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Reaganomics 2.0
Just catching up now to a Forbes piece by Brian Domitrovic, another broadside against the expansion of the child tax credit outlined in the conservative reform policy book “Room to Grow.” This bit is unfortunately representative of the piece:
The “Room to Grow: suggestion is Keynesianism by another name: non-marginal rate cuts so that people closer to the bottom can have more to spend. It is odd to hear that supply-side economics should be updated because it succeeded in the 1980s. The proposed update suggests a return to demand-side economics, whose record includes having failed spectacularly in the stagflation of the 1970s.
To be honest, I feel like this ground has been pretty well covered for now. (Such as here and here.) But Domitrovic mentions my work, so I offer the briefest of responses: this severe, visceral revulsion at the idea of letting middle-class families keep more of what they earn during a time of economic stagnation is befuddling, really. (Perhaps it demands sociological rather than economic analysis.) That, especially when conservative reformers also back sweeping corporate tax reform is especially odd.
All in all, these critiques suggest a rather narrow, cramped, and retrograde vision of what a pro-growth supply-side economic agenda might look like in the 21st century. Is the top personal income tax rate really everywhere and always the biggest problem with the US economy? These attacks also ignore a variety of modern economic phenomenon — including job polarization, wage stagnation, and automation — that could mean boosting GDP growth is a necessary but insufficient condition for a broadly shared prosperity in 21st century America.
A pro-work, pro-innovation agenda will require tax reform, yes, but also healthcare, education, and regulatory reform along with modernization of the safety net. Summarily and reflexively dismissing all updates and expansions to the now 33-year-old Reagan agenda (note that distance between now and then is the same as the distance between Reagan and the Dewey GOP of the late 1940s) as “Keynesianism” — now a catch-all slander devoid of much meaning — is unhelpful.
Published in General
Income taxes discourage thrift and industry, they are a tool of the progressives used to promotes government. They make necessary intrusive enforcement agencies that are both repressive, threatening, and subject to political manipulation The idea that tinkering with a destructive force will result in any long term meaningful changes makes little or no sense. Anything done that would make them temporally less harmful will be undone by progressives at the first opportunity. I would support reforms ie; flatter, simpler, if it is made clear that these are temporary measures that are moving us toward elimination of this cancer. As far as I am concerned you are playing the progressive’s game and if you think you are going to win you are deluding yourself.
Interesting observation. Do you find that when your motives rather than your ideas are questioned it draws you into or repels you from a debate? Is it morally relevant that these families are middle class? Why is it better to take from these people when not in a time of economic stagflation? Indeed, if the real issue is letting people keep what they earn – which seems like a fine and grounded basis for making decisions – why should the accident of when they earn it be relevant at all? Unless one is to treat these people as mere means in the project of managing an imaginary concept like GDP – a morally dubious proposition, surely – the ethical question should surely be why ‘middle-class and other families cannot keep all of what they earn’.
James, you are right on the mark. On the right, as on the left, slogans frequently replace thinking. Having lower marginal rates is no doubt a good thing, but it is not the only good thing. Encouraging earners, as opposed to welfare recipients, to have families is another good thing. I costs about a quarter-of-a-million dollars to rear a child properly, and that expense comes before one is called on to pay college tuition. There is much to be said for libertarian economics, but when libertarianism becomes an ideology and a substitute for prudential statesmanship it can be just as utopian as Marxism.
The child tax credit is not a demand measure. It’s meant to influence the supply of the most important factor in any economy—human beings.
I suspect Domitrovic is confused by the fact that most policy wonks agree the U.S. has a “demand problem.” This is not the same as saying “the U.S. needs more domestic demand.” It’s fairly clear the American economy has far too much domestic consumption as it is, and even if we wanted to significantly increase it, our creditors might not allow it.
The problem is that demand is too weak in the rest of the world. The only way to fix that is to devalue the dollar in real terms, which requires a combination of loose monetary policy and tight fiscal policy. I.e. our demand problem can’t be fixed by more American spending, but by greater American exports.
Wow, you managed to say all of that without using the word “inflation.” Neat trick.
Reform Conservatives didn’t care about the corporate tax rate until the Burger King tax inversion. In fact, they were dismissive of concerns that the current rate was not competitive.
On the top marginal rate, RCs echo Obama’s “the 1980s called” line. On Twitter, Pethokoukis has speculated, not unfavorably, about a top rate of 50 percent or more. This is “Reaganomics 2.0”?
If it makes you feel better, most of the inflation is/will be in foreign countries (one of the reasons China restarted its currency appreciation program was to fend off inflation, mostly caused by US-induced capital inflows).
Besides, it’s not like we have a choice. We’re paying for 2005/2006, when the net savings rate went into negative territory. Ever wonder why really old people get offended by the idea of a negative savings rate? They insist it’s “stealing from the future,” but never say why? Well, the last five years is why. Supply-siders believed they could drive domestic capital formation with tax incentives and foreign borrowing, history be damned. They were wrong.