Taxes need to be low, easy to understand, and predictable; and government spending should be constrained.
The principled conservative would say we need to get beyond the relatively meaningless debate over whether the top marginal tax rate should be 38 or 35 percent. Based on the current state of affairs, we believe that fundamental change is needed, especially in regards to the income tax. The two basic principles of tax law should be fairness and the funding of critical government functions. The government should not use taxes as a funding source to attempt solving every social issue under the sun. Or for corporate subsidies and welfare as described in the previous chapter. Taxpayers should not be treated as an open check-book for the federal government.
For reasons of fairness and societal unity, nearly every adult citizen should contribute some amount in federal income taxes. We should all contribute not only because all benefit from key government activities, but also to create societal unity by showing we are all in this together. This policy does not mean that some limited exceptions are not warranted, or that certain current programs such as the Earned Income Tax Credit27 do not have merit. EITC is consistent with the above concept because it recognizes that the very poorest workers can barely make enough to offset the burden of payroll taxes. But when we have a situation where close to 50
percent of eligible taxpayers are not paying income taxes, that is fundamentally unfair as this percentage goes far beyond those most in need. The principled conservative believes a fair tax code is critical to a fair society, and that it is fundamentally unfair to reach the point where a minority of the population pays income taxes while a majority do not. America is not quite there yet, but is moving rapidly in that direction. As similar to the praise of Milton Friedman in the previous chapter, the principled conservative should acknowledge that Steve Forbes (and Barry Goldwater long before him) was correct in the area of taxes. The only income tax principle that is fair and sensible is a flat tax. A flat 15 percent tax would be good starting point—while policy may not get there in one swoop, the principle should be clear. Just as a flat stomach is the goal for a bikini wearer, a flat tax code should be the goal of a fair society. Certainly this flat tax principle puts the 21st century principled conservative at odds with the entire concept of progressive income tax rates, which is as it should be. The flat rate has fairness, shared responsibility, simplicity, and economic growth on its side. Principled conservatives must be able to argue on this point, despite the challenge of those wedded to past failures.28
And yes, to all those tax lobbyists and corporate interests, this does mean that we support elimination of all sorts of deductions and tax breaks including the mortgage interest deduction. Didn‟t America learn from the financial melt-down of 2008 that promoting home ownership at any cost is a stupid policy? Clearly the mortgage deduction along with other government policies encourages borrowing beyond one‟s means. What about other deductions, especially charity? Again, no one said implementing policies would be easy. Some compromises will have to occur as always happens in politics. But the underlying principled conservative goal should be to move the U.S. closer to a flat income tax. We completely reject the various redistributionist (and yes, socialistic) impulses behind arguments for a progressive income tax. Fundamentally, we do not believe that a greater percentage of your income should be taxed away simply because you are successful. A flatter tax policy would demonstrate how success and fairness are respected, and how the government wants your family to prosper rather than creating barriers to success. It also would tend to eliminate individual tax dodges by those who can afford more sophisticated tax accountants. This is turn further acknowledges everyone‟s shared societal responsibility. For a principled conservative, the current tax code combines two pretty bad outcomes—
it lets the rich person avoid paying a certain level of taxes via technically allowable (but bad public policy) deductions while alleviating any responsibility for persons of modest means to contribute their share.
What about service or use taxes? For a fair society, the principled conservative does not object to having users of services bear more of the burden. This is a different type of tax than the income tax. In principle, toll roads are fine, as are gas taxes that pay for highway maintenance, regulatory fees for businesses to support the regulatory “referee,” fees for using a municipal fishing pier, or tokens for a bucket of golf balls at a municipal driving range. Does this mean everything is fair game for taxation? No, while the principled conservative supports user taxes, we are not keen on taxes on social behavior such as vice taxes (e.g., taxes on cigarettes or alcohol). It‟s not that we wish people to overindulge in drink or start smoking, but if the underlying activity or business is legal what business is it of government to tell us what is a bad versus a good vice? Sure, proponents will argue that such users should pay additional costs because these activities impose societal costs. But trying to ascertain generalized society-wide costs from the use of a specific product or participation in a specific activity is hugely problematic. Apple juice is good for your nutrition, but if a toddler sucks on apple juice in a sippy cap all day that child can develop cavities. Should an extra tax be imposed on apple juice? The principled conservative would say of course not. Such taxes would be a restriction on freedom, because the government decides which of your personal behaviors are socially unacceptable and therefore can tax you more for engaging in such behavior. This is an excellent principled conservative “teachable moment.” As argued elsewhere in this book, in some areas government must be very large. But in terms of the government reaching into the personal behaviors of citizens, this is where the government should stay out. This doesn‟t mean that private organizations cannot spend money to encourage certain behaviors or discourage others (like the American Lung Association in urging Americans to quit smoking), but it‟s not a place for the government via the tax code to be messing around.
