Paul Ryan’s decision not to run for president comes as a blow. In a statement released on Monday, the Wisconsin congressman and 2012 Republican vice presidential nominee explained that his work as the newly minted chairman of the House Ways and Means Committee “deserves undivided attention” and that he could do more for the country in that role than as a presidential candidate. For now, at least, there will be no more talk of “Ryan for Rushmore.”
Ever since Ryan was first elected in 1998, a grim year for Republicans, the former think-tanker has been a one-man policy innovation machine. But during President Obama’s first term, he became something more than that. In effect, Ryan became the leader of the opposition, in spirit if not in name, fighting against Obamacare and for fiscal restraint. He managed to unite risk-averse House Republicans around a controversial Medicare reform proposal. After Republicans won back the House in 2010, Ryan took the helm at the House Budget Committee, and he used its considerable resources to weigh in on income inequality and entrenched poverty. Ryan might not have won the 2016 Republican presidential nomination had he decided to run—he didn’t exactly set the world on fire as Mitt Romney’s running mate in 2012—but the field would have been stronger with him in it. He would have been the candidate of ideas and would have pressed his Republican rivals to think seriously about upward mobility and the need to modernize America’s safety net, among other issues conservatives tend to neglect.
Yet there is a silver lining in Ryan’s decision not to run, which is highlighted by the sweeping tax overhaul just proposed by House Democrats. Though Ryan is more open-minded and intellectually serious than we have any right to expect from an elected official, on tax policy, at least, he’s failed to come to terms with how the country has changed. A supply-sider to the bitter end, Ryan has made it clear that his first priority in reforming the tax code is to lower tax rates for everyone, including high-earners. In a conversation this summer with John McCormack of the Weekly Standard, Ryan insisted that “the best way to help the economy is to reduce rates across the board” and that “if you want faster growth, more upward mobility, and faster job creation,” lower tax rates are “the secret sauce.” Well, this is a secret sauce that is past its expiration date.
Don’t get me wrong. Like Ryan, I favor lower tax rates. I just don’t believe that lower tax rates for high-earners should be our highest tax reform priority. In Room to Grow, an essay collection from the conservative YG Network, Robert Stein, a veteran of the George W. Bush administration, explains why across-the-board cuts should no longer be seen as a cure-all. In 1980, when Ronald Reagan campaigned on cutting taxes, the top rate was 70 percent. Right now, it is 39.6 percent. In other words, today’s top rate is much, much lower than it was in the bad old days. Granted, this isn’t the whole story, as high-earners face a number of other levies that didn’t exist in earlier years (like the ultra-stealthy Unearned Income Medicare Contribution) while several tax shelters that were available in the late 1970s have since been swept away. Moreover, the state and local taxes faced by high-earners are generally much higher now than they were in the Carter years. But it’s hard to deny that incentives for high-earners to work, save, and invest are stronger now than they were when Reagan came on the scene (for which Reagan deserves credit). It shouldn’t be too shocking that cutting a 70 percent top marginal tax rate to 50 percent had a big effect. Cutting a 39.6 percent top rate a few percentage points isn’t going to make nearly as big a difference.
To be fair to Ryan, he isn’t just talking about cutting the top rate. He is calling for lower rates across the board. That is, he doesn’t just want to lower rates for those in the top tax bracket but also for those in the bottom bracket. But here’s the thing: Your work incentives depend on the tax rate applied to the last dollar you earn. If I’m earning half a million dollars, the tax rate you apply to my first $10,000 in income is entirely irrelevant to whether or not I choose to work another hour. (And yet, because of the scheduled nature of our tax system, tax cuts for lower brackets are not irrelevant to what I pay—I, too, would reap a benefit from any lower-bracket cuts, but without any attendant boost in my incentive to work.) If your goal is to encourage low-wage workers to work longer hours, a targeted approach like increasing the earned-income tax credit, a policy that Ryan favors, is a much better bet. It raises after-tax incomes for low-wage workers without also reducing the tax burden of the high-flying professional earning $500,000.
Then there is the fact that where we are in life influences how we respond to tax rates. If you’re approaching retirement age, high taxes might convince you to go ahead and leave the workforce. If you’re in your 30s or 40s and you have a mortgage and two kids, you might not be in a position to cut your work hours by much, even if your taxes go up. Some economists have even suggested that because female labor supply appears to be more tax-sensitive than male labor supply, we ought to consider imposing higher marginal taxes on men. Yes, there is something vaguely sinister about squeezing people who have no choice but to pay the piper. That’s one reason I favor lower tax rates, all other things being equal. But if your argument is that lowering tax rates is going to boost economic growth, you have to account for the fact that there are many people who will work more or less the same amount whether you cut their taxes or raise them. And indeed, there are some who might even reduce their work hours in response to a tax cut, as it will allow them to work less yet still have the after-tax income they need to lead their lives.
Now, you could believe that today’s tax rates on high-earners are a bad thing even if they’re not holding back our economy all that much, as they’re an affront to the right of free women and men to keep what they earn. I’m sympathetic to this line of thinking. It just so happens that it’s shared by very few Americans. In April, the Gallup survey found that only 13 percent of Americans felt that upper-income people were paying too much in federal taxes while 61 percent felt they were paying too little. I’m going to take a wild guess and say that most of those who believe that upper-income people pay too much are reliable Republican voters. Far more Americans (49 percent) believe that middle-income people pay too much. It stands to reason that backing tax cuts that benefit middle-income households will get you much further politically than backing those that benefit high-income households. Many voters are already convinced that Republicans care more about the rich than people of modest means, and Ryan’s devotion to cutting the top tax rate reinforces that false narrative. Worse yet, it drowns out his convincing arguments about how conservative policies can benefit Americans struggling to climb the economic ladder.
This wouldn’t necessarily be a problem if the Democrats were completely incompetent. But recent evidence suggests otherwise. Maryland Rep. Chris Van Hollen has rallied House Democrats around a shrewd, if gimmicky plan that could’ve been dreamed up by master-panderer Bill Clinton. The plan calls for financing a new “Paycheck Bonus Tax Credit,” among other new middle-class tax breaks, with higher taxes on the high-earners and a new financial transactions tax. As it happens, this Paycheck Bonus Tax Credit will benefit two-earner families making up to $200,000, families that might be considered middle class in Bethesda or Brentwood, Maryland, but which almost anywhere else would be seen as very well-off indeed. Larding the tax code with complicated new tax breaks is bad policy, but its great politics. The Democrats are upping their game while Ryan seems stuck in the 1980s
I’ll miss having Paul Ryan, a man of great intellect and integrity, in the race. But my hope is that his absence creates space for another candidate of ideas who understands that Republicans badly need a new approach to cutting taxes.