The Republican coalition is changing. First, the GOP is in danger of losing college-educated suburbanites who voted only reluctantly for Donald Trump in 2016, or who split their tickets by voting against Trump while voting for GOP congressional candidates. The close shave in Georgia’s 6th Congressional District demonstrates that Republicans can’t take these voters for granted, especially if Democrats recruit candidates who can’t be so easily caricatured as mini-Pelosis. Second, the party has gained the tentative support of working-class populists, who backed Trump despite their misgivings about the GOP’s anti-government rhetoric. That support helped make up for erosion among college-educated suburbanites in 2016, and it’s at least possible this trend could continue in the years to come.
I wouldn’t count on it, though. Republicans find themselves in an enormously difficult position. They’re dependent on both better-off voters who are allergic to Trump’s populism and hard-pressed voters who badly want Trump to live up to his populist promises yet are increasingly skeptical that he’ll do anything of the sort. To win back the tax-averse upper-middle class, Republicans might double down on calls to shrink government, which would risk repelling working-class populists. To consolidate their gains among working- and lower-middle-class voters—who worry far more about the strength of the safety net than they do about their federal tax bills—they’d presumably need to soften their anti-government stance, which of course would risk alienating the tax-averse upper-middle class. Think of this as a not-terribly-festive game of GOP Jenga.
For years, it was the Democratic coalition that was ideologically divided, and Democratic politicians who had to contort themselves to please liberals on the party’s left and moderates on the party’s right. Now, however, despite the internecine bickering during the 2016 primary and the recriminations after the general election, Democrats seem to have achieved a broad ideological consensus that’s best described as a marriage of crusading social liberalism and faith in technocracy. Republicans, meanwhile, are still learning what it means to navigate their own ideological divisions. The GOP’s leadership remains dominated by small-government conservatives, yet they find themselves bewildered by the fact that many of their new voters are adamantly opposed to the deep Medicaid cuts at the heart of the party’s domestic policy agenda.
Somehow Republicans will need to reconcile this new divide. But how? In the latest issue of National Affairs, political sociologist Joshua T. McCabe makes the case for a “red-state federalism” that could fit the bill.
Before we turn to McCabe’s ingenious proposal, consider that whereas the GOP has long been the party of the rich and Democrats the party of the poor, both parties are now cross-class coalitions, with large numbers of voters in both the top and bottom thirds of the income distribution. So what separates the parties now? One difference is that Democrats increasingly live in rich states while Republicans increasingly live in poor ones.
Among the 10 states with the highest per capita income, only two of them—resource-rich Alaska and North Dakota—backed Trump in 2016, and only seven Trump states are in the top half of the U.S. Just because Democrats tend to live in rich states doesn’t mean the Democratic Party only represents rich people. Democratic states also tend to have higher levels of income inequality. Rich states, though, are better equipped to meet the needs of their poor citizens, because they have more fiscal capacity than poor states—that is, at the very same tax rates, a rich state will be in a position to raise more tax revenue than a poor one. To have any hope of matching a rich state’s per capita social spending, a poor state would have to impose much higher taxes. And what happens to poor states that impose excessively high taxes? As time goes by, they risk experiencing a brain drain as their most capable citizens leave for greener pastures.
This is where McCabe’s red-state federalism comes in. The basic idea is that taxpayers should be treated equally whether they live in a rich or a poor region. By way of example, McCabe notes that taxpayers in Massachusetts pay roughly the same tax rates as those in Kansas, yet the same rate of taxation yields far more revenue for social spending in Massachusetts than it does in Kansas. One could argue that Massachusetts’ wealth is a product of its farsighted generosity and that Kansas’ relative poverty is a product of its shortsighted stinginess. If Kansas had the good sense to invest in public services, perhaps the state would be just as rich as Massachusetts. There’s another possibility, however. According to McCabe, the wealth of Massachusetts has less to do with the relative wisdom of today’s residents than it is a product of the state’s good fortune in having a rich inheritance of educational institutions and accumulated wealth that’s built up over centuries. Moreover, whereas income across rich and poor states formerly tended to converge as poor people from poor states moved to rich ones in search of opportunity, exclusionary zoning policies in rich states have made it much harder for poor people from poor states to find new homes in better-off areas.
The federal government does provide poor people in poor states with some assistance. Medicaid, for example, is one of several joint state-federal programs in which the federal government matches spending at the state level, and (except for the Medicaid-expansion population) the match is more generous for poor states than for rich states. Because rich states find it much easier to raise revenue than poor ones, however, they tend to be in a much better position to sustain higher spending levels, which in turn means they’re in a better position to receive higher levels of federal support.
To level the playing field between rich regions and poor regions, other federal democracies—such as Canada and Australia—provide equalization grants to regions with below-average levels of fiscal capacity. McCabe proposes a similar system of fiscal equalization for the U.S. First, he’d eliminate the state and local tax (SALT) deduction, a tax break that overwhelmingly benefits high-income households in rich regions. For example, McCabe notes that the SALT deduction “is worth almost 11 times as much to the average beneficiary in high-fiscal-capacity Connecticut as it is in low-fiscal-capacity Tennessee.” Eliminating the SALT deduction would yield enough revenue to finance an equalization grant that would bring the 27 states with below-average fiscal capacity halfway up to the average level. States could then use this new revenue to increase social spending or to lower their taxes to more competitive levels, as they see fit.
Fiscal equalization would go a long way toward making life better for poor people in poor states, as those poor states would no longer have to choose between funding basic services and imposing ruinously high tax rates. That leads us to why Republicans would be wise to embrace McCabe’s proposal. Whereas funding tax cuts for the rich by slashing services for the poor divides the new GOP coalition, fiscal equalization would unite the interests of upper-middle-class voters and working-class populists living in the same poor Republican states. Poor voters in poor states would get better services and rich voters in poor states would be able to keep their taxes low. Granted, not everyone would win from fiscal equalization. Rich voters in rich states like Connecticut and New Jersey would be the biggest losers. But from the perspective of the GOP’s new cross-class coalition, it’s better that rich voters in rich (Democratic) states suffer than poor voters in poor (Republican) ones.