Ethics & Public Policy Center

Ideas for the Middle Class

Published in National Review, Vol. LXI, No. 2 on February 9, 2009


**The two essays below are part of the longer essay “Twelve Ideas for the Middle Class” published in the February 9, 2009 issue of National Review**

1. ENCOURAGE PARENTHOOD

Yuval Levin

Married couples raising children are the core of the middle class. Yet for all the pandering by both parties to middle-class voters, our tax code continues to discriminate against the investment these parents make by raising and rearing future taxpayers. Low-income families have the Earned Income Tax Credit, and high-income taxpayers have dependent exemptions (whose value is greater in the upper tax brackets), but the middle class gets much smaller benefits. A tax reform that aims to appeal to the middle class while advancing the interests of all Americans would therefore be wise to focus on this anomaly.

Key to such an approach would be to expand the child tax credit (to $5,000 per child, for instance) and make it available to all parents up to the amount they pay in combined income and payroll taxes. Such a move should be part of a broader tax reform that would cut the number of tax brackets and drastically reduce the number of itemized deductions, among other changes. Such a reform could be made revenue-neutral, or nearly so, and would for the first time make the tax code evenhanded toward child-rearing rather than imposing extra costs on middle-class parents.

Some conservatives would object to such a reform on the grounds that it would not directly encourage economic growth, would take many families off the tax rolls, and would use the tax code for social engineering. But the investment involved in raising children (on whom our entire entitlement system is based) is currently overtaxed, so in the long run, cutting those taxes would encourage economic growth by encouraging family growth. Families taken off the tax rolls by the credit would come back when they had raised their children — which wouldn't happen, for instance, to families removed from the ranks of taxpayers under a flat tax. And some social engineering through the tax code is unavoidable, so why not use it to promote the growth and strength of families — a conservative objective if ever there was one? Few other policy reforms could speak as powerfully to the middle class while advancing conservative ideals.

Mr. Levin is the Hertog Fellow at the Ethics and Public Policy Center and a senior editor of The New Atlantis. 

 

3. REDUCE HEALTH-CARE COSTS

James C. Capretta

Market-based health-care reform, when properly explained, can have real appeal to the American middle class. Most families must deal with a difficult health condition of some sort, and while they would welcome any change that makes it easier to pay the bills, they don't want the government to stand in the way of promising breakthroughs. That's why Americans are sensibly wary of giving the federal government too much power and control over their health-care arrangements. Market-based care would control rising costs without imposing regulatory barriers to cutting-edge care.

A properly functioning marketplace would reward efficiency and innovation by letting cost-conscious consumers seek out better care at lower cost. In time, competition would bring real changes to how health care is provided and slow the rise in premiums that is putting pressure on so many family budgets.

The middle class would also stand to gain the most from the tax changes that are central to a market-based reform strategy. Today's open-ended tax preference for employer-paid insurance premiums confers the most benefits on workers with expensive insurance and high incomes. As an example, excluding $15,000 in health insurance from income taxes is worth $1,500 to someone in the 10 percent marginal income tax bracket but $5,250 for someone in the 35 percent bracket.

Market-based reform plans would eliminate this imbalance by substituting a fixed tax credit for the open-ended deduction and shifting control from employers to individuals and families. During the 2008 campaign, Sen. John McCain proposed a $2,500 per individual or $5,000 per family tax credit for health insurance. These credits could be used to purchase insurance through an employer or on the open market. The nonpartisan Tax Policy Center estimated that the McCain plan would reduce tax costs for the average middle-class family by nearly $1,300 per year in 2013. Higher-income households would benefit much less.

Giving families financial control and ownership of their health insurance would also bring more security, as many of the uninsured lack coverage because they are in between jobs. With ownership and control, families could keep the same insurance as they change jobs or leave the workforce for such purposes as further education. Would-be entrepreneurs could also take more job risks without the fear that a business failure would mean loss of health coverage.

Mr. Capretta is a fellow at the Ethics and Public Policy Center and a health-policy consultant.

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