Paul Ryan, U.S. congressman (R-WI), speaks at a conference in Las Vegas, Nev., on May 16, 2014.
Photo by Rick Wilking/Reuters

The GOP’s inequality conundrum

Updated

The Republican Party now believes that economic inequality is a real problem. So what do they want to do about it? 

They haven’t gotten very specific yet, and the main policy reform they’re pushing has been part of the GOP’s main agenda all along: Overhaul the tax code to cut tax rates. “Let’s iron out loopholes to lower rates — and create jobs, not pay for more government spending,” Joni Ernst said in her response to Obama’s State of the Union address on Tuesday.

“The key secret to a healthier economy, getting more people from welfare to work, is tax reform,” Rep. Paul Ryan said the next day on msnbc’s “Morning Joe.” 

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But that’s not going to be enough to improve economic mobility for a broad swath of Americans, says Michael Strain of the American Enterprise Institute. “We want policies to pull more people into the middle class,” he says. “I agree that tax reform, while important, isn’t the only thing.”

Leading Democrats and Republicans alike believe that a comprehensive tax overhaul would create a more efficient, effective tax code that would spur growth, create new opportunities, and make U.S. businesses more competitive in the long haul. But the recent economic recovery — and wages that have been stagnating for decades — have made it clear that growth alone isn’t enough because those gains haven’t been broadly shared. 

“The recent economic recovery — and wages that have been stagnating for decades — have made it clear that growth alone isn’t enough…”

One concrete reform that some Republicans have endorsed is an expansion of the Earned Income Tax Credit (EITC), a tax break for lower-income workers. The current version of the EITC excludes most childless single adults, as well as those who don’t have custody of their children. President Obama’s latest tax plan includes an EITC expansion similar to what Ryan himself proposed last year when he unveiled his latest plan. There’s strong evidence that such a change would both encourage more lower-income Americans to work and boost those already in the workforce.

Despite the consensus, such proposals have gone nowhere as Democrats and Republicans can’t agree on how to pay for them: Obama has proposed folding into his larger plan raising taxes on the wealthy, which Republicans have dismissed out of hand. Ryan, meanwhile, proposed cutting unspecified energy subsidies “picked by Congress and the bureaucracy,” hinting at the kind of clean energy programs that the Obama administration has favored. 

What’s more, the addition of such measures seems to go against the grain of the GOP’s big tax overhaul: It adds new tax breaks, rather than getting rid of them, which would make it harder to find the revenue that Republicans want to use to lower rates. That’s one reason that Obama’s tax plan could make comprehensive reform harder, not easier — and why even Paul Ryan talks about EITC expansion in isolation from his tax reform plan. 

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Last year, both Ryan and Sen. Marco Rubio introduced broader proposals to overhaul federal anti-poverty programs. But they landed with a thud as conservatives and liberals alike criticized them for replacing the existing system with less effective new bureaucracies. Sens. Mike Lee and Rand Paul have allied with Democrats to call for criminal justice reform—with Paul describing a criminal record “the biggest impediment to civil rights and employment in this country”—but they remain outliers within the party. 

Meanwhile, in terms of middle-class priorities, Republicans continue to believe that Obamacare is imposing a great economic burden from ordinary American families and businesses. But their legislative efforts have almost entirely focused on repealing or weakening Obamacare, rather than fundamentally overhauling it for the better or replacing it with a viable alternative. 

So Republicans keep circling back to what they know and trust: A tax overhaul that would create new tax cuts. “I don’t think it’s the only way,” Ryan said on Wednesday. “But it’s what we have right now.”

Barack Obama, Paul Ryan, Tax Policy and Tax Reform

The GOP's inequality conundrum

Updated