Are the Republican tax bills, passed by the House and Senate and currently being reconciled in conference committee, an attack on “feds, eds, and meds”? That’s a reference to the government, health care and education jobs that local Democrats in Dayton, Ohio, told Sen. Sherrod Brown have been fueling the area’s comeback.
The Dayton area’s current reliance on government is in tension with its history as an incubator of private sector inventiveness, which more than a century ago produced the first cash register, the first airplane and the first automotive electronic ignition.
That’s a melancholy reflection. But the implied complaints about the tax bills have more basis than the apocalyptic rhetoric coming from journalists (Kurt Eichenwald: “America died tonight”) and Democratic politicians (Nancy Pelosi: “the end of the world”).
The Republican tax bills do indeed reduce revenues to the “feds,” with surprisingly small rate cuts for high earners and by cutting the corporate rate from 35 to 20 percent. The current rate, highest in the world, had to be lowered sooner or later, as most liberal economists (and Barack Obama) have long admitted.
And it is hard to take seriously those moaning about increased budget deficits from those unwilling to reform entitlements, which includes all Democrats and many Republicans, notably President Trump.
The critics have more of an argument when it comes to eds and meds. But there’s a counterargument there as well. The tax bills push against the counterproductive government policies that have been pushing up education and health care costs, to the detriment of the consumers thereof.
The tax bills impose a new 1.4 percent tax on the investment income of endowments of very wealthy colleges and universities. They would eliminate deductions for student loans and tax tuition waivers for graduate students.
These institutions have been coasting on their reputation for excellence and as havens of free thought, even as they impose speech codes, conduct kangaroo courts on sexual assault charges and allow humanities and social science departments to be dominated by “postmodern” agitprop and gibberish.
Student loans impoverish many students, especially dropouts, while the money they pump into universities produces administrative bloat, to the point that there are more administrators than teachers in higher education today. Government subsidies produce an oversupply of Ph.D.s, whose theses go unread and whose job prospects are dismal.
Polls show many voters have become aware of the intolerance and unaccountability of these institutions and that the economic rewards of a degree are diminishing. The tax bills send a signal to the people running higher education that they better change their ways.
On health care, the Republicans have sent a similar signal by repealing Obamacare mandate to buy insurance. It turns out that this tax — as Chief Justice John Roberts insisted it is — falls most heavily on those with modest incomes who conclude that Obamacare policies are a bad deal.
Or consider the yelps about the Republicans’ repeal of the deductibility of state and local taxes (except for some property taxes). This is progressive in its incidence, since most of the increased federal revenue will come from high earners in high-tax states, especially New York, New Jersey, Connecticut, and California, who tend to vote heavily Democratic.
Americans in lower-tax states have been effectively subsidizing bloated public payrolls and astonishingly generous pension plans. Removing the deduction will put pressure on high-tax state politicians and on the public employee unions to hold taxes and spending down.
This change, plus the possible Supreme Court reversal of a 1970s ruling that public employees cannot be forced to pay union dues, will tend to reduce the largesse that public employee unions have been contributing to Democratic candidates in these states and nationally. Since public employee union dues come from taxpayers, this amounts to public financing of the campaigns of one political party. It shouldn’t be surprising that the other party wants to stop it.
An Agriculture Department report on the expenses of raising a child showed that, over the last several decades, the costs of healthcare and education — despite or because of government subsidies and regulation — have increased much faster than inflation, while the costs of food and clothing — mostly provided by the private sector — have actually decreased in real dollars.
The Republican tax plans can be seen as a push back against “feds, eds and meds” inflation, and toward something more like what private sector innovators (like those in long ago Dayton) have been able to deliver.