In the past several days The Signal has published two interesting columns. The first was Thomas Oatway’s Letter to the Editor entitled “Low-wage California leads way in GOP downfall.” The second was Steve Lunetta’s column “Health care free market an abject failure.”
Both letters question the long-term implications of current Republican policies. Mr. Oatway’s letter made a good case for why red states might turn blue.
Last week I attended a wedding in Dayton, Ohio. Most of the guests were middle class Republicans from southern Ohio/northern Kentucky who voted Republican, but now say they are deeply disappointed in both President Trump and Congress.
All of this should give the Republican Party pause for concern. The Republicans are pursuing policies that are harmful to the middle class.
Like Steve Lunetta, my political leanings are center right. I am a fan of Ronald Reagan. But the current Republican leadership simply does not understand the 21st century economic paradigms.
For a society to thrive there has to be a robust, prosperous middle class. Due to globalization and technology, our middle class has been disrupted for decades.
Yet the two major legislative objectives of the Republican Party – repeal the American Healthcare Act (“Obamacare”) and reform taxes – promise further erosion of the middle class.
Let’s consider health care first. The Republicans have an opportunity to correct Obamacare’s underlying systemic problems. Instead, they chose to favor the same special interests who lobbied the Democrats when the ACA was enacted.
Consequently, there will be a backlash. Twenty-three million people who are at risk of losing their health insurance will be motivated voters.
Health care costs will continue to soar and huge 2018 premium increases will be blamed on the Republicans because, after six years of saying they were going to replace Obamacare with something better, they failed to do so when they got the chance.
Even if the Republicans pass health care legislation this year, it won’t be in time to affect the determination of the 2018 insurance premiums. Many votes will be cast based on 2018 health care costs.
The unfortunate irony is when the Democrats regain power, they will undoubtedly enact a single-payer system that will not be as good as a properly implemented ACA would have been.
The American Healthcare Act passed by the House is merely another stepping stone on this path.
Now let’s discuss tax policy.
On May 17 the Congressional Joint Committee on Taxation published a report on taxes and economic policy that will be considered by Congress when tax reform is finalized. The 40-page document provides theoretical justification for proposed tax legislation.
The report justifies reducing the corporate tax rate because doing so will encourage corporations to invest in the U.S. A major point in the report is that the resulting investments will increase labor productivity, which will result in corporations hiring more people.
That’s the way it worked in the 20th century. But today, investments in technology generally do not enhance labor productivity. Instead, they replace labor with robotics and artificial intelligence.
If anything, corporate tax cuts, which will be funded largely by increased taxes on middle class individuals, will accelerate middle class job losses.
According to CNBC, U.S. corporations are holding $2.6 trillion overseas. The Republicans want to change the tax laws to encourage repatriation of that cash so that it can be invested domestically.
Most of that cash is currently invested in foreign currency. Upon repatriation, it will be converted to U.S. dollars. That conversion will result in a stronger dollar, which means that U.S. goods and services will cost more overseas and our exports will fall.
The only way to overcome this is to place an increasing emphasis on technology, rather than labor, to reduce costs. This will put additional pressure on the middle class job market.
Finally, there is the pesky problem with the proposed individual income tax cuts. As I discussed in a previous column, the preponderance of the benefits go to the wealthy, while the cost of paying for the rate cuts is shouldered largely by the middle class.
If history is a precedent, when the Democrats regain power, they will restore the tax rates to current levels but will not restore the repealed deductions. Thus, the Republicans’ plan is the first step of an eventual tax increase for everyone.
Overreaching by the Republicans to achieve the goals of the special interests who fund their party will adversely affect the middle class voters they so desperately need.
As Thomas Oatwell stated, “Economic policies which adversely impact their loyal Red State voters are the surest cure for a moribund Democratic Party.”
After the 2012 election, the Republican Party said that it wanted to expand voter outreach. The nomination of Donald Trump attracted enough dissatisfied middle class voters to win the 2016 election.
However, their legislative agenda, while long on entrenched rhetoric, is short on preventing further middle class dissatisfaction.
I hope the Republicans realize this – because if they do not, they will be replaced by Democrats who will undoubtedly swing the pendulum too far to the left.