Thursday, October 04, 2012

The shift in tax politics hidden in the Republicans' "47%" meme

Krugman raises a point that other have been raising as well about the evolution of the Republicans' antitax position in Notes on the Political Economy of Redistribution 09/21/2012. The phrase "lucky duckies" is taken from a notorious Wall Street Journal editorial that characterized people with income too low to be liable for federal tax by that term. It was one of the formative moments in the "47%" meme:

In particular, imagine yourself as a hired gun for the right tail of the income distribution. What would you do in an effort to stop the median voter from realizing that she would benefit from a more European-style system? Well, you’d do everything you can to exaggerate the disincentive effects of higher taxes, while trying to convince middle-income voters that the benefits of government programs go to other people. And at the same time, you’d do everything you can to disenfranchise lower-income citizens, so that the median voter has a higher income than the median citizen.

So far, efforts along these lines have been remarkably successful. But operatives on the right are clearly worried that their three-decade run of success may be coming to an end. Indeed, the whole panic about the lucky duckies and all that can be seen as reflecting a great fear on the part of the right that any day now the median voter will realize where his true interests lie, and start supporting much more redistributionist policies.

So now you know what was bugging Romney at Boca, and why there’s such a desperate attempt to paint Obama as a radical.
This is an important observation that gets to the fact that the Republican pitch to convince voters that measures targeted to increase the already vast wealth of the very wealthiest, who thanks to the Occupy movement we have lately come to call the One Percent.

Ronald Reagan's original 1981 tax cut was heavily tilted toward the upper brackets. But there were also tax cuts for middle income people added into the mix to make the measure more widely acceptable and possible.

Peter Coy touches on the evolution of Republican thinking on this matter in Ronald Reagan And the 47 Percent Bloomberg Businessweek 09/19/2012:

"The reason the Earned Income Tax Credit [EITC] has been so successful politically over time is that it melds values that liberals and conservatives emphasize," [Chuck] Marr says. It does, however, shrink the tax rolls. And to a new generation of Republicans, that appears to be anathema. [my emphasis]
Coy gives some history of the EITC:

Reagan strongly supported the Earned Income Tax Credit (EITC), which sends checks to Americans who work but earn less than around $46,000 a year, depending on family size. Recipients of the credit are among those who don’t pay income tax, but Reagan never regarded that as a problem. His administration estimated that the 1986 reform of the tax code would remove 6 million working poor from the tax rolls. Reagan called the reform a "sweeping victory for fairness" and "perhaps the biggest antipoverty program in our history.”
This doesn't mean that Reagan was one of those fabled "compassionate conservatives." Not at all. His conservatism was as mean as Paul Ryan's, but he was a much sunnier salesman. That's not to say there are no benefits to the EITC. But it was one of those tax cuts for lower-income earners that was part of the Republican package to make low taxes for the rich the most important economic policy. Coy also writes:

If Romney wanted to get more Americans paying taxes without discouraging them from working, a simple trick would be to turn the EITC into a grant. Nothing would change except the accounting. That might set a difficult precedent, says Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities. Imagine if the mortgage interest deduction were replaced with an annual check from the government to help people pay for their mortgages. Suddenly a prized middle-class perk would look less defensible.
Raising taxes on lower- and middle-income workers would actually discourage some people from working because the costs of having a job and especially of child care could make going to work cost more for some significant portion of workers than the benefit they would get from it. "Romney is sensitive to disincentives that face the rich," he writes, though many of those "disincentives" are in their own imaginations or just cynical ideology. But, Coy rightly adds, "those [disincentives] that face the poorest Americans are far bigger."

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