Somebody find the GOP a carrot

January 11, 2013

As House Republicans gird themselves for battle over the debt limit, they are united by an adamantine conviction that something must be done about federal spending, and soon. The challenge Republicans face, however, is that they’ve become the party of all sticks and no carrots.

Back in 1976, Jude Wanniski, the idiosyncratic supply-side guru, published a short essay arguing that while the Democrats are the spending Santa Claus, bearing promises of more government benefits, Republicans should become the tax Santa Claus, bearing promises of tax cuts. That is famously what happened during the Reagan era.

But as the tax burden on middle-income households dwindled, middle-income swing voters started to care less about taxes and more about the cost of medical insurance, higher education, and a whole host of quality-of-life issues. President Bill Clinton exploited this dynamic by politically championing middle-income tax cuts and tax increases on high earners at the same time, a tactic that has paid dividends for Democrats ever since. Republicans have found themselves defending tax cuts for high earners while offering little if anything to middle-income voters but calls for entitlement reform. Whether or not this stance is defensible on policy grounds, it’s certainly not what Santa would do.

And after the fiscal cliff deal, during which the Republican leadership acknowledged that it was powerless to stop tax increases on high earners, the GOP finds itself in a bind. Federal taxes are expected to rise to 19.4 percent of GDP, a level that is well above the 17.8 percent of GDP that had been the average federal tax take from 1946 to 2008. There are good reasons why tax levels might be higher now than they have been in the past, including the aging of the baby boom cohort. But the growth of federal spending over the coming decades threatens to outstrip the ability of taxpayers to bear it, particularly if Congress aims to shield middle-income households from punishing tax increases.

Democrats can still play the role of Santa Claus by claiming, however implausibly, that tax hikes on the rich are all we need to pay for future federal spending increases, with an assist from technocratic fixes like the Independent Payment Advisory Board. Republicans, in contrast, are in desperate need of a new Santa Claus narrative, as across-the-board tax cuts are just not as appealing or affordable as they have been in decades past.

The most promising course is for Republicans to rediscover the virtues of “demand-side conservatism,” a term coined by Jonathan Rauch a decade ago to describe what he saw as the emerging domestic policy vision of President George W. Bush. “Conservatives have been obsessed with reducing the supply of government when instead they should reduce the demand for it,” wrote Rauch, channeling Bush and his allies. Slashing social programs won’t do much good if voters continue to have an appetite for them, as they’ll just vote in pro-government politicians who will expand the programs all over again. Rather than focus narrowly on how much we spend at any given time, government should help families build wealth and reform public services in ways that will make them both better and cheaper. The Bush administration had little success in implementing demand-side conservatism, thanks mostly to its post-9/11 focus on foreign policy. But the basic idea remains compelling.

So what might a demand-side conservative agenda look like? Rather than focus exclusively on top-end marginal tax rates, conservatives might fight for expanding the child tax credit and raising taxes on high earners without children to pay for it. That way the investment parents make in the human capital of the next generation of American workers will be recognized and rewarded. This, as the Bush Treasury Department veteran Robert Stein and Ramesh Ponnuru of National Review have argued, will tend to reduce the bias against child-rearing, which might ease the burden of paying for old-age social insurance programs well into the future.

Republicans have embraced the Medicare reform championed by House Budget Committee Chairman Paul Ryan. Yet they might also consider embracing “cash-for-care,” a promising idea from Lorens Helmchen of George Mason University. Essentially, cash-for-care would give Medicare beneficiaries a choice when confronted with a medical diagnosis: If there are two treatments that are similarly effective but one is much cheaper than the other, you will be allowed to keep some of the savings from choosing the cheaper option in the form of cash. This would induce older Americans to choose more cost-effective treatments, and it would counter the incentive of medical providers to convince patients to choose the more expensive option. It goes without saying the idea would be controversial. It does, however, have the potential to make swallowing the pill of entitlement reform much easier: Yes, taxpayers will save money if Medicare beneficiaries choose cheaper treatments — but Medicare beneficiaries will benefit too, and in a palpable way.

