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Can 'conservative principles' boost working-class incomes?

- January 15, 2015

According to The Washington Post’s Philip Rucker and Dan Balz, “Economic mobility, and the feeling of many Americans that they are being shut out from the nation’s prosperity, will be a defining theme of the 2016 campaign.” Republican presidential hopefuls Jeb Bush, Mitt Romney, and Marco Rubio have all garnered attention lately by signaling their interest in addressing the issue of stagnating working-class incomes.
Bush’s new PAC, The Right to Rise, says “We believe the income gap is real, but that only conservative principles can solve it by removing the barriers to upward mobility.” Why would one believe that? Since the beginning of the Reagan era, middle-class families have experienced little or no real income growth under Republican presidents, while working-poor families have actually lost ground. (Income growth under Democratic presidents during this period has been substantially higher, despite the slow recovery from the Great Recession that consumed President Obama’s first term.)
Census Bureau data tabulated by Larry Bartels.
If 20 years of “conservative principles” produced no significant income gains, what might entice voters to try yet another dose? Matthew Dowd, a major figure in George W. Bush’s 2000 and 2004 campaigns, says Republican and Democratic pollsters are “in complete agreement on the idea that there has to be an economic populist message. Then it comes down to ‘Are there credible solutions and is there a credible candidate?’”
Republican candidates begin at a disadvantage on this terrain, given the long-standing tendency of American voters to view them as less likely to “really care about people like you.” Romney, whose presidential hopes are stirring once again, struggled to present himself as an empathetic figure in 2012, and that cost him significantly at the polls. According to Rucker and Balz, “The language of Bush, Rubio and other Republicans appears aimed at avoiding the problem that bedeviled Romney throughout his 2012 campaign.” Even Romney hopes to project a less plutocratic image this time around; a senior adviser promises, “There will be more focus on mobility and softer economic issues.”
As for “credible solutions,” Matt O’Brien notes that “Republicans have needed a middle-class agenda for a long, long time now.” Conservatives like to say that “restoring broad-based prosperity” is what’s crucial, even if “the rich might get even richer and the income gap might get even bigger.” But the last time American middle-class incomes thrived under a Republican president was under Dwight Eisenhower—a distinctly non-ideological president who governed more than half a century ago. This dismal history puts a significant dent in the familiar Republican claim that “the best anti-poverty program is economic growth;” the free market has not been up to the challenge of lifting all boats.

Census Bureau data tabulated by Larry Bartels.

Census Bureau data tabulated by Larry Bartels.

David Leonhardt argues that the “best hope” for raising middle-class incomes in the short term is “the oldest and most obvious play in the book: a tax cut.” For modern conservatives, the Holy Grail of tax policy has been cutting the marginal tax rate for top earners. But that approach is unlikely to have much broad political appeal, given the clear failure of trickle-down economics to boost the fortunes of poor and middle-class families in the Reagan-Bush era.
A more tempting target is the federal payroll tax, since most middle-income households (and more than 80 percent of those in the second income quintile) pay more in payroll tax than in federal income tax. A 2 percent payroll tax cut significantly boosted working-class incomes in 2011 and 2012, but it expired as part of the “fiscal cliff” deal following the 2012 election. (Republicans had not yet found economic populism; Democrats were squeamish about violating the pretend-sanctity of the Social Security trust fund; and both parties were consumed with the question of whether multimillionaires would keep their Bush tax cuts.) Reducing the payroll tax could be quick, efficient, and politically appealing.
Another promising target for populist tax reform is the earned income tax credit (EITC) for the working poor. Rubio, Paul Ryan, and other Republicans going back to Ronald Reagan have periodically supported significant expansion of the EITC, especially if the alternative is a minimum wage hike. Many conservatives see the EITC as “a stepping stone toward economic independence” for low-income workers, who often face even higher marginal tax rates than top earners do, once the cost of foregone means-tested government benefits is factored in. By rewarding work—and sparing low-wage employers from footing the bill—the EITC offers redistribution with a palatable conservative face.
What about the cost? Democrats have proposed paying for working-class tax cuts by raising taxes on the usual suspects, including top earners and financial speculators. That’s a popular position, but not one that faux-populists like Bush, Romney, and Rubio are likely to embrace. Conservative commentator Charles Krauthammer wants to raise the federal gas tax by $1 per gallon and use the proceeds to reduce the payroll tax. That would be enormously sensible, especially in a moment of historically low gas prices; but Krauthammer acknowledges that the proposal has as much chance as “Don Quixote with windmills.” Thus, the most likely basis for “an economic populist message” on the Republican side—and for any policy agreement before or after the 2016 election—will be to hide the price tag, counting on the shrinking federal budget deficit to trump the always-selective conservative concern for fiscal prudence.
Is that an economic populism consistent with “conservative principles”? Sort of. In any case, it may have to do, if Republicans want “to address a political weakness that helped sink the party’s last White House nominee.”