Feb 15 2017
Thank you very much. It’s always a treat to be back at The Heritage Foundation. And to spend time with the scholars, thinkers, and doers here who have dedicated their lives and talents to the cause of human freedom… and have made this institution the beating heart of conservatism in the nation’s capital.
Or, as President Trump calls you, “The ones with the bell ties.”
We meet this morning at an anxious time for the Republican Party. Some of you might joke that every day is an anxious time for the Republican Party. But it’s different now, after the wild 2016 campaign. Washington Republicans today find themselves at a strange moment in history: enjoying overwhelming political power… yet beset by strategic confusion.
Normally, this is where a conservative like me might ding party leaders for their lack of courage or vision. But in fairness, after 2016, Republican leaders have good reason to be confused. Their problem is not that they lack vision. They have a vision and it was roundly rejected by voters in both parties in last year’s presidential campaign. And it must be said, that rejection applied to many parts of the Republican policy status quo that conservatives have always supported.
Donald Trump did not run for president on his celebrity and personality, though they certainly helped. He ran for president directly attacking Washington Republicans in terms harsher than many Tea Partiers ever used.
He trashed President Bush’s invasion of Iraq. He trashed the conceit of “comprehensive immigration reform.” He trashed free trade deals that he argued surrendered American jobs and sovereignty to enrich global elites. He trashed Republican orthodoxy on issues once thought beyond debate.
Donald Trump’s tabloid and reality-TV persona may be an artifact of America’s glib celebrity culture. But his presidency represents a substantive indictment of Washington’s political and policymaking consensus, very much including the consensus within the G.O.P. And it’s a criticism I’ve made myself!
Seven years ago, I first ran for the Senate as an anti-establishment challenger against an incumbent of my own party. Four years ago, I first came to the Heritage Foundation and urged conservatives to reconnect with the working families and struggling communities our party had too long ignored. And I spent the bulk of my first term in the Senate advocating for policy reforms to help and empower the “Forgotten Americans” that Washington’s broken status quo was leaving behind.
President Trump’s peculiar brand of populist, nationalist politics is not exactly what I had in mind. But nor must his election be the existential threat to conservatism, republicanism, and constitutionalism that many of his critics on the Right fear.
It certainly represents a challenge. But it is up to us to decide whether that challenge really is a threat or an opportunity. Anti-establishment conservatives, moderate and establishment Republicans, and the new populists President Trump has brought into our coalition now must find a way to work together to govern.
Conservatives may not support everything this coalition does. And when we don’t, we should say so. But we are a part of it now. And within it, I believe conservatives can thrive – if we do what we do best.
Now, the chief political weakness of conservatism is its difficulty realizing when societal problems can and should be addressed through public policy. Conservatives’ view of human nature and history tells us that in this life, there will always be problems, and that attempts to use government to solve them often only make things worse.
This actually makes us good at finding solutions. At our best, conservatives craft successful reforms by empowering citizens and communities to experiment with bottom-up, trial-and-error problem-solving. That’s what markets and civil society do, and why we trust them. At our worst, though, we look indifferent to suffering and injustice because we may not see problems that require action.
Today, however, President Trump has already identified the problems that Americans want us to solve. Economic dislocation and insecurity. Inequality of opportunity. Political marginalization. Social isolation. And the cruel repugnance of a well-connected elite insulated from all of the above openly contemptuous of their disconnected countrymen who are not.
These problems are why Donald Trump ran for president and why he won.
Government did not create these problems. They were mostly caused by larger forces beyond the realm of public policy – things like globalization, technology, and changing social and moral attitudes. But what government has failed to do is see that to tens of millions of Americans, these forces have not been welcomed as exciting innovations of Progress. They have been endured as attacks on their lives and livelihoods.
President Trump was elected to help those Americans. And conservatives – especially conservatives who had misgivings about Candidate Trump – have a duty now to help him see how and where our principles can serve his mandate.
While the Left rages and the Washington Establishment scratches its head, we as conservatives can make a case for a unifying, principled-and-populist agenda:
- that puts the federal government back on the side of those Forgotten Americans;
- that restores the bonds of trust, civility, and solidarity on which our national happiness depends;
- and that reforms policy to put American workers first again – in the world, in Washington, and in their own home towns.
Let’s start with the world, and the challenge of American workers in a global economy.
Capitalism, broadly defined, works by aligning the interests of people who might otherwise be adversaries: buyers and sellers, lenders and borrowers, etc. In particular (and in over-simplified terms), capitalism brings together proverbial “rich people” with money to invest and “not-rich people” who have labor to sell. They form cooperative, profitable partnerships that help each other, their families, their countries, and the world. It’s a win-win.
