So we’ve done it: wrested control of the Senate from the do-nothing Democrats. But who are “we”? Are we the corporatist conservatives who fret that high marginal tax rates are stifling the risk-taking of wealthy investors, that business taxes are too high, that the entitlement state is unsustainable? Or are “we” the populist conservatives who worry about bank bailouts, dislike bonuses set by buddy-buddy boards, and believe with Adam Smith that workers are entitled to a decent wage and that free trade is fine so long as its beneficiaries, the winners, concede some of their gains to the losers? As Frank Sinatra might have put it: Are we crêpes suzette or pie? Wall Street or pawn shop? Country club or ballpark?
In practical terms, do “we” care more about businesses’ desire for lower taxes, free trade regardless of its effect on income distribution, asset-bloating monetary policy, and wage-shrinking immigration policy, or are “we” to have as our first priority the improvement of the living standard of disaffected middle-class voters, many of whom stayed home in the recent elections in despair of casting a vote that might improve their lot? If “we” are to be populist conservatives, what ought “we” be doing?
We could start by concentrating on what Republicans can do in the here and now for great masses of voters—consistent with good, conservative principles. The first would be a tax cut—and not in the marginal rate for upper-income families or for corporations, the historic targets of tax-cutting Republicans. The theory of reducing marginal tax rates is that such cuts encourage job creation and risk-taking. Perhaps, but it is difficult to argue that current returns to businesses provide insufficient cash to fund new projects—just look at the idle cash piled up in corporate coffers—or that the wealthy are being overtaxed (cast an eye over data relating to the recent rise in incomes of the better off). Instead, cut the payroll tax paid by all workers earning less than some agreed level. After all, a stimulus to private consumption by people whose real incomes have been stuck on hold for years just might help conservatives get what they have been asking for—more rapid economic growth.
This reduction in the middle-class tax burden can be financed in part, at least, by ending capital gains treatment of so-called carried interest, compensation received by hedge fund and private equity fund managers that almost no expert is prepared to defend as other than ordinary income. If such a move needs defense on other than fairness grounds, consider this: What John Maynard Keynes called the “propensity to consume” is surely higher for the recipients of the tax cuts than for the financial-types who would experience a tiny drop in their total incomes, meaning that total consumer spending might rise, not a bad thing in a growth-hungry economy. Only “might,” but we’ve tried just about everything else to break out of the slow-growth mode, with some but not a great deal of effect.
The danger is that the hedge fund losers will find other ways to take advantage of the convoluted tax code. After all, as Victor Fleischer of the University of San Diego points out, the top 25 hedge fund managers have five times the income of “all the federal, state and local tax examiners, collectors and revenue agents in the United States, combined.” They can deploy those funds to find ways of protecting their after-tax incomes, and for good measure deduct that spending from their taxable income. So if the take from the hedge fund managers proves insufficient to finance a middle-class tax cut, why not borrow the odd billion? Interest rates are low, and far better to borrow to fund a tax cut than to finance a government-led infrastructure program.
That may begin to boost the incomes of the middle class. Then for the next act, do its members a really big favor: Make their television viewing way, way cheaper. No, not by making Internet providers public utilities like electric and gas companies—anyone remember the last major innovation by his local utility? Instead, require cable companies to offer à la carte service, allowing you to pay only for those channels you want to watch, rather than be forced to buy a bundle of stuff, most of which many viewers don’t want. This might cost some sports fans more for their favorite channels, but they would save on those they will never watch. Conservatives generally want consumers to have access to products without having them bundled by quasi-monopoly suppliers with things they don’t want. Microsoft was not allowed to bundle its browser with its operating system, a longstanding antitrust policy. Surely sauce for the Microsoft goose is sauce for the cable-company gander.