January 16, 2005

Time for a new deal on Democrats’ economics

When the Democratic National Committee convenes to elect new leadership in Washington this February, they’ll have a chance to lay the groundwork for a return to relevance.

Some argue the Party needs leaders that will court the so-called “morality” vote. But the evidence shows religious voters weren’t decisive in Democrats’ recent electoral trouncing. Instead, politically moderate undecided voters were.

That suggests a different mandate for incoming DNC leadership. Forget “values”—party members won’t accept new positions on gays and abortion anyway. Stick to the issues that will steer the Democratic Party back to the political center without abandoning core beliefs: taxes and the economy.

Consider this from the Democratic National Party’s 2004 platform: “We believe the private sector, not government, is the engine of economic growth and job creation … We want a tax code that rewards work and creates wealth.”

Clear as day, even the Democratic platform praises low taxes and economic growth. Why? These policies expand wealth and tax revenues that make other Democratic priorities possible.

In that spirit, here are three ways DNC leadership can mainstream their economic policy without dumping progressive ideals:

Get behind tax reform. There’s plenty in the tax code to infuriate Democrats as well as Republicans. For one, it systematically diverts income from “blue” Democratic states into the hands of “red” Republican states.

Surprised? The reason is simple. Blue states on average have higher incomes than red states. Thanks to progressive income tax rates blue states pay a disproportionately large share of federal taxes, while getting a disproportionately small share of spending in return—as low as 57 cents per tax dollar in some states.

The solution? Surprisingly, flatter tax rates.

Democrats supporting flat taxes may sound crazy, but it isn’t. Even the progressive stronghold of Massachusetts has boasted flat taxes since 1779 when John Adams wrote them into the state constitution.

Massachusetts learned a tax lesson the DNC should take note of. Hurting the rich doesn’t help the poor. Helping the poor does. And there are more direct ways to do that than soaking the rich with high marginal tax rates that punish work and investment.

If done right, tax reform can silence criticisms of Democrats as tax hikers, help blue-state constituents, and steal some Republican fire in the process.

Stop fighting Social Security reform. Embrace it as a civil rights issue. Thanks to differences in life expectancy and earnings, African Americans receive dramatically less from Social Security than whites with comparable incomes.

The current system essentially transfers dollars from young African American workers to white retirees—up to $10,000 per person over a lifetime according to the Rand Corporation. Is it any surprise black voters favor private Social Security accounts in polls?

Even with private accounts there will be a need for a minimum-benefit safety net. By getting behind Social Security reform Democrats can recast themselves as the party of civil rights, win over moderate fiscal conservatives, and preserve their heralded retirement safety net in the process.

Stop pitting rich against poor and business against workers. Like it or not, every American wants to someday run a business and strike it rich. Rich vs. poor rhetoric is a pointless jab at those aspirations.

Are Democrats fooling anyone when they say taxes on companies—the source of America’s jobs—won’t hurt individuals? Likewise when they divide America into groups by income—as if our incomes don’t shift over a lifetime—and instigate fights.

You don’t have to punish the wealthy to create opportunities for the poor. Policies that promote economic growth can be win-win. The Democratic platform nods to the virtues of free enterprise held dearly by mainstream Americans, and party leadership should recruit candidates who reflect that.

This February the DNC needs to steer toward the political center, not pander to the “morality” vote. Their platform already outlines a low-tax and pro-growth agenda. Why not support candidates that mean it?

Andrew Chamberlain is a staff economist at the Tax Foundation in Washington, D.C.