Conn Carroll

Something is rotten in the United States of America.

Except for a brief surge of pride after the United States swore in its first black president in 2009, Americans have consistently told pollsters for more than a decade that they believe our country is heading in the wrong direction.

Neither party is offering an agenda that speaks to America’s concerns.

Democrats only want to grow the size and scope of the federal government at a time when America’s trust in its federal government has never been lower. Republicans want to cut taxes for the wealthy and help big corporations at a time when Americans believe federal government policies already favor the wealthy.

Americans want an alternative. An alternative that dismantles the power and wealth of special interests on the Left and the Right. An alternative that recognizes we can shrink the size and scope of the federal government in ways that benefit all Americans.

Some Republicans have recognized this need and are already advancing policies that move the party in this direction. But a wider agenda that adheres to these principles is possible. Let’s begin by examining where the two major parties have gone wrong.

THE CORPORATIST DEMOCRATIC PARTY
For liberals, the source of Americans’ unease is easily identifiable: income inequality.

It’s what brought the Occupy movement out into the streets. It’s the subject of a wildly popular new book by French socialist Thomas Piketty. And President Obama recently called it, “The defining issue of our time.”

How do liberals plan to fight income inequality? Through higher taxes on the wealthy and a slew of new government programs to redistribute the money, of course.

But progressives realized long ago that they needed deep-pocket partners to help run and popularize their treasured government programs. As Bill Scher of the liberal Campaign for America’s Future recently admitted in The New York Times, “The necessity of corporate support for, or at least acquiescence to, liberal policies is not a new development in the history of American liberalism. Indeed, it has been one of its hallmarks.”

More recently, this partnership of corporate and government interests was at the heart of President Obama’s signature domestic accomplishment, Obamacare.

Describing the legislation before passage, progressive journalist Glenn Greenwald noted the bill “forces millions of people to buy extremely inadequate products from the private health insurance industry regardless of whether they want it or, worse, whether they can afford it (even with some subsidies).”

“In other words,” Greenwald concluded, “it uses the power of government, the force of law, to give the greatest gift imaginable to this industry, tens of millions of coerced customers, many of whom will be truly burdened by having to turn their money over to these corporations.”

To his credit, MSNBC’s Chris Hayes wasn’t afraid to admit this governing model wasn’t limited to health care. “There’s a word for a governing philosophy that fuses the power of government and large corporations as a means of providing services and keeping the wheels of industry greased, and it’s a word that has begun to pop up among critics of everything from the TARP bailout to health care and cap and trade: corporatism.”

THE FAILING CORPORATIST MODEL
For decades now, corporatism has been a big winner for both the Democratic and Republican parties. In his recent book “Mass Flourishing,” 2006 Nobel Memorial Prize in Economic Sciences winner Edmund Phelps explains why:

Corporatism satisfies a desire for security. People want security of consumption, security of jobs, and security of their economic status. Corporatism replaces the decentralized competition of the market with political control over the economy.

Corporatism allows CEOs to deliver near guaranteed steady profits while receiving fat salaries in return. It allows union leaders to promise lifetime jobs and generous benefits. And it allows politicians to take credit for every job, created or saved, by every company that takes a single dime from the government.

But corporatism no longer seems to be providing the peace of mind that it once did. According to a recent Pew poll, the percentage of Americans who describe themselves as middle class has fallen from 53 percent in 2008, to 44 percent today.

Meanwhile, the percentage of Americans who describe themselves as “upper-class” has also shrunk from 21 percent to 15 percent over that same time. Only the ranks of the self- described “lower-class” are growing. Their numbers have almost doubled from 25 percent in 2008 to 40 percent today.

And a quick look at the data shows that American unease is completely justified. During the first four years of the current recovery (beginning in June 2009), the U.S. economy grew just 10 percent. By contrast, over the first four years of the Reagan recovery (beginning in November 1982), the economy grew by 20 percent.

