Broken families dragging down growth
Are Republican politicians trying to frame a policy agenda stuck in a Reagan rut? A good case can be made that they are — or have been.
Tax cuts have been a staple of Republican platforms since Jack Kemp persuaded Ronald Reagan to back a 30 percent tax rate cut in the 1980 campaign. Republicans, with some Democratic support, passed cuts for everyone under Reagan and George W. Bush.
But the heavy emphasis was on tax cuts for high earners. They contribute to economic growth by stimulating entrepreneurship and encouraging innovation, the argument goes.
Congressional Republicans earlier this year were forced to acquiesce in raising the high-end rate from 35 percent to 39.6 percent. Looking ahead, they would like to cut it back if and when they win the White House and congressional majorities.
More than that, many Republicans support efforts by House Budget Committee Chairman Paul Ryan and Ways and Means Committee Chairman Dave Camp to fashion a 1986-style tax reform act that would cut rates and eliminate tax preferences.
These are intellectually defensible policies with the potential to stimulate economic growth. But they may not be sufficient for the times.
Broad-based tax reform can be passed only by a bipartisan coalition, as in 1986. It’s not a policy suitable for a campaign.
And the case for tax cuts on high earners is not as strong as in 1980, when the top rates were 70 percent on “unearned” investment income and 50 percent on wages and salaries.
Cutting those rates ultimately to 28 percent clearly stimulated the economy. Paring the rate from 39.6 percent back to 35 percent won’t have as great an effect — and won’t bring immediate benefit to a large majority of voters.
It might make more political and economic sense to cut that rate just a few tenths of a point every year, as Gov. John Engler did in Michigan in the 1990s and several Republican governors and legislatures have done recently.
But there is another factor that may be holding growth down more than high tax rates. And that is the widespread disintegration of the family structure.
As Utah Senator Mike Lee noted in speeches at the Heritage Foundation, “the problem of poverty is linked to family breakdown and the erosion of marriage among low-income families and communities.”
Lee is careful not to cast opprobrium on single or divorced parents. But he insists on pointing to the uncomfortable but undeniable fact that economic outcomes for their children have been far worse than those for children raised in two-parent families.
That produces many personal tragedies. And in cold economic terms, it means that society is losing gross domestic product because of less than optimal development of human capital.
Government policy can’t force people to get or stay married. But it may be able to encourage them to do so.
That happened in the years after World War II. A steeply progressive income tax combined with generous dependent deductions ($500 originally, later raised to $600) played some unquantifiable part in stimulating the Baby Boom and family stability for a generation after the war.
Lee proposes a $2,500 child tax credit — less in real dollars than the postwar deduction — applied to both payroll and income taxes.
He also proposes allowing employees to claim flextime when they have worked overtime, as federal employees can. He wants Congress to hack away at the marriage penalties embedded in various benefits programs and Obamacare.
Lee also talks about devolving gas taxes and transportation policies to the states (to reduce commute times) and allowing states to accredit alternative forms of higher and vocational education (to help upward mobility).
No one knows for sure whether more favorable tax and benefit treatments would encourage two-parent child rearing, although evidence from France (which provides them) and other European countries suggest it might.
Lee’s proposals don’t seem to fully address the problem and in some cases seem to fall far short of doing so. But he is pushing the conversation in a useful direction. It wasn’t apparent in 1980 that family disintegration was damaging America’s human capital. Single parenthood was far less common then than now.
Today a strong case can be made that we need tax and other policies not just to encourage entrepreneurs but also, to the extent possible, to help bolster family formation. Do other Republicans (or Democrats) have some ideas on this?