I am very grateful to Jim for his powerful post on the likely consequences of Obama’s proposed tax strategy. As Jim would happily tell you, campaign proposals aren’t the best predictor of actual policymaking, as vividly demonstrated by the mostly forgotten notions advanced in Bill Clinton’s Putting People First. But I do think we’ll need some “revenue enhancement” over the next decade, and my gut instinct tells me that a VAT is the least damaging way to put the federal government on a solid fiscal footing — a VAT that, in an ideal world, will replace the destructive payroll tax, as Noah gently suggests. I absolutely see the logic in slashing the misleadingly named corporate income tax and in keeping marginal tax rates fairly low — actually, my understanding is that an “optimal” tax structure wouldn’t necessarily see marginal rates gently slope upwards, the shape that spells fairness to most of us. But, I mean, who ever talks about demogrants and other exotic yet decent tax ideas?
Of course, all of my criticisms of Obama’s economic plans would also be a lot more useful if his opponent seemed to care at all about any of these issues, and was presenting creative alternatives.
I’d make this point even more forcefully. The McCain campaign is playing a strange game. Blast Obama for proposing payroll tax hikes, but don’t rule them out yourself. I suppose the idea is that you want to preserve some policy space, and you want to keep an open mind for future bipartisan compromise. Fair enough. Yet the McCain campaign has stated proposals that would massively swell the deficit in a not-well-targeted way. It’s very frustrating to watch, particularly because Obama’s basket of policies is otherwise so vulnerable.
I understand the truism that Republicans must always promise tax cuts. Still, in my fantasy world you’d say a Republican candidate make the case that Washington has left the rest of the country holding the bag for pretty miserable, incoherent, and short-sighted spending priorities — some military spending could come in for criticism here — and that undoing the damage would take a diligent, equitable approach that doesn’t kill the golden goose of entrepreneurship and innovation. This could mean a lot of things. It could mean that the feds should no longer subsidize wasteful spending in big, rich states like New Jersey at the expense of Alabama through the state and local tax deduction and overtreatment financed by Medicare and Medicaid. I’m not a green-eyeshade type as a general rule, but I wonder if — aside from the obvious importance of fiscal sanity, as underlined by Noah — this might fit the mood of the country. In an economic downturn, you might think the voting public would be sensitive to waste, and also to the thinness of easy answers.
While I’m mulling over Noah’s latest round of posts, let me address this point of his:
I guess what I’m ultimately asking is: does Reihan’s template for the GOP represent an adequate response to the changing nature – and urbanization – of the American elite, assuming that such a change is taking place?
Having just read Alan Ehrenhalt’s interpetation of the changing American city, which is a useful companion to Christopher Leinberger’s essay in The Atlantic on suburban slums, which went unmentioned in the TNR piece, I think I see things a little differently from Noah — that is, I don’t think we’re seeing “a newly confident and successful urban elite” pitted against a struggling working class, but rather a struggle between people with an interest in a closed, rigid, credential-centric economy vs. those with an interest in an open, flexible economy. Part of the arguments is over over-ownership, as described by Michael Heller in The Gridlock Economy. So this doesn’t always cut along familiar ideological lines. If my framework resembles Virginia Postrel’s, that’s very deliberate. I tend to think that the narrow cognitive skills Murray-Herrnstein believed to be central to the economy of the future won’t necessarily be central — as certain kinds of “brain-work” are commoditized, it is easy to imagine other skills being revalued.
The key thing is to keep things fluid. And my sense is that the aspirational classes will want to do that, whereas the presently rich and other favored incumbents will do things — deliberately or not — to gum up the works. To use the Leinberger framework, will urban elites try to, at some point in the future, decide their favored quarter is dense enough, thank you, and raise the drawbridge through high taxes and onerous zoning regulations? Will they ruin the cities as they ruined the suburbs? They’re already working on it! And unfortunately, you don’t have much of a voting, active urban lower-middle-class to fight back. To the extent this all-important group does fight back, they often misunderstand — in my sympathetic view — their interests, as in the effort to sink New York’s congestion charge.
I have this vague fantasy of getting involved somehow in municipal politics. Expect more vague rumblings.