Job growth during the recent recovery has also been anemic. During the first four years of the Reagan recovery in the 1980s, 11.5 million jobs were created. Fast forward to today, and just 5.3 million net new jobs were created over the same time frame.

Worse, median household income has actually fallen, from $53,285 in 2009, to $51,017 in 2012 (the most recent data available). By contrast, during that same time frame in the ‘80s, median household income shot up from $46,082 in 1982, to $48,063 in 1985 (all of the above income numbers are in constant 2012 dollars).

WHY CORPORATISM FAILS
Corporatism can, and often does, thrive. But only for a limited time. Eventually the tools Big Business and Big Government use to maintain their monopoly on power, undermine economic growth.

In order to maintain their size and stability, corporations use government power to keep new competitors out of the market. They pay lobbyists to manipulate the tax code in a way that benefits their business model. And they help shape complex regulatory schemes that require thousands of billable hours to sort through, thus raising the price of entry.

One would expect to see new firm formation plummet as an economy becomes more corporatist, and that is exactly what has happened in the United States. According to Hoover Institution analysis of U.S. Census Bureau data, the annual rate of new business formation is almost 30 percent lower today than it was in the 1980s.

And the American people know the partnership between Big Government and Big Business is making their lives worse.

An October 2013 CNN poll found that while 60 percent of Americans agree with the statement that “the government is trying to do too many things that should be left to individuals and businesses,” just 35 percent said “that government should do more to solve our country’s problems.”

A September 2013 Gallup poll found that 60 percent of Americans agree with the statement that the federal government has “too much power” while just 32 percent said it has “the right amount.”

And according to Pew, not only is trust in the federal government at an all-time low (and anger at an all-time high), but for the first time since Pew has been asking the question, a majority of Americans (53 percent) believe the federal government is an overall threat to their personal rights.

CUTTING TAXES FOR THE RICH ISN’T ENOUGH
But if Americans are so skeptical about the size and scope of the current federal government, and they want to see it scaled back, then why did they re-elect Obama in 2012?

Because they don’t believe the current Republican Party cares about them.

If you look at the 2012 exit polls, you’ll see that the very same electorate that re-elected Obama by a 51 percent to 47 percent margin, also told exit pollsters, by an even larger 51 percent to 43 percent margin, that “government is doing too many things better left to businesses and individuals.”

Republicans won the argument over the size and scope of the federal government. But Obama won the argument over “who cares about people like me.”

Obama and Romney mostly split voters who chose their candidate based on who “shares my values,” who “is a strong leader,” and who “has a vision for the future.” But among those voters who cast their ballot based on which candidate “cares about people like me,” Obama walloped Romney 81 percent to 21 percent.

And while Romney actually won among voters who earned between $50,000 and $100,000 a year (by 52 percent to 36 percent), and among voters who earned more than $100,000 a year (by 54 percent to 44 percent), he was slaughtered by voters who made less than $50,000 a year (60 percent to 38 percent). And those voters made up 41 percent of the electorate in 2012.

Romney lost because far too many working Americans simply did not believe he cared about them. Which is only fair since Romney flat out told CNN’s Soledad O’Brien, “I’m not concerned about the very poor.”

If Republicans are ever going to win the White House again, they are going to have to find a way to convince working Americans that they care about them, and that their policies will benefit them.

THE LIBERTARIAN POPULIST ALTERNATIVE
At the same time that American distrust in the federal government is at record highs, there is also a strong populist streak running through the American people.

Sixty-four percent of Americans recently told ABC News that federal government policies currently favor the wealthy, while 57 percent said they’d support policies to try to reduce the wealth gap in this country.

And according to Bloomberg, 64 percent of Americans believe the country no longer offers everyone an equal chance to get ahead, while an even larger 68 percent believe the income gap between rich and poor is growing. Additionally, 52 percent of Americans think the government should redistribute wealth “by heavy taxes on the rich,” while just 45 percent say it should not.

