In a bid to maintain viability as a presidential candidate, Chris Christie yesterday authored an op-ed in The Wall Street Journal, “My Plan to Raise Growth and Income,”and traveled to Manchester, N.H., to present the plan in person. This is the second of at least three installments of the Christie policy vision, following an April speech on entitlement reform and with a speech on education to come.
The WSJ piece (and speech) begins with a bang; would that every Republican candidate for President wrote,“The fundamental question facing the country right now: Why has the income of middle-class Americans failed to grow for 15 years. Until we answer this question and fix this problem, the anxiety and unhappiness that weighs on middle-class America will not be resolved.”
Christie gets it: the primary task for Republicans in this cycle is to signal awareness of the economic pain Middle America continues to feel, and to provide a credible narrative of how we got into this mess and how we are going to get out of it. Kudos to Christie for having leapfrogged his opponents. But he has more work to do: by the measure of the credibility of the plan’s economic growth effect – which must be the heart of tax reform – the Christie plan falls short.
His proposal would lower the top tax rate to 28% and reduce the number of brackets to 3. “Reform should include lower tax rates for every American,” he says, but adds that “I would … ensure that the plan … is revenue neutral and does not materially increase the deficit.”
Revenue-neutrality means the tax plan is probably not economically-stimulative. It means raising taxes elsewhere to pay for the rate reductions. It means people won’t know whether their taxes are going to go up or down. Ronald Reagan argued that the stimulative effect of his “30% across-the-board reduction in tax rates” would create more revenues as the result of economic growth; he had no time for revenue neutrality (and he was proved right).
On the corporate side, Christie would institute a one-time “tax holiday” rate of 8.75% on repatriated funds from overseas – a tax windfall which could be used to provide deeper personal income tax reductions – and then eliminate the double taxation of foreign-earned revenues. He would further “permit the full expensing of corporate investments in capital equipment.”
The central question being debated behinds the details of tax reform is who creates economic growth: the American people or corporations. The Reagan tax cuts established unambiguously the economic stimulative effect of personal income tax rate cuts; less clear is whether cuts in corporate rates will have nearly the same stimulative effect, if any. The answer is critical: the American people want growth; not tax code engineering and not, particularly, the abolition of the IRS.
As superb as the Republican presidential field is overall, their economic policies are wanting of further ripening. Huckabee advocates a national sales tax with the elimination of the corporate income tax; he is betting his candidacy on the appeal of the elimination of the IRS, and I think he is mistaken. Rubio proposes corporate tax cuts along with the elimination of capital gains taxes, but ambiguous personal income tax reductions – politically perilous and not obviously growth-stimulating. Paul promised us at CPAC “the largest tax cut in American history,” which has yet to be forthcoming and was not mentioned in his announcement (given that he too talks about eliminating the IRS, Paul may have in mind a national sales tax, but The Washington Post reported today that he is working on a flat tax with Steve Moore and others). We are waiting to hear from the other candidates.
One of the more intriguing elements of the Christie speech was citing the Federal Reserve as an impediment to growth: “the Fed’s easy money policies and the president’s anti-growth policies have made the rich even richer and made our middle class work longer and harder for less pay and less promise for the future.” Paul was initially the leading Fed critic but left that issue out of his announcement. Christie may have correctly sensed an opportunity here to cite Federal Reserve policies in order to account for the rising cost of living for Middle America.
Best line of the Christie speech: “Republicans would like Tax Freedom Day to come before spring training. The Democrats are trying to time it with the World Series.”
Steve Wagner is the founder and president of QEV Analytics, a Washington DC-based public opinion research firm.