Republicans these days are eager to replay the Reagan revolution. It is not hard to see why: In the 1980s, the GOP was the party of ideas, and the vision that Ronald Reagan and his supporters brought to Washington proved immensely popular with voters and profoundly improved American life. But in their effort to repeat Reagan’s particular policies, rather than his more impressive feat of developing policies that applied conservative principles to the problems of his day, today’s Republicans risk becoming detached from the country’s real concerns.
Nowhere has that risk been more plainly on display in recent years than in conservative tax policy. And yet it is just on that front that Republicans now have an opportunity to demonstrate how applied conservatism can make for both good policy and good politics.
That opportunity comes in the form of a new tax-reform proposal from Utah senator Mike Lee. Rather than emulate the precise means of the Reagan tax-reform agenda, Lee wants to emulate its ends: easing the tax burden on American families, correcting economic distortions created by the tax code, and encouraging work, investment, and growth. A true revival of conservative tax policy would seek to achieve these ends by means designed with today’s economic challenges in mind, rather than those of 30 years ago. And that is what makes the Lee proposal so promising.
His bill would dramatically simplify our tax system—consolidating today’s seven tax brackets into two (set at 15 percent and 35 percent), repealing the Alternative Minimum Tax, reforming the deductions for mortgage interest and charitable giving and eliminating all other itemized deductions, and repealing Obamacare’s new economically irrational taxes. But most important, it would address the unfair treatment of parents in today’s tax code through a new $2,500 per child tax credit, offered in addition to existing family benefits and refundable against parents’ income and payroll tax liabilities.
Even if we put aside the enormous social, cultural, and moral significance of child-rearing and simply consider the economics involved, the immense expense of raising children deserves to be treated as an investment in America’s future, and so to be rewarded and encouraged. Our entitlement system in particular depends on future taxpayers, and over time amounts in effect to a transfer of wealth from larger families to smaller ones.
Lee’s proposal begins to correct this imbalance, and in the process offers great relief to working families with children—helping to enable more poor Americans to enter the middle class and more middle-class Americans to contend with rising costs, especially of health care and higher education, amid stagnant wages. A family of four earning the median income ($51,000 a year) would get a tax cut of roughly $5,000 a year under Lee’s plan.
The proposal could also rescue Republican tax policy from some of the most damaging conventions it has fallen into over the years. By refusing to accept the artificial and effectively meaningless distinction between payroll and income taxes, Lee is able to offer working families relief from the taxes that actually burden them, and to overcome the misguided resistance to taking more families off the income-tax rolls. Implicitly rebuking Mitt Romney’s vision of makers and takers, Lee noted in introducing his plan that “people who pay no income tax do pay federal taxes. . . . Working families are not free riders.”
Stagnating economic mobility and rising middle-class costs of living are key impediments to growth and prosperity today, and addressing them as Reagan and the supply-siders addressed the key impediments to growth and prosperity three decades ago will require an approach like the one Lee has proposed. His bill is of course only a start—more would need to be done to improve the corporate tax code, and to further eliminate undue burdens and distortions in the individual code. But it would make for a strong start, and would also make such further steps more plausible by appealing to a broad swath of voters beyond the usual conservative base.
Indeed, the politics of the Lee proposal point beyond tax policy toward a renewed conservative focus on the needs of working families—needs now largely ignored by both parties, and which conservative economic ideas could do much to address. As Lee put it, “For a political party too often seen as out of touch, aligned with the rich, indifferent to the less fortunate, and uninterested in solving the problems of working families, Republicans could not ask for a more worthy cause around which to build a new conservative reform agenda.”