Republicans should not ignore these populist impulses. Rather, they should embrace them because the public is largely right. The current corporatist policies coming from Washington do favor the wealthy.

It is harder to get ahead in this country when entire sectors of the economy are controlled by a few highly regulated, government-favored firms. The tax code does contain far too many loopholes for the rich and powerful that subsequently drive up tax burdens on the rest of America.

By trying to do too much, and often advantaging the wealthy and politically connected in the process, the federal government has become a force for growing inequality and economic immobility.

Republicans need to find ways they can help the everyday lives of average Americans by cutting the size and scope of the federal government.

A LIBERTARIAN POPULIST AGENDA
The federal government will spend $3.5 trillion in 2014 administering an unknown number of government programs through more than 500 government agencies using almost 2.8 million employees.

Not every wasteful program or agency can be identified in this short space, and it would be next to impossible to eliminate them all at once. But Republicans can push a populist agenda that would slowly roll back the size and scope of the federal government thus giving all Americans more freedom to prosper. Here are just some areas where they could start.

GIVE EVERY WORKING AMERICAN A RAISE
If you wanted to design a tax that both made working Americans poorer and killed jobs in the process, the 12.4 percent Social Security payroll tax is exactly what it would look like.

Almost one quarter of all federal government revenue ($673 billion) was raised by the Social Security payroll tax in 2013, and it is one of the most regressive tax policies the federal government administers.

The only policies possibly more regressive than the payroll tax are some of the more than $1.4 trillion in tax expenditures buried in the federal government’s 70,000-page-plus tax code.

“Tax expenditures,” the Congressional Budget Office explains, “are generally designed to further societal goals.” But, the CBO continues, “by providing benefits to particular activities, entities, or groups of people, tax expenditures increase the size and scope of federal involvement in the economy.”

And tax expenditures not only increase the size and scope of the federal government, but they do so in a way that predominantly benefits the wealthiest Americans. Almost 90 percent of the state and local tax deduction, for example, goes to households making more than $100,000 a year. Seventy-seven percent of the mortgage interest deduction and 75 percent of the real estate property deduction also go to households with incomes over $100,000.

If Republicans proposed limiting the mortgage interest deduction to just households with incomes below $200,000, and they eliminated the mortgage deduction for second homes, as well as the state and local tax deduction, the real property tax deduction, the state and local bond interest exclusion, and the investment income on life insurance exclusion, all of which predominately benefit wealthy households, they then could also cut the employee side of the payroll tax in half without adding a dime to the deficit.

Not only would that mean a smaller tax code and a less intrusive federal government, but it would also mean an extra $1,500 a year in take home pay for the average American household.

END THE DRUG WAR
Conservatives know that the best weapon any community has against poverty is the millenniums-old institution of marriage. Unfortunately in far too many communities today, marriage has all but disappeared.

According to the Centers for Disease Control and Prevention, more than 72 percent of African-American children are born out of wedlock. And it is not because black men do not want to be fathers. They most certainly do. The CDC reports that when black men do live in the same home as their children, they are just as involved in their children’s lives as other fathers, if not more.

Unfortunately far too few black men are living with their biological children and the federal government is a big reason why. The federal government’s War on Drugs has put far too many non-violent young men behind bars. The Bureau of Justice Statistics estimates that almost 1 in 5 black men has served time in prison. And a recent University of South Carolina study found that nearly half of all black males have been arrested by the time they turn 23.

Jail time not only rips black men from the communities that desperately need them, it also makes it harder for them to provide for a family once they’ve paid their debt to society. Convicts have higher unemployment rates and receive lower wages than those without criminal records.

Worse, as Manhattan Institute John McWhorter explains, the War on Drugs “discourages young black men from seeking legal employment.”

“Because the illegality of drugs keeps the prices high,” McWhorter notes, “there are high salaries to be made in selling them. This makes selling drugs a standing tempting alternative to seeking lower-paying legal employment. The result is usually spells in jail, as well as failure to build the job skills for legal employment that serve as a foundation for productive existence in middle and later life.”

