Appealing to the Middle Class

This is the election that the Republicans become the party of the Middle Class. The Democrats are essentially the party of Oligarchies and the welfare state. While the Democrats promised their fidelity to the middle class and promise more freebies, the reality is that Middle Class will also pay heavily for the freebies. The little secret is that while Bernie Sanders classifies himself as a socialist and isn’t even a registered Democrat, his view is to represent the Democratic Party today. There is very little difference between Hillary Clinton and Bernie Sanders; just listen to them discuss economics. Free health care? Hillary Clinton designed the original Obamacare in the early 1990’s, the only difference was that in 1993, not even Democrats would support her Hillarycare and Obamacare would prove the wisdom of opposing Hillarycare. The middle class has suffered under Obamanomics and will continue to suffer under Hillarynomics. They have lost 6% of their income since 2007 and haven’t even return to what they earned in 2009 when the recession supposedly ended. Many in the middle class have lost their health care or forced to leave their present plans, and more middle class find themselves not just poorer but forced to accept government assistance.

Which brings us to the Republicans and their opportunity. The big debate among Republicans is how best to appeal to the Middle Class and the answer is to give the middle class what it wants, an economic policy that encourages a fair opportunity to succeed. For many in the middle class, they have rejected Keynesian economics of prime pumping and they are in favor of growth policies over dealing with inequality.

So how do we accomplish these goals? Republicans need to make the arguments that increase government spending and debt is keeping the private sector from growing and reducing the middle class opportunity to succeed. The Republicans have different plans and I will add that many of these plans are part of the mainstream of political thoughts. From 2009 to 2012, Republicans and Democrats including leftist Ron Wyden, moderate Republicans Alan Simpson and Liberal Democrat Erskine Bowles, have produced tax reforms that include lower marginal tax rates from the present 39% but also include reducing deductions and reducing business tax rates which are presently highest in the developed countries. Much of the present Republican plans including Rubio, Christie, Trump and Bush are similar to those compromises, but others just as Rand Paul, Ben Carson and Cruz are flat tax rates on income. Cruz and Paul’s business plans are flat rate but operate similar to European VAT taxes. (Mike Huckabee's plan is a simple national sale tax.)

These plans show that the GOP does have tax plans with the idea of increasing economic opportunities, but there is a debate on what is the proper plan. Beyond that, Republicans must recognize that today's economic situation is different from the 1980s. In 1980, the marginal tax rates were 70 percent and many of the middle class found themselves paying taxes that were previously reserved for the wealthy and inflation was double digits so the middle class had the double whamming of inflation eating away at their income while the Federal government were taking ever more from their pay check. Today, many of the middle class don’t pay any or much federal income tax even though they still pay social security and Medicare taxes. In many blue states, middle class are hit with not just higher sale taxes but income and property taxes, so the middle class are being hit with taxes, but they don’t face the same issues they did in 1980s plus we may in the midst of deflationary cycle as opposed to an inflationary cycle during the early Reagan years.

The problem with some plans is that they may add to the budget deficits based on static models, but even if one works with more growth oriented models, these plans may continue to add to the budget deficit. So restraining Federal government spending must be part of the formula, but then the growth of government has been a concern of the middle class.

Republicans are right that we need a supply side revolution; not just on the tax side but on expanding the labor supply which has seen job participation rates decline to levels not seen since the 1970s, boosting worker productivity which includes reforming business taxes and regulatory fixes. So there are GOP candidates who understand this including Cruz and Rubio.

The GOP candidates need to make the case that their plan will benefit the middle class and be more than just about taxes but about dealing with the regulatory side. The supply side is not just about tax rates any longer.