spend Democrats. Meanwhile, the majority of Americans would benefit greatly--including middle-and working-class voters, who would have the Republican party to thank for lower, simpler taxes.

More important, such a reform would disproportionately benefit the most productive Americans: bold upper-class entrepreneurs, thrifty middle-class investors, the upwardly mobile poor. And above all, it would benefit parents with large families--the people making the most significant investment possible in the American future (and doing the most to solve the looming Social Security shortfall).

ALL OF THIS RAISES THE QUESTION, Why change course? Republicans have been gaining ground politically for a generation, and this autumn of conservative discontent might be just a bump in the road, not a permanent setback. Every one of the proposals listed above will alienate at least some influential conservatives, and potentially undermine the unity of purpose that has been the movement's greatest strength. While Democrats, political losers for a generation, have every reason to retool and rebrand, calling for a reinvention of the Republican party will strike many as fixing something that isn't broken.

But the path of least resistance invites its own set of perils. The greatest danger facing any political majority is ideological sclerosis--the belief that because the party has attained political power on the strength of certain policies, those policies will always and forever keep them in power. With sclerosis, come stasis and corruption; with stasis and corruption, eventually, comes defeat.

The current Republican majority isn't likely to be defeated, or disappear, in the next few election cycles--though serious setbacks are always possible. But the party feels increasingly tired and corrupted by power, obsessed with fighting yesterday's battles and unwilling to adapt to the changing political landscape--a landscape that has changed, in many cases, precisely because of the party's past successes. Because of the GOP, most Americans no longer feel overtaxed; because of the GOP, rising crime rates no longer threaten the fabric of daily life; because of the GOP, the free market no longer buckles under the weight of government regulation. But in these very successes lie the seeds of potential defeat.

Many of the issues that the Republican party rode to power remain salient today, of course. The GOP doesn't need to rethink its support for a strong national defense, for instance, or its commitment to social conservatism. But having risen to power at a time when most Americans were worried about losing their economic freedom, the party needs to adapt to a new reality--namely, that today, Americans are increasingly worried about their economic security--and reorient its agenda to address those concerns.

The proposals outlined above are hardly the only set of domestic policies that the Republican party could advance. But they are the kind of ideas that the GOP needs to explore as it moves into its second decade as America's majority party. They combine the traditional Republican faith in individual initiative and the genius of capitalism with a willingness to cultivate the habits and institutions that enable individualism and capitalism to thrive. They aim to fulfill the vision, expressed in Ronald Reagan's first Inaugural Address, of a government that would "stand by our side, not ride on our back . . . provide opportunity, not smother it; foster productivity, not stifle it." And they recognize what a group of forward-thinking British Tories have called the "And" theory of conservatism--that many of our political choices are really false choices, and that core conservative principles can go hand-in-hand with imaginative solutions to the nation's problems.

So today's Republican party should be in favor of helping recent immigrants get ahead and slowing the flow of illegal labor--in favor of providing a helping hand to the hard working poor and cutting subsidies to the idle and shiftless--in favor of a tax policy that favors the working class and the productive rich. Above all, it should be in favor of limited government, and in favor of using government's considerable power to shore up the institution that makes a limited government possible--the beleaguered but resilient American family.

Critics will carp that such a party would be trying to be too many things to too many people. But there's a term for a party that attempts this feat and succeeds: a majority party.

Ross Douthat is an associate editor at the Atlantic Monthly and Reihan Salam is a writer in New York.