By ending the War on Drugs, the federal government would not only return much-needed human capital to beleaguered communities, it would also be a fiscal win for taxpayers as well. According to the Cato Institute, decriminalizing drugs would reduce federal government spending by $15.6 billion and would free up $25.7 billion in state and local tax dollars as well.

Yes, marijuana, cocaine, and heroin are all still hellish substances that we as a society should discourage people from using. But jail has proved to be an ineffective, and even harmful, method of sending that signal.

As William F. Buckley explained back in 1996, “It is our judgment that the War on Drugs has failed, that it is diverting intelligent energy away from how to deal with the problem of addiction, that it is wasting our resources, and that it is encouraging civil, judicial, and penal procedures associated with police states.”

Bottom line, it is far past time for small-government conservatives to stop supporting the failed War on Drugs.

STOP PENALIZING MARRIAGE
Incarcerating young men is not the only way the federal government makes it harder for Americans to get, and stay, married. The federal tax code, and every means tested welfare program, also makes marriage harder, particularly for low-income couples.

Take a low-income working mother who currently qualifies for the Supplemental Nutrition Assistance Program (food stamps), Temporary Assistance to Needy Families, Medicaid, and the Earned Income Tax Credit. If she marries a man with no job, or cohabits with a man who is working, then her benefits do not change.

But if she were to marry a man with a job, even a low-income job, her SNAP, TANF, and EITC benefits are all likely to be reduced and she could be forced out of Medicaid entirely. This can cause a major financial strain on a young low-income couple trying to build a life together.

One study found that the median married working poor couple loses 12 percent of their household income from these penalties after they get married.

Most wealthy couples would face a strained marriage if 12 percent of their income suddenly disappeared. For working poor families, it is hard to see how such a huge financial hit would not contribute to divorce.

Congress must stop punishing the working poor for getting married. Married couples should be allowed to keep their previously qualified for benefits through the first few years of marriage.

END THE HEALTH INSURANCE MANDATES
Obamacare’s individual mandate, the requirement forcing all Americans to buy government-approved health insurance, has always been among the most unpopular portions of health care reform. Republicans should push to repeal it entirely.

Far too few pollsters ask about the individual mandate on a regular basis, but when they do, American opposition is strong. For example, in November 2013, ABC News measured overall opposition to Obamacare at 57 percent. But when asked if they “support or oppose ... requiring nearly all Americans to have health insurance or pay a fine,” 65 percent of Americans told ABC they opposed the mandate.

A month later ABC News specifically asked if the individual mandate should be delayed a year and a full 60 percent of Americans agreed that it should.

And that is not the only mandate that is politically vulnerable. The employer mandate has already proved so unworkable that the Obama administration has twice delayed its implementation.

Even Obamacare’s biggest proponent, progressive commentator Ezra Klein, admitted the employer mandate, “gives employers a reason to have fewer full-time workers, and fewer low-income workers.”

In other words, Obamacare’s employer mandate is a job killer. Republicans should force Democrats to defend this unemployment-machine at every turn.

Once the individual and employer mandates are eliminated, Obamacare will begin to collapse under its own weight. Republicans must be ready to step forward with policies to minimize the pain.

They can start by ending two government created monopolies partially responsible for driving up health care costs: the ban on purchasing insurance across state lines and the prohibition against non-doctors providing health care.

Once Americans can purchase plans from any state in the country, and are allowed to buy care from nurse practitioners, physician assistants, and other non-physician medical professionals, the cost of health insurance should fall.

Slowly phasing out the employer-provided health care tax deduction, which also predominantly benefits wealthy Americans, while using that revenue to pay for a standard health care tax credit for all Americans, would also increase competition and lower costs.