This approach — encouraging cost-consciousness by allowing the beneficiaries of public services to share in savings — can apply in many other domains, including education. Colleges and universities, for example, are extremely resistant to accepting transfer credits from low-cost competitors. This tends to raise the price of higher education. Kevin Carey of the New America Foundation has suggested requiring that higher education institutions that accept federal student loans also accept credits from specialized instructional providers with proven track records. That is, a cheap but effective Web-based provider that focuses solely on teaching basic calculus could substitute for a college’s own expensive, in-person, intro-level class. Parents and students win because they can spend less out of pocket, and taxpayers win because they spend less on subsidies and because this new competition will force higher education incumbents to become more efficient.

Perhaps most importantly, conservatives need to think about retooling the safety net so it does a better job of helping low-income families achieve economic stability. One of the biggest challenges facing families at the bottom of the economic ladder is that they have an extremely difficult time accumulating savings, thus making it difficult to pay for unexpected expenses like car repairs or missing a day of work to care for a sick child. Recently, Diane Calmus of the Heritage Foundation identified a number of promising approaches to asset building that might appeal to congressional conservatives. In an ideal world, encouraging asset accumulation among less affluent households would make these families more resilient in the face of economic disruptions, and thus less likely to have to rely on safety-net programs.

There is much more to say about the potential of demand-side conservatism. But for now it is important for Republicans to remember the two Santas theory – or they’ll have to run against Santa as the Grinch.



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You say that “the growth of federal spending over the coming decades threatens to outstrip the ability of taxpayers to bear it” and you (and many of your conservative colleagues) never mention the role of defense spending in this.

We suffered two hugely expensive and never-really-paid-for wars, and now even a peep about defense sequestration makes conservatives and Republicans go nuts.

Somehow, you all have managed to frame this as entirely about social spending. It isn’t. And until you and your friends start putting some defense goodies on the table for cuts, this whole thing is a non-starter.

Posted by RalfW | Report as abusive

Yes, there of the “slight” matter of “hidden” or “secret” budgets of military and paramilitary (e.g. CIA, NSA, FBI, ATF, DIA, etc etc etc) arms of the Federal Government.

Some estimates of this so-called “black” budget, which is hidden in the budgets of non-lethal-force Federal agencies, such as Social Security., Medicare, Health and Human Services, Housing, State, Treasury etc., could top $1.5 trillion per year. In fact it is conceivable that most of the budget deficit comes from “black” type hidden items. The amounts are difficult to calculate but the vast gap between what is actually spent on social services and what the Federal Government claims to spend accounts for a great deal of the problem.

Black budgets should be eliminated in the interest of honest and clean Government.

Posted by usagadfly | Report as abusive

Even a better idea is reforming &simplifying the tax code, eliminating government subsidies to private enterprise, taxing all corporate earnings while cutting their effective tax burden by 1% while returning the tax structure to its’ original progressiveness. Once that occurs [yeah, when pigs fly]use the tax code to support national goals & needs, such as energy independence, support technology related educational degrees, and stop stealing from to poor and supporting wealth transfers to the rich. The old truism that if you give a staring man a fish, he’ll return for another fish – If he is taught how to fish, loan him $$ to go fishing, he’ll feed himself – [unless he skimps on gear and buys a 6 pack of beer]. LOL

Posted by JBltn | Report as abusive

I agree that somehow the Republican party needs to have a new theme. Keep the ideas flowing, and hope that Republicans abandon the notion that the party must have strict ideological purity without any flexibility, compromise, or change.

Posted by QuietThinker | Report as abusive

It seems the author has amnesia over the massive deficits Bush racked up, with unfunded wars, a massive tax cut primarily for the wealthy, and an unfunded senior drug plan. Sure, taxes were a lower part of GDP, since deficits exploded.

