Published February 23, 2016
South Carolina has further cemented Donald Trump as the frontrunner for the GOP nomination. It should be obvious by now that he won’t be stopped with wishful thinking. His opponents need to continue to take the fight to him aggressively — on his many reckless and false statements, his faux conservatism, and his appalling nativism and vulgarity.
But the other candidates must also offer a realistic economic plan that would be attractive to Trump’s supporters.
This is not a new problem. Since President Reagan left office, the GOP has been struggling to connect with Americans who are culturally conservative but inclined by their working-class environment to be suspicious of Republican economic philosophy. Without strong support from these voters, the GOP has lost the popular vote in five of the last six presidential elections.
At the same time, it would be foolish for the GOP to abandon its traditional adherence to limited government, fiscal discipline, low taxes, and free markets. Those are the pillars of a dynamic and growing economy, and abandoning them would cost more votes than would be gained.
But belief in a free market is not inconsistent with concern for those who struggle when firms and entire industries come under pressure from global competition. The GOP must acknowledge the economic dislocation that has occurred and offer an agenda to help families who have seen their prospects dim over the past two decades. Here’s a start.
1. Tax Cuts
The GOP is the party of tax-cutting, but the focus needs to shift toward relief for families who live paycheck to paycheck. Middle- and lower-income households pay more in federal payroll taxes than in income taxes. For those in the middle quintile of the nation’s income distribution, the average effective income-tax rate was 4.3 percent in 2013, far below the effective rate of 10 percent for payroll taxes. But GOP tax-reform plans focus much more on income-tax rates — and thus on households with substantial income and assets.
Income-tax reform is absolutely essential to improve growth, but it must be coupled with a realistic assessment of current economic conditions. The GOP should supplement income-tax reform with payroll-tax cuts for the working class. One approach would be to exempt some wages from the tax, or to lower the tax rate on those wages. For instance, exempting the first $30,000 of wages from the employee share of the Social Security and Medicare payroll taxes would provide a family with $40,000 in earned income with a $2,300 tax cut annually. The workers would still earn credits toward future Social Security and Medicare benefits, so the lost revenue to the trust funds would need to be addressed in a broader tax-reform plan.
2. Wage Credits
Some in the GOP have proposed a new wage credit program as an alternative to increasing the minimum wage. The idea deserves serious consideration. The credit would be a substitute for programs that provide low-income support but discourage work. Recipients would get a pay raise, financed by the federal credit, and work experience, which is the surest way to improve their long-term economic prospects.
3. Health Care
Republicans are right to call for repeal of Obamacare, but many working-class families do not get health insurance through their place of work. The GOP must embrace a replacement plan for Obamacare that gives these families a tax credit so they can purchase an affordable plan in the marketplace. And governors should be given the flexibility to give Medicaid beneficiaries access to higher-quality private insurance plans.
4. Relocation and Other Assistance
Trump thinks he can undo decades of U.S. commitments under the global trading regime — built largely under bipartisan U.S. leadership. He is wrong, and he is also wrong about the effects of existing rules. Trade increases the purchasing power of most U.S. households. According to President Obama’s Council of Economic Advisers, middle-class families get what amounts to a 29 percent pay raise because of their access to goods and services produced around the world. At the same time, global trade agreements have increased U.S. exports substantially and have added $1,300 to the wages of the average middle-class worker.
Still, some industries have contracted, and workers in those industries are faring worse than others.
Unfortunately, millions of low-skilled, native-born Americans are unintentionally encouraged to stay in slow-or-no growth communities affected by trade because of the structure of federal unemployment, disability, and income support programs. These workers should be given relocation assistance — call it the New Homestead Act — financed through a reform of existing programs. They could then move to areas with more plentiful opportunities and thus get back on their feet. The GOP also should support temporary income-replacement programs for those forced to accept lower wages due to trade, and vouchers for training and education for those seeking to switch careers and industries.
5. Immigration Reform
Immigration is overblown as an issue in the GOP presidential campaign. In 2011, only 5.2 percent of the total workforce was foreign-born in 31 states, and the unauthorized immigrant population was only 2 percent in 39 states. Studies also indicate that immigration enhances, rather than retards, overall economic growth. Still, there is a high concentration of both legal and illegal immigrants in certain states; nearly one in four workers in California, New York, and New Jersey were foreign-born in 2012. But Trump’s proposal to build a wall on the southern border is not the answer; it would cost at least $20 to $25 billion, and $1 billion in annual maintenance expenses. And his implausible plan to locate and deport the 11 to 12 million people residing illegally in the U.S. would cost tens of billions more, even as it would wreak havoc on families and communities across the country.
The border can be secured at far less expense by employing a combination of tools, including a wall along certain stretches, more fencing, enhanced surveillance of various kinds, more patrols, and stronger sanctions on those caught attempting illegal entry. Deportation should be imposed on recent illegal entrants; a fair process should apply differing sanctions on persons who have been here longer, are self-reliant, have no other criminal record, and have family who are legal residents. Moreover, the GOP should embrace a policy of controlled, economically focused immigration that limits entry in the future based on family connections. The total level of legal immigration should be more limited for a period of years to allow time for assimilation, given the elevated levels of immigration since the mid-1990s.
Trump offers a vague economic nationalism that would risk isolation and decline. The GOP should resist the temptation to embrace this agenda, even if he becomes the nominee. But the GOP must also provide an alternative to Trump’s simplistic and counterproductive pronouncements. Otherwise, voters desperate for hope will remain vulnerable to appeals that play to their fears, not their aspirations.
Henry Olsen is a senior fellow at the Ethics and Public Policy Center. James C. Capretta is a senior fellow at EPPC and a visiting fellow at the American Enterprise Institute.