END SECURITY THEATER
If you’ve ever seen an 85-year-old grandmother forced out of her wheelchair for a pat down, or forced your own crying 3-year-old to put their beloved stuffed animal through an X-ray machine, then you already know that there is perhaps no better example of Big Government’s wasteful, intrusive, and stupid bloat than the Transportation Security Administration.

And the man who created the TSA agrees.

“The whole program has been hijacked by bureaucrats,” former-Rep. John Mica (R-FL), the author of the legislation that created the TSA, told Human Events in 2011. “It mushroomed into an army,” Mica continued. “They’ve failed to actually detect any threat in 10 years. The whole thing is a complete fiasco.”

Before 9/11, just 16,500 private workers maintained security at our nation’s airports. Today, the TSA employs 62,000 people at a cost of $7.9 billion to taxpayers. And there is zero evidence they are providing any real security.

Instead of lighting $8 billion in taxpayer money on fire every year in the name of security, Congress should outright abolish the TSA and return responsibility for security back to private airports.

STOP SUBSIDIZING DEBT
Americans are rightly concerned about the size of current federal deficits. But as bad as our growing government debt is, household debt is even more destructive for most Americans.

While the federal government can almost always print or borrow more money, the same is not true for American households. When hard times hit, indebted families are forced to cut spending. Not only does food, entertainment, and other consumer spending fall, but the capital needed to turn an idea into new jobs isn’t there; moves to other parts of the country with better job prospects are harder to make; and it is difficult to invest in education or job training without going even deeper in debt.

As a result, high levels of household debt lead to weaker economic recoveries. A recent analysis of new data from the Great Depression found that states with higher debt-to-income ratios recovered at much slower rates than states with lower pre-Depression levels of household debt.

So it shouldn’t surprise us that the weakest economic recovery since the Great Depression just happened to coincide with the highest debt-to-disposable-income ratio ever recorded in American history at about 130 percent. During the much stronger Reagan recovery, the household debt ratio was less than half as high.

Many conservatives might say that those who over-borrowed deserve their fate. If they spent too much, that is their problem. But this perfectly valid intuition ignores the role the federal government played encouraging Americans to borrow more.

Credit card and auto loan debt, which are not subsidized by the federal government, made up just 13 percent of all household debt before the recession and still do today. Mortgage debt however, which is heavily subsidized by the federal government, made up 78 percent of all household debt before the crisis, and has fallen only 4 points, to 74 percent of all household debt today.

But while mortgage debt may be falling slightly, the federal government’s other major debt subsidy program, student debt, has exploded. Before the crisis, Americans owed just over $600 billion in student debt, or just 5 percent of all household debt. Today, Americans owe more than $1 trillion in student debt, which currently makes up almost 9 percent of all household debt.

Combined, government subsidized debt (both mortgage and student) now makes up 83 percent of all household debt. To the extent that Americans do have a borrowing problem, the federal government is largely to blame.

Capping the aforementioned mortgage interest deduction would be a good start to getting the federal government out of the debt-subsidy business, but more must be done, especially on the student loan front.

In addition to slowly phasing out the student loan program and offering more direct student aid instead (paid for by eliminating existing ineffective federal education/training programs), Republicans should break up the college accreditation monopolies that are currently strangling higher education innovation.

By allowing states, instead of the federal government, to determine which institutions are eligible for federal aid, Republicans can unleash a wave of education innovation that should bring down the cost of college for almost everyone.

Yes, Yale and Harvard will always be exclusive and expensive. But there is no reason every American should be tied to a 19th century model for post-secondary education. Internships, apprenticeships, coding academies, online classes, and competency-based learning are just some of the ways Americans can better prepare for entering the workforce without wasting four years and tens of thousands of dollars on a college campus.

BREAK UP THE BANKS
No federal government response to the 2008 financial crisis was more unpopular than the Troubled Asset Relief Program, more commonly known as TARP, or the Wall Street bailout.

While the federal government did end up making a profit on the bank portion of TARP (but lost money on the auto bailout), Americans are right to view the TARP program, and the policy mistakes that led to it, with great skepticism.

