Making Reaganism Relevant

I have written before that instead of asking whether some aspiring political leader is “the next Ronald Reagan,” conservatives, small-government libertarians, and Republicans in general should demand an original leader who is well-equipped to take on current challenges. Ramesh Ponnuru argues—quite properly—that in addition, Reagan’s entire philosophy of government has to be updated to address present day issues:

When Reagan cut rates for everyone, the top tax rate was 70 percent and the income tax was the biggest tax most people paid. Now neither of those things is true: For most of the last decade the top rate has been 35 percent, and the payroll tax is larger than the income tax for most people. Yet Republicans have treated the income tax as the same impediment to economic growth and middle-class millstone that it was in Reagan’s day. House Republicans have repeatedly voted to bring the top rate down still further, to 25 percent.

A Republican Party attentive to today’s problems rather than yesterday’s would work to lighten the burden of the payroll tax, not just the income tax. An expanded child tax credit that offset the burden of both taxes would be the kind of broad-based middle-class tax relief that Reagan delivered. Republicans should make room for this idea in their budgets, even if it means giving up on the idea of a 25 percent top tax rate.

When Reagan took office, he could have confidence in John F. Kennedy’s conviction that a rising tide would lift all boats. In more recent years, though, economic growth hasn’t always raised wages for most people. The rising cost of health insurance has eaten up raises. Controlling the cost of health care has to be a bigger part of the Republican agenda now that it’s a bigger portion of the economy. An important first step would be to change the existing tax break for health insurance so that people would be able to pocket the savings if they chose cheaper plans.

Conservative views of monetary policy are also stuck in the late 1970s. From 1979 to 1981, inflation hit double digits three years in a row. Tighter money was the answer. To judge from the rhetoric of most Republican politicians, you would think we were again suffering from galloping inflation. The average annual inflation rate over the last five years has been just 2 percent. You would have to go back a long time to find the last period of similarly low inflation. Today nominal spending — the total amount of dollars circulating in the economy both for consumption and investment — has fallen well below its path before the financial crisis and the recession. That’s the reverse of the pattern of the late 1970s.

I would add that it should still be possible to have a flatter, lower overall tax system, with the top rate close to 25%, but like Ponnuru, I am surprised that more Republicans haven’t gotten on the bandwagon to lower the payroll tax. I have argued for them to do so in the past. It would be a great way for Republicans to start to win back middle class voters, and it would be very good policy to boot.

  1. Herbert Woodbery

    Excellent ideas, both of you.

  2. Joseph Eagar

    The payroll tax funds the promises we made to selfish Boomers.  If we lower them now, we’d have to hike them astronomically later.  In the long term, that’d mean more taxes for my generation.

    Let’s just leave it place, and concentrate our fight on preventing it from going up (as happened the last time SS went broke in the 80s).

  3. Joseph Eagar

    I do agree with the rest of Romesh’s piece, though.

  4. liberal jim

    Local, sate and federal spending make up 40+% of spending.  Government regulation tightly controls another 30+%.  With only 25% of capital now available to a semi-free market the idea that tinkering with tax codes will produce real growth is a pipe dream.  

    Government uses capital far less efficiently than the free market.  The only way to re-ignite growth and the middle class is to shrink the size and influence of government,  neither party is willing to do this.

    When GWB was elected the US was ranked as the third freest economy in the world it is ranked 13 today.  

    Bush/Obama, Republican/Democrat elites and their parasitic cheerleaders in the press  have managed to kill the golden goose.   

    When will they stop blathering about tax rates?

      

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