But what about tax policies that reward good behavior? To be consistent, we must ask that if the government should not be deciding what is bad personal social behavior (other than committing crimes), then conversely how can the government determine what is good behavior? For example, even though study after study demonstrates the importance of stable two-parent households for a child‟s well-being, does that mean a generous tax-subsidy for a stay-at-home parent should be considered? No, because the principled conservative would say this is a personal decision, and that tax policy should be neutral. Besides, if income taxes are low under a flatter tax system, then it would presumably be easier for one working parent to support the other parent to stay at home with children because less of the family income would be taxed away.
Consistent with arguments in the previous chapter concerning capitalism, the principled conservative promotes tax policies that create fair and reasonable rules in a desire for fairness for both individuals and corporations.
Let‟s also delve a little further into the anti-corporate welfare stance of Chapter 3 by mentioning the practices of many state and local governments. There is no problem with state or local governments competing for business
by lowering overall tax rates on all individuals and businesses, and pointing out that a neighboring state or community features higher overall taxes and more onerous regulations on business. This is a fair point and in fact this type of competition among states and municipalities helps keep government honest and not overly intrusive into the marketplace. In other words, it helps constrain government to its proper role in promoting positive business conditions. However, the principled conservative is opposed to special tax breaks in the guise of recruiting business. This should be properly criticized as corporate welfare (and unfair to similarly situated businesses who do not benefit from the tax break) and it also promotes an unholy alliance of the state and businesses. We must not cede the role of looking out for the little guy to the self-proclaimed good hearted liberal. The principled conservative has a critical part to play here. State-sponsored incentives matched to a specific company amount to no more than state bribery. It encourages corruption and is contrary to the proper role of government, which should be to promote fair and free competition, not to favor one business or one industry over another. This further allows us to highlight the difference between state capitalism and fair competition capitalism, the latter of which should be the principled conservative‟s mantra. Let others defend these special subsidies, all at the taxpayers‟ expense, because they are simply not consistent with our principles.
We should not hesitate to point out that if the flatter tax policies were implemented as discussed above, every business and every individual would have opportunity—based on their own talents and abilities—to be successful. Let us be clear that we are engaging in a full frontal assault on corporate welfare via improper use of the taxing authority at all levels of government.
On the opposite extreme—the government‟s propping up or bailing out of failing businesses—we must point out that specific businesses will and must fail from time to time in order to have business improvement and long-term consistent economic growth. What better recent example of this “crony capitalism” and “too big to fail” nonsense than the federal government deciding to bail-out some financial institutions (AIG) but not others (Lehman Brothers)?
How do we get smaller government commensurate with planned lower tax burdens?
While it is fairly easy to find an absolutely stupid federal program, it is much more difficult to pull together enough programs to make a dent in federal spending. This is especially true because so much is already tied up in entitlement programs such as Social Security and Medicare, as well as military spending. On top of this challenge, there is also the political reality that every federal program, even the dumbest, develops a constituency and political support. This is even more acute where it helps a distinct group of people or geographic region, such as the infamous billions in earmarks that Congress distributes each year. In Chapter 3
we already proposed the idea of a Constitutional amendment to ban earmarks.
The principled conservative is willing to take up the fight, put a lot on the table, and chip away at the federal bloat. There are plenty of possible options, many of which have been recommended for years by conservative think tanks.29 This doesn‟t mean it will be politically easy, but at least proponents of these programs need to be put on notice as Desi did to Lucy that “you‟ve got some ‟splaining to do.” This is the distinct direction that principled conservatives must lead the country, and it should be brought up in every Congressional appropriations cycle and every session of Congress. If we want a fiscally accountable legislature, you have to hold their feet to the fire. Of course there will always be political logrolling to get bills through Congress (i.e.
I‟ll support your program if you support mine), but why can‟t we try to tilt some of the log-rolling the other way (I‟ll support cutting the waste of time and money program that you despise if you support the one I want to cut).
In addition to the Social Security and Medicare reforms discussed in Chapter 2, the principled conservative could put a number of federal budget cutting issues on the table: world policing costs, or contribute their own forces so we can reduce ours; operations to those areas only (it‟s what
any sensible business would do);
enough private associations to do this work. The principled conservative does not think the federal government needs to expend resources to remind us to eat less and exercise more.
-corporate welfare platform.
s resulting from a simplified flatter tax.
Admittedly, this task is not as easy as Charles Grodin‟s accountant character in the movie Dave would lead one to believe. For starters, as noted the major entitlements must be reduced to have any serious impact. But sometimes even financially insignificant cuts can send a powerful message. For example, it is a matter of philosophy for the principled conservative that much of the federal government‟s efforts to improve social behavior are a waste of time. Hence, while reducing or eliminating these programs may not yield much in the way of overall deficit reduction, it will help re-define the appropriate and inappropriate roles of government.
The fundamental liberal/progressive response is that if there is a problem, what can the government do to solve it? The fundamental principled conservative response is to ask whether the nature of the problem is such that the government should even attempt to solve it or could solve it even if it made herculean efforts? With the principled conservative approach, we will be talking much less about “structural deficits” and how much taxes need to be raised to fund the behemoth government, and much more time talking about limiting the government to doing a smaller range of tasks much more effectively.