Help Wanted

National Review

The latest numbers on the economy are alarming. The unemployment rate ticked up to 9.1 percent. Housing prices have dropped to a new low. Consumer confidence is down. The manufacturing index has taken a hit. GDP projections are being revised downward. Most people are dreading higher gas prices.

Some analysts make a case for optimism. The labor market, they say, is suffering from the crisis in Japan, and the numbers look worse because the labor force is growing. Hours worked in the private sector are up, and so are wages.

We’re not persuaded. Even at its best, this recovery has been weak. We have had a persistently high level of long-term unemployment: a social catastrophe with no end in sight. The higher taxes and increased regulation that Democrats in Washington are promising will, on the margin, further weaken the economy. But the spending cuts that Republicans are finally getting serious about, while welcome, will not by themselves return us to prosperity, either. The country needs short-term measures to accelerate the recovery and long-term measures to increase our trend rate of economic growth. Yet even that will not be enough. During the last decade we have had periods of economic growth without wage growth. Middle-class prosperity — a big part of the American dream that Republicans rightly say they want to restore — requires more than growth, as important as it is.

We cannot claim to have a ready-made agenda to achieve these goals. Our hope is to stimulate conservative thought about how to reach them. But it seems clear that the tax code as currently structured is an obstacle to them.

The bipartisan tax deal enacted this winter temporarily cuts the payroll tax for employees. To assist job growth during the recovery, there should also be a temporary reduction in the employer side of the tax. Companies would then have a way of reducing labor costs per worker without cutting wages.

Reducing tax rates and eliminating tax breaks, as Republican candidates are increasingly proposing, would help the government raise whatever revenue is considered appropriate while doing less damage to the economy. Reform is especially needed in the corporate tax code, as members of both parties are coming to appreciate. Both our statutory and our effective marginal rates are higher than those of other developed countries, and the difference is starting to hurt.

To moderate the rise in health-care costs, the existing tax break for employer-provided health insurance should be altered so that its value stays the same regardless of the price of the insurance policy selected. Cheaper policies should yield savings for the insured. As Yuval Levin and Ramesh Ponnuru have argued, people who do not work for companies that offer health insurance should be able to use the credit to purchase insurance for themselves.

Middle-class parents pay too large a share of the tax burden because the tax code fails to recognize that the expenses involved in raising children are, in part, contributions to the future health of entitlement programs. Tax reform should remedy this defect of the code as well.

Doubtless there are other policies that could be changed to promote a widely shared prosperity. A substantial reduction in illegal immigration should relieve the wage pressure on the low end of the labor market, and a reform that increased the skill level of legal immigrants should promote growth. Monetary policy could provide better macroeconomic stability were the Federal Reserve to be guided by a clear and sound rule, preferably encoded in statute.

But again, the goals are more important than the precise means used to achieve them. Conservatives should offer policies that help the middle class thrive for its own sake. We are also unlikely to achieve lasting spending restraint until we do.

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