Has the Republican strategy of tax cuts as a supply-side stimulator expired? Fiscal conservatives may have found themselves marginalized in the tax discussion, thanks to the election of Donald Trump and the era of populism that lifted him to the White House.
An eyebrow-raising report from Axios’ Jonathan Swan predicted that the Trump administration would push for more progressive tax policies aimed at the wealthy as part of its overall reform. Presidential strategist Steve Bannon, who successfully tapped into middle-America populism for Trump’s campaign, wants a hike in the top personal income bracket from its current 39.6 percent to a rate with “a 4 in front of it.”
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Swan, who has reliably provided insight into the inner workings of the Trump White House calls it “classic Bannon” in defying the “Republican establishment.” Swan’s report suggests that the tax hike might be used to balance out a revenue-reducing restructuring of the corporate tax rate, which Republican leadership would have welcomed on its own in years past.
The “Republican establishment” position may not be as clear as one might imagine, at least outside the Beltway. Republicans have become the dominant political party outside of Washington DC, holding nearly two-thirds of the gubernatorial seats around the country and a huge advantage in control of state legislatures, having won over a thousand seats in the last eight years. This should be an era of tax cuts – and yet Republicans at the state level have begun passing tax increases to deal with fiscal crises.
Just this year, Republicans in South Carolina and Tennessee have raised gas taxes, an anathema among their colleagues in Congress. Kansas Governor Sam Brownback tried a low-tax agenda and ended up with a political disaster on his hands; the GOP legislature passed a $1.2 billion tax increase over his veto last month.
The party appears to be poised on the edge of a major philosophical shift. Trump and his White House might not be driving it, but they are responding to the rank-and-file Republicans who have tired of the Party’s ideological battles.
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Republicans have fought for flatter taxes and lower rates ever since Ronald Reagan won a landslide election during a tax revolt, and then delivered with the greatest economic expansion in the post-World War II era. When George H. W. Bush broke his “read my lips” pledge to stop tax hikes to get a budget deal with the Democrats who controlled Congress in 1990, it prompted serious primary challenges in the 1992 election and enough disfavor within the Republican coalition that Bush lost the election to Bill Clinton.
More recently, House Republicans fought with then-President Barack Obama and the Democratic majority in the Senate in multiple budget cycles to keep the tax cuts passed during the George W. Bush administration, pushing the federal government several times to the brink of the debt ceiling and government shutdowns. Fiscal conservatives controlled GOP policy and refused to bend on higher taxes, no matter how they were targeted.
The low-tax philosophy does not exist in a policy vacuum within Republican ranks, either. Reagan framed it as a liberty issue, arguing that taxes fuel bigger government, which then inevitably infringes on individual freedom. In his first inaugural speech, Reagan specifically criticized progressive tax policies that “penalizes successful achievement” that denies workers “a fair return for their labor.” Removing the “punitive tax burden” would necessarily “get the government back within its means.” For the last four decades, this smaller-government philosophy has driven Republican economic and governing policy.
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Reagan himself did agree to some tax hikes, as many have noted ever since. One arguably contradictory example was the 1986 compromise with Democrats in Congress that hiked the capital-gains tax rate, and which did indeed look a little like a penalty for successful achievement for investors. Other oft-cited “hikes” came from ending deductions, however, which Reagan did to get agreement to lower and flatten overall income tax rates. Reagan successfully brought the top tax rate down from 70 percent to 28 percent, and to index tax brackets to inflation to protect workers.
In short, the philosophy against tax hikes and progressive tax policies have centered on the fundamental role of government. Conservatives have consistently argued that both fuel redistributionism, a top-down process that necessarily requires bigger government, and which produces both economic dysfunction and injury to personal property and liberty.
Unfortunately for conservatives, many voters see no positive impact in their own lives and communities from the pursuit of the Republican small-government philosophy. In large part, this is because voting for Republicans has not produced a noticeably smaller government ever. One could argue that it has at times restrained the growth of government, but that argument has much in common with the Democratic argument that reducing Medicaid spending increases over current projections in its growth amounts to massive Medicaid cuts. Both ignore that the real trend line over time increases rather than decreases.
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After waiting for dividends to pay off over the decades on small-government reforms and policies, voters instead now want the government to pay off for them. Ideological arguments over the size and nature of government have become meaningless; they want to hear what politicians will do for them, in concrete terms. That’s especially true for those who feel left behind by globalization, who instinctually feel that free-trade policies are inherently unfair. They see corporations and the fabulously wealthy as winners in a zero-sum game that they are presently losing, and they want to change the equation as a form of justice.
On the Left, that takes the form of Bernie Sanders supporters. On the Right, populism takes the form seen in the presidential election – of middle-America working-class voters who simply want to finally be the center of national policy. They want the government to right these wrongs and have their chance to benefit from a system that hasn’t changed in any significant way over the last several decades. And that is coloring much more than just the tax-reform issue; the need to deal with rising populism on the Right is why Republicans in Congress have had such a difficult time in repealing Obamacare, a promise they have made for seven years and can fulfill now.
The White House will no doubt push its policies in conservative terms, but make no mistake about it. Conservatives have been thoroughly marginalized due to their lack of success in implementing their vision, and due to their inability to adapt it to create specific policies that connect to the lives of voters across the country. Trump and his team didn’t create the populist wave that has carried Republicans far from the shores of Reaganite conservatism; they’re only surfing it as expertly as they can.