Now, lets assume a person has a serious health issue. They go to their doctor, and now are confronted with a choice of treatments. One considered ‘best’, and covered, but the other one, perhaps best for the patient, but costly. Some choice. And how does one find out what is the best treatment? By counting the dead bodies from the unsuccessful one? Medicine is not an exact science. Patients are not widgets, all the same.

Conservatives can win if they can point to how private companies can actually do a better job. But they pick on Social Security/Medicare, which has a very low overhead, high satisfaction, and well liked. But they really like private insurance better. Sure, higher CEO salaries, lobbyist contributions, high overhead, low satisfaction.

And they look at ways to enhance private pockets.
Privatize prisons, and guarantee a level of use, so that means more arrests and convictions. Gosh, that war on drugs is very profitable.

Outsource intelligence functions, and put them a a black box so no one knows. But a feeding frenzy for every company that can lobby an official with their ‘solution’.

And don’t forget wars. Hugely profitable for the defense contractors; less so for those who actually have to fight the unnecessary wars.

Discretionary spending is going down. Yes, entitlements are increasing. Too bad about all those seniors on Social Security and Medicare. Got to find a way to kill them off.

Defense spending has doubled since 9/11. And orgy of waste, and pork. Unfunded wars.

What is on the mind of many ‘conservatives’ who do speak out? Hard right positions to interfere with personal decisions, especially any made by women.

Where are the true conservative voices? The Bill Buckleys?

Posted by pavoter1946 | Report as abusive

“…conservatives might fight for expanding the child tax credit and raising taxes on high earners without children to pay for it. That way the investment parents make in the human capital of the next generation of American workers will be recognized and rewarded…”.

Oh yeah, let’s give even greater incentive to more and more people in a world with SEVEN BILLION already here it can not support comfortably. Who ever suggested life should be comfortable anyway?

We need an economic “system” that allows people to bloom and flourish given that there must be fewer and fewer of us until our numbers are again within what the Earth can support. Life isn’t much fun and people don’t think or innovate much if all you can do is stand in line for the same manna.

“Cash for care” and a complete overhaul of our higher education “establishment” are certainly long overdue, though. And the PR twist to avoid “running as the Grinch” is certainly appropriate.

Posted by OneOfTheSheep | Report as abusive

This is hugely about social spending. For the most part a large part of those “non-profits” solicit everybody and everything that breathes, and, is subsidized. Not only that, but in Canada, all of the Non-Profits are currently refusing to release their financial statements to me from 2000 to 2008, and the banks like CIBC World Markets or RBC Securities will not release their community initiative budgets, or their affiliates subsidized by their budget, and or how much that budget has increased and where.

Because Alberta Oil Sands is currently receiving more revenue in general and administration, but increased “exploration budgets” are our top priority.

For Christ Sakes, think big here.

Posted by whitewidow | Report as abusive

Government sponsored encouragement of procreation in an overcrowded world … only in the mind of Republicans could such an absurd proposal be forged.

Posted by SanPa | Report as abusive

Though inadvertently, I believe this author identified the real issue for the GOP: they are constantly and only concerned about how they are going to spin something. The issue is your party is devoid of positive ideas on any issue, droning on and on about debt and job creators; rape, and abortion, and birth control; burdening future genrations while admonishing against feeding children in the here and now; refusing to pay your bills; and making every mundane issue a high, righteous drama all about you . At least 51 % of us know what a bunch of sham snake oil salesmen you are, trying to re-invent yourselves in new contortions to protect the plutocracy that funds you. “Corporations are people, my friend” might have made it into law, but until the GOP’s only true friends get a vote for every dollar they produce, we the people say you are a bunch of tired, cranky, angry, old transparent gray faced clowns. So who wants to hear about Santa from the mean scary clowns? Obviously not most of us.