But, contrary to the liberal narrative, it was not free markets or deregulation that allowed our nation’s financial institutions to become too big to fail. It was Big Government.

Just as the government-sponsored entities Freddie Mac and Fannie Mae always benefited from the belief that Washington would bail them out if they got in trouble, our nation’s largest banks also benefited from a similar perception. As a result of this implied-bailout-guarantee, large institutions were able to borrow capital at lower rates than their smaller competitors.

In addition, it was government regulation, not markets, (specifically the Basel Accord capital requirements) that created the high demand for mortgage securities in the first place. And finally, the credit-rating agencies that failed to accurately measure the true risk in mortgage-backed securities did so because they themselves are a government-created monopoly.

In 1970, the five largest banks in the United States controlled just 17 percent of all bank assets, while the nation’s 2,500 smallest banks controlled 46 percent of the assets. But by 2010 the nation’s five biggest banks controlled 52 percent of all bank assets, while the nation’s smallest 5,700 banks controlled just 16 percent of the assets.

President Obama’s Dodd-Frank regulations have only made the problem worse. Weighing in at just under 850 pages, and with more than 14,000 pages of regulations written so far, Dodd-Frank has been a huge stimulus program for Wall Street law firms and the mega banks they work for.

Small community banks, however, simply can’t afford the millions of billable hours it takes to make sense of Dodd-Frank. This is why JP Morgan CEO Jamie Dimon affectionately described Dodd-Frank as a “bigger moat” that helps protect JP Morgan from competition.

As a result of all this regulatory complexity, the nation’s largest banks now control an even larger percentage of the nation’s assets than when Dodd-Frank became law. Unless we want to suffer through another financial crisis, and the double-digit unemployment rates that go with it, we must break up the nation’s largest banks now.

Many on the Left have been pushing to break up the banks for years, preferring that a new or existing government agency nationalize the banks before selling them off in smaller pieces.

But such interventionist and disruptive tactics are not necessary. Since Big Government created the Big Banks, a smaller government should be able to right-size them.

Republicans should push to make all banks with more than $50 billion in assets ineligible for the Federal Deposit Insurance Corporation program. Then, either the megabanks would shrink voluntarily or the American people would more likely take their money elsewhere.

A NEW REPUBLICAN PARTY
In 1976, President Ford narrowly lost the White House to former-Gov. Jimmy Carter, 48 percent to 50 percent. Carter’s narrow margin was secured by lower-income Americans who gave Carter an overwhelming 62 percent to 38 percent margin (two points worse than Romney’s 2012 showing).

Just two months later, on February 6, 1977, a former-governor of California told a packed hotel ballroom in Washington, D.C., that the Republican Party would have to reinvent itself if it was going to survive.

“The New Republican Party I envision will not be, and cannot be, one limited to the country club-Big Business image that, for reasons both fair and unfair, it is burdened with today,” this former-governor said.

“The New Republican Party I am speaking about is going to have room for the man and the woman in the factories, for the farmer, for the cop on the beat, and the millions of Americans who may never have thought of joining our party before, but whose interests coincide with those represented by principled Republicanism.”

That former-governor was, of course, President Reagan. And in the 1980 election, not only did Reagan beat Carter 51 percent to 41 percent, but he cut Ford’s 24 point loss among the lowest- income Americans to just 10 points.

Republicans can win significant votes from every demographic. There are millions of Americans who share the Republican Party’s limited government vision but just don’t vote for them because Republicans have a reputation for supporting the rich and not caring about the poor.

By pursuing an agenda and crafting a message that demonstrates how a smaller government can help the everyday lives of average Americans, especially those with lower-incomes who suffer from regressive payroll taxes and government subsidized debt, Republicans can win elections in presidential years again.


Conn Carroll

Conn Carroll is editor of Townhall Magazine.

Author Photo credit: Jensen Sutta Photography