(Bloomberg Politics) Jeb Bush is getting conflicting advice from opposing wings of the Republican Party on a key economic issue: taxation.
Traditional supply-siders argue for slashing rates on high earners to stimulate work, investment, and growth. But a new movement of reformocons—short for "reform conservatives"—says rate cuts are less important than expanding the child tax credit, which would mainly help lower-income families.
So far the former Florida governor hasn't taken sides in the high-stakes argument. But now that he's formally declaring his candidacy for the party's presidential nomination, it will become harder to lay low. "I think there will be pressure on him to provide a more concrete sense of his economic policy platform by the first debate on Aug. 6," Lanhee Chen, a Hoover Institution research fellow who was policy director of Mitt Romney's 2012 campaign, writes in an e-mail.
Stephen Moore, a leading supply-sider who is a distinguished visiting fellow at the conservative Heritage Foundation, says he thinks Bush will come down on his team's side. "I've met with Jeb several times and each time he's told me, 'I want to cut marginal tax rates and flatten them out,'" Moore says. "He's a work in progress, but I feel pretty confident that he would be a supply sider."
On the other hand, earlier this year Bush hired a prominent reformocon, April Ponnuru, as a policy adviser. Ponnuru is a Capitol Hill veteran who is policy director of the Conservative Reform Network (a reformocon think tank) and is married to fellow reformocon Ramesh Ponnuru, who is a Bloomberg View columnist.
Those conflicting signals have left outside experts at a loss for what Bush will do. "It's impossible to know," says Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center. "Bush has been quite silent on his views on federal taxes other than to say he's unwilling to sign Grover Norquist's pledge" to oppose all tax increases, Gleckman says.
This isn't just political inside baseball. It goes to what Bush intends when he calls for a "right to rise" society, as he did in an important speech to the Detroit Economic Club in February. Bush laid out four principles in that address: First, a committed family is more important than government aid. Second, strong economic growth creates opportunity. Third, taxes and regulation should make it easier to work than not to work. And fourth, a good education is crucial.
Bush's second principle, that strong economic growth creates opportunity, seems to tip him toward the supply-siders. They contend that high taxes squelch growth by taking away the incentive for people to work hard and earn income. They want to bring down the top marginal rate—i.e., the tax paid on the last dollar earned. Married couples filing jointly had to pay tax of 39.6 percent on all income earned last year above $457,600. In order to lessen revenue losses, supply-siders favor pairing rate cuts with base-broadening—i.e., eliminating most credits and deductions to increase the amount of income that's subject to taxation.
Bush's brother was a supply-side tax-cutter, and so was Jeb Bush as Florida's governor from 1999 through 2007. Cuts in a tax on "intangibles" such as the value of stocks and bonds "were by far the largest component of legislated revenue reductions enacted during Jeb Bush's eight years as governor," according to Martin Sullivan, chief economist of Tax Analysts in Falls Church, Va.
In this case, though, history may be misleading. Bush is trying to avoid the fate of Mitt Romney, whose tax-cut program was perceived by some voters to be a giveaway to the rich. Bush's "right to rise" campaign is hammering the message that conservative economic principles are good for everyone. "The fundamental political challenge in '08, '12, and '16 is making the sale that Republican policies will generate economic prosperity that accrues to the middle class," says Douglas Holtz-Eakin, president of the American Action Forum, who was director of domestic and economic policy for Senator John McCain's 2008 presidential campaign.
That's where the reformocons see an opportunity. They say they also believe in lowering marginal tax rates to stimulate growth, lifting all boats. But they favor coupling that with measures that more conspicuously and immediately help struggling families. One of those measures is expanding the child tax credit. Bush's rival for the nomination, Senator Marco Rubio of Florida, is co-sponsoring legislation to do that along with Senator Mike Lee of Utah.
A child tax credit makes it easier to have children, who will eventually grow up and earn money to support their elders, Robert Stein, a former deputy assistant secretary for macroeconomic analysis at the Treasury Department, wrote in an early manifesto of reform conservatism in National Affairs. It would not, however, encourage people to work more, because it wouldn't lower the tax on the last dollar of income earned. Ramesh Ponnuru wrote earlier this year in a Bloomberg View column, "The critics are right to say that it's designed to provide tax relief, especially for middle-class families, and not to boost economic growth."
That's what sticks in the craw of supply-siders like Holtz-Eakin: "The Republicans will never outbid the Democrats" with something like an expanded child tax credit, he says. "The Democrats will just say, 'We'll double that." Agrees the Heritage Foundation's Moore: "The idea of giving away a lot of tax credits and deductions is kind of the opposite of what we want to do in tax policy. The essence of a good tax system is a broad base and a low rate."
There's a lot more to economic policy than taxes, of course. Bush has strong stands on legal immigration (pro), Common Core educational standards (pro), and bureaucratic red tape (anti). But taxation is a bedrock issue, especially for Republicans. That's why the side he chooses in the next few weeks will shape his candidacyand, if he's lucky enough, his presidency.
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