Globalization merely extends capitalism beyond national borders. This opens up new opportunities, but it also puts a new twist on those rich/not-rich partnerships. Financial centers like New York are still funding business ventures – more than ever, in fact. It’s just that today, a lot of investments that used to flow to places like Michigan or Arkansas now flow to places like India and China.
You see the twist. Pre-global capitalism mostly brought together “rich” and “non-rich” people from the same country. Today, though, global capitalism increasingly brings together rich people from rich countries and not-rich people from not-rich countries. This has made both better off than ever before. But who gets left out of that bargain? The “not-rich” workers in rich countries. In particular, the American middle class.
You don’t have to believe in conspiracy theories – or ignore other, larger factors like automation – to see how globalization all by itself can leave America’s workers behind. The natural forces of global capitalism – especially those billions of people in poor countries desperate to work their way out of poverty - tend to expand investment opportunities for affluent elites while narrowing work opportunities for non-elites in places like the United States.
The temptation – both on the Right and Left – is to try to resist those natural forces. But public policy cannot pick a fight with human nature and hope to win. The Wright Brothers did not fight the laws of gravity and aerodynamics to fly – they used them. In the same way, whenever we can, policymakers should embrace human nature and harness it to society’s ends. The way to put Americans First is not to fight against the global economy, but to put it to work for American workers.
A simple but powerful two-step federal tax reform would go a long way toward accomplishing this goal.
First, we should eliminate the federal corporate tax altogether. And then we should raise the rates on investment income – dividends and capital gains – to treat it like ordinary income.
This would accomplish three things.
First, it would liberate the workers’ share of the corporate tax. Economists differ on the precise ratio, but the consensus is that lost wages make up between one-quarter and one-half – or sometimes more - of corporate tax revenue. Whatever the proportion, we know that eliminating workers’ share of that tax would redirect billions of dollars from the IRS into workers’ paychecks, in every industry across the country.
Second, it would level the playing field between American workers and American investors. In a pre-global, national economy, it made sense for the federal government to tax investment income at special low rates, on the logical assumption that dividends and capital gains would be reinvested somewhere in the United States. But in a global economy, where American investors’ best returns might be found on the other side of the world, that logic no longer holds. Globalization has been disproportionately beneficial to American investors compared to American workers. The tax code should not unfairly compound that inequity.
And third, and perhaps most importantly, this new tax framework would actually tilt the playing field in the global economy in favor of the United States. Rather than compete against foreign tax havens, the United States would become the world’s tax haven. For foreign investors, this tax reform would be an offer they couldn’t refuse: zero tax on profits produced by American-based companies and jobs.
And even for American investors, this framework would offer a better deal than they could get anywhere else. Today, the United States’ 35 percent corporate tax rate, 20 percent rate on capital gains and dividends, and the 3.8 percent Medicare surtax add up to a 50 percent real top federal tax rate on investment income. After eliminating the corporate tax, we could raise tax rates on capital gains and dividends all the way up to the current top labor income rate of 39.6 percent, and investors could still come out ahead – so long as they invest in the United States.
Wealthy Americans would still be free to send their capital abroad. They would just have to start paying the same tax rates all other Americans pay. No more would they receive preferential incentives to create jobs in other countries.
The specific rates, offsets, and other details can be worked out later – even, I think, in a bipartisan fashion. It’s the structure of the policy that really matters here. Under this pro-growth, pro-worker framework, trillions of dollars of foreign and domestic investment could flood the American economy. And with workers’ share of the corporate tax liberated by the zero rate, a greater portion of all this new investment and growth would be channeled straight into workers’ paychecks.
Suddenly, the United States would become the best place to do business – almost any kind of business – anywhere in the world. Overnight, the fastest and easiest way for global elites to make money would be to create productive, sustainable, middle-class jobs here in the United States.
This reform would serve President Trump’s trade agenda, too.
The zero corporate rate would turn the “bad trade deals” President Trump has decried on their heads. It would bring more of the global economy here rather than sending more of the American economy abroad. Meanwhile, transferring workers’ share of the corporate tax to investors would mean that the resulting economic growth would disproportionately be realized as new jobs and higher take-home pay.
Economic growth would reach Main Street, not just Wall Street and K Street.
Rather than withdrawing from global trade, ideally we should be looking for ways to benefit from more of it. Under this framework, free trade would no longer be the mixed blessing it has sometimes been for American workers. It would deliver economic protection without the protectionism.