Posted by sylvan | Report as abusive

Neither party wants to cut costs. In medical care it means creating competing doctors, hospitals and generic drugs. Which would mean free medical school with condition the school cannot charge additional frees to the students ad have the students tested to show the school and students are producing trained doctors. Low cost loans to hospitals independent of the others in the area. Funding the creation of generic drugs.

In education it means cutting corruption and paying the staff only what they are worth, particularly the non-teachers. Which means no elections of school boards since, the voter have no idea of those people and it is just a way to make sure corruption is not traceable to traceable to high ups and special interests
are in charge.

Since more and more regulation will be needed as things we need become more technical and critical and dangerous, we need regulators who have technical expertise and regulations that are drawn up to be
effective but reasonable by people in the know. That means less political appointments.

No mater what happens there will more demand for safety nets in bad times and more demand for no taxes in bad times.

Posted by SamuelReich | Report as abusive

This is an interesting article and makes sense in a perfect world where people actually want change. What’s more interesting is the fact that almost everyone wants what the government has – someone else’s money. We don’t seem to care that we are just stealing from ourselves and it can’t last forever. A little more self sufficiency would be good for everyone, including the big companies who line up at the trough. the partnership between big business and government is almost complete in its goal to keep the masses down.

Posted by mycentstoo | Report as abusive

In a recent post to The Hill, what are your thoughts on this opinion that Obama is able to raise the debt ceiling without Congress approval. conomy-a-budget/276703-the-debt-ceiling- must-go

Posted by CharlotteHughes | Report as abusive

The issue is the “federal government”. Perhaps the feds might consider revising their model and move to block grants versus open-ended funding models. If the motivation is to ensure some equity across the states for education, unemployment, medicaid, ad infinitum) they could do it in this manner, using some form of a per capita allocation. Then each state could define how those funds would be distributed based on the specific needs of the state–not some centrally mandated model out of the beltway.

If the feds (Congress, the President) want to remain the focal point for funding social programs, block grants would allow the fed to do so, but the states would be responsible for deployment. The fed could also define parameters that a maximum of 15% of the funding is allowed for administration. That way you eliminate the duplicity of federal administrators and state-level administrators, effectively shrinking the federal government, both in size and its role in these programs.

Additionally, instead of each federal agency continuing to expand their role and capacity to consume tax dollars, they should do what every business does and define their objectives, how funding will be deployed and determine their “yield” each year. Success would determine their funding in subsequent years–versus the “additive” model they operate under now where they only add programs (and seek more funding) and few programs are ever eliminated. It would also force them to re-allocated their manpower versus adding employees to the ever-expanding bureaucracy.

Posted by COindependent | Report as abusive

Demand increases as price decreases. If you offer say free healthcare, than demand will go up.

Posted by DHGIII | Report as abusive

a carrot…?? it’s too healthy for them! And, they would need to set up a committee to examine the possible after affects of consuming the carrot. then, they would need funding for this study which means they have to find it “somewhere”. After the funds are received (hmmm) and allocated a meeting in the Bahamas was needed to select the members of the sub-committee. Then, there is sub-committee staffing and funding. I think you can guess which way this is heading…or maybe this needs a committee too.

Posted by rikfre | Report as abusive

How would taxpayers save money if the same amount is laid out, only some of it goes to the patient??

On the education front, not that I would defend the criminal increase in education costs we’ve seen, but the author is mixing apples and oranges. We’ll see how the online revolution and similar experiments fare.
I don’t know about “ideas” from the Heritage Foundation but we’ll always have the poor, ones who don’t can’t or refuse to save.
I side w/RalfW but remind him social spending dwarfs defense outlays. Although the wars have been catastrophic in cost and, guess what, the right still yells tax cuts from their soapbox.
I absolutely agree with usgadfly re: black budgets. It’s criminal. Just for laughs: SamuelReich first needs to learn to spell, then I can laugh at his odd reactions. Coindependent is dreaming.

Posted by Mac29 | Report as abusive