The Constituencies For Republican Tax Insanity

So super-commenter Caleb Verbois and I were talking about why it is that politically suicidal tax plans like Herman Cain’s nine-nine-nine plan get any traction among Republicans. We agreed that some of it had to do with the misappropriation of Reagan nostalgia, but I didn’t find that answer satisfying. Reagan nostalgia can explain wanting some kind of major tax cut. After all, Reagan cut taxes. Reagan nostalgia can explain wanting Romney-style across-the-board income tax cuts. After all, Romney cut income taxes across-the-board (even though the distributional impact would be very different today given changes in the tax code.) What Reagan nostalgia cannot explain is why any significant body of Republicans would gravitate to tax cut plans like nine-nine-nine or Rand Paul’s flat tax that would actually be a tax increase on many working families at or near the median while very sharply cutting taxes on the highest earners. I think there are two major constituencies for such middle-class tax increase/high earner tax cut plans:

1. The first and by far the smaller constituency are those people who buy into the Wall Street Journal’s infamous “lucky duckies” editorial. It is time for those middle-class and working poor “lucky duckies” who have little or no income tax liability (but might have a substantial payroll tax liability) to get out of the wagon and help those high earner job creators who “built that” to pull the wagon forward.  So with the formerly lucky freeloaders of the lower middle-class finally paying their fair share, we can cut taxes on the builders who built that so they can build even more. As the Third Way foundation recently pointed out, those lucky duckies have been lucky indeed over the last thirty years what with their declining wages and family disruption and all. While you hear this point of view occasionally voiced on the Saturday morning Fox News business shows (and somebody is watching them), I don’t believe that this constituency is large enough for a candidate to ride it to a presidential primary win (or even a strong second place finish) in any state.

2. I think the second group who ends up supporting such plans is much larger, but also much less likely to keep supporting these kinds of plans. Cain’s nine-nine-nine and Paul’s flat tax are sold partly as tax simplifying plans that will reduce corruption and special interest influence. Once the tax code is transparent and the special interests are banished from the tax code, we will all be better off. Most people do not immediately understand the distributional impact of a particular tax proposal.  I sure don’t. They have the vague idea that when the tax code is cleansed of all the special interest tax breaks, they will personally have a lower (or at worst the same) tax liability.  It sure sounds good when they hear Herman Cain or Rand Paul explain it. When it sinks in that this awesome-sounding tax reform is actually a middle-class tax increase, support for the tax proposal collapses among this constituency.

The primary danger when it comes to these kinds of tax reforms is not that they will be enacted. That isn’t going to happen. It is extremely unlikely that a Republican advocating these kinds of tax proposals could even get the Republican presidential nomination. The primary danger is that these kinds of tax proposals can be fairly popular for a while and dominate the debate. The result is that Republicans spend too much of their time debating the merits of middle-class tax increases and high earner tax cuts, when they could be working to craft and popularize a middle-class-friendly agenda. It is best that we talk them out now.