And unlike riskier strategies like border adjustment and tariffs, this pro-growth, pro-worker reform would work for all Americans, as consumers, as workers… and as empowered citizens. And President Trump could inaugurate this win-win for American workers by negotiating a brand new trade agreement with our brave friends in the post-Brexit United Kingdom.
Just as we reform our tax and trade policies to put American workers first, our broken immigration system calls out for the same. Immigration provides real and tangible benefits both to the immigrants who come here and to those of us who were born here. But that’s only half of the story. Like any policy, America’s immigration status quo has trade-offs that policymakers have ignored for too long.
Harvard economist George Borjas estimates that the net increase in total wealth from immigration for those born in the United States is about $50 billion per year. Unfortunately, not only is that $50 billion not distributed evenly, but Borjas also estimates that roughly $500 billion per year is transferred from immigration’s losers to immigration’s winners – thanks to our government’s current immigration policies.
Not surprisingly, it’s the same working families and communities being left behind by globalization that are being squeezed by competition from low-skilled immigration. Reform is long overdue.
There is no silver bullet solution to this problem. No one “comprehensive plan” will balance everyone out. But there are some small things we can do on the margins to begin to level the playing field for the Americans who have been on the losing end of current trade-offs.
The president has begun work on a border wall and other enforcement measures to help reduce illegal immigration. My colleague Sen. Tom Cotton has suggested limiting legal immigration to nuclear and not extended families. That would help. Reorienting our entire immigration system around economic need, reducing low-skilled inflows and recruiting more high-skilled immigrants to help create start-up businesses and new jobs, would help too.
Coupled with pro-worker tax reform, pro-worker immigration reform would further raise wages and open new opportunities for struggling Americans who have been ignored for too long.
If the first part of a new conservatism for the Forgotten Man is this agenda to put Americans first in the world, the next parts must put Americans first in Washington and in their home towns. In coming months, I will be working on additional projects and policies to accomplish those tasks.
Part of the reason working Americans have been left behind is that they have been cut out of the governing of their own country. Too many decisions are being made in Washington, D.C., and too often by unelected bureaucrats who unaccountably impose their values on communities and people they have never met.
Reasserting federalism is more than a constitutional principle. As we look around our increasingly divided national community, policymakers must do whatever we can to lower the temperature of our politics. Centralizing more power in Washington, as presidents of both parties have done for too long, and justifying it with self-serving platitudes about “compassion,” “who we are” or “the right side of history” obviously hasn’t worked.
The only thing that will work is embracing the principle of subsidiarity – and sending non-national decisions out into our diverse society, where different communities can experiment with different ideas about how to meet their own unique challenges, according to their unique priorities.
If Washington lets Vermonters run Vermont and Utahns run Utah and New Yorkers run New York, all of the above will be happier for it… except maybe the Washington bureaucrats, but that’s a feature, not a bug!
The way to empower the Forgotten Americans is to empower the local communities where they can be in charge. This will allow more Americans to live according to their own values, and rescue all Americans from the unnecessary traumas of an imperial president from the other party.
Finally, after divesting Washington of policies better managed at the state and local level, conservatives should work to re-examine and reform what’s left. Specifically, we should make sure remaining federal policies serve the interests of working Americans as opposed to the cronyist elitism we see today. Social Security and Medicare aren’t going anywhere, so let’s make sure they work best for working families.
The federal government’s role in national issues like telecommunications, higher education, and the management of federal lands should also be reevaluated to ensure policy is opening doors for the less fortunate, rather than locking them.
The goal should be federal policies that empower citizens in their states and home towns, markets, and civil society to cooperate and compromise, to work together, eye-to-eye… rather than having the two parties locked in a national, winner-take-all total war over every single issue.
Last year, the American people put Washington on notice. They elevated not only Donald Trump, but Bernie Sanders and Ted Cruz ahead of more establishment presidential candidates. The message from left and right was clear: the status quo in Washington (and around the country) is not working.
That status quo - defined by ever-greater economic globalization and political centralization – is exacerbating the isolation and atomization of the American people.
We cannot fix our broken status quo, from the right or left, by giving more power to the same government that has failed at so much for so long. Our new president made this very point in his inaugural address:
“[T]oday we are not merely transferring power from one administration to another, or from one party to another -- but we are transferring power from Washington, D.C. and giving it back to you, the American People.”
President Trump - with a new Congress, eager to be led - has an unprecedented opportunity to fulfil this mandate. And our conservative principles of constitutionalism and localism – mixed with a healthy dose of the president’s intuitive American nationalism – are perfectly suited to the task and the moment.
Together, we can forge a new conservatism for the Forgotten Families of our republic, meet the challenge the American people have put before us, and – as the saying goes - make America greater than ever.