Last night’s Republican debate in Simi Valley was largely focused on Donald Trump, Carly Fiorina’s saber-rattling, and on various inside-the-party quarrels. But candidates also introduced and discussed a handful of economic ideas, from a flat tax to a consumption tax to the virtue of the rich and the supposed fragility of social security.
Cornell economist Robert H. Frank is one of the field’s most lucid and insightful commentators. He’s written, over the years, on economic arms races, conspicuous consumption, and the damage inequality exerts on the middle class. He’s co-author of the essential “The Winner-Take-All Society” and, more recently, “The Darwin Economy: Liberty, Competition, and the Common Good.”
We spoke to Frank during his visit to New York City. The interview has been lightly edited for clarity.
How do economic ideas seem to be working out in the Republican presidential primary? Did we hear good ideas last night or was it a lot of wishful thinking.
There were a couple of good ideas. I think Trump and Jeb Bush have been willing to go after the carried-interest loophole [a giveaway to hedge-fund managers], which Chuck Schumer, ironically supports. It’s no mystery why.
Schumer supports it because he gets financial support from Wall Street, I imagine.
Now, the other economic commentary the candidates issued last night was more of the same kind of nonsense since the supply siders took over the ideological wing of Republicanism 34 years ago — tax cuts for the rich.
Jeb Bush’s plan does have that one feature, the carried interest loophole elimination. He’s got a big tax cut, but 53 percent of it, according to a pretty reliable scorer, goes to the top 1 percent of income earners. At a time when all the income growth is going to the top 1 percent, that’s not really an obvious step in the right direction.
So Jeb’s plan, for the most part, is a return to Republican orthodoxy that goes back to the Reagan era.
The only contestant who’s challenging that orthodoxy is Trump. He’s said, all countries have progressive tax systems, the rich need to pay more… He can say this, I’m guessing, because he’s not dependent on the donor class for his campaign contribution; he’s funding his own campaign, and not spending all that much, at that. That liberates him to take that position.
And the awkward thing for the other candidates is that they do need contributions from the donor class, so they’re forced to hew to the orthodoxy – tax cuts for the wealthy. And polling data shows that the Republican rank and file doesn’t favor that position. That’s all they’re heard from their candidates for 30 years, because until Trump, no one’s said, No, we should be taxing the rich more. When someone says that, it ends up polling pretty favorably among the Republican rank and file.
On this issue – which hit hedge-fund managers and some of the financial elite very hard – is it fair to say that Trump is to the left of the mainstream of Democratic politicians?
He’s to the left of Schumer. But Schumer’s not representative of the Democrats generally; he’s more dependent on the Manhattan hedge-fund class.
It’s hard to tell if he’s coming or going, but Jeb Bush represents the Republican establishment.
His standing’s much diminished from what I see.
He excited some people when he said he would double economic growth to 4 percent -- is that possible, by him or anyone else?
Nothing he proposes would have any effect on [growth] at all except maybe to diminish it. It’s a complete fiction that the economy grows more rapidly when we cut taxes on the rich. Reagan cut taxes on the rich, the economy did not grow – contrary to popular belief -- nearly as fast in the Reagan years as it did in the Clinton years, when he raised taxes on the rich. That doesn’t prove causation, necessarily, but there’s plenty of evidence that shows that cutting taxes on the rich doesn’t improve growth at all.
The most radical plan last night came, without much detail, came from Rand Paul, who said he would tear up the tax code and lay down a flat tax. How does that tend to work? Who wins and who loses with that kind of very austere tax plan?
That idea has been floated every election for the last four of five – it’s not a new or daring idea. It’s basically a terrible idea. Having the tax rate be the same for everybody is a massive win for the hedge-fund operators. It’s a big loss for people in the middle and the bottom of income distribution.
Is it the kind of thing that would gut the federal government? I don’t know where we would get funding for Social Security, military, Medicare – all the other stuff government does.
Does it sound like it would generate enough revenue for all of that? A 10 percent flat tax would not. We already have more than a 10 percent payroll tax – if he’s gonna eliminate that and replace it with a flat tax on all earnings, that’s not going to generate nearly enough revenue.
I think his flat tax is 14.5 percent – does that do it?
Twenty percent wouldn’t be enough, if you eliminated all other taxes.
Mike Huckabee talked about a consumption tax. This is an idea that some people on the liberal left like, though [conservative economist] Milton Friedman also advocated it. Is Huckabee onto something?
I’ve been advocating a consumption tax for 30 years. It’s not a flat tax, which is what most Republicans have advocated, but a progressive tax. You pay taxes on the difference between your income and your annual savings. That difference, between your income and your savings, is what you spent during the year, and there are deductions and you pay taxes on that.
And yes, indeed, Milton Friedman. When I wrote an article in the late ‘90s saying we should adopt a tax like that, he wrote me a letter and send me a copy of his own article from 1943 where he advocated for the same tax – a progressive consumption tax. That has some support among conservatives – many of them would prefer they have a flat tax, they’ll never get a flat tax because it’s so regressive. Many liberals would support it. That’s something could do and should do.
We also heard, last night, Chris Christie saying that social security would be insolvent in seven or eight years. This is also something we’ve heard before. Is it something we should take seriously?
Sure. We need more revenue in general, less because of social security and more because of retirement healthcare costs. We should be taxing carbon, we should be taxing congestion, we should taxing consumption. There are a lot of good ways to get revenue: Even if we didn’t need more revenue, we should be taxing carbon and congestion.
Is this to help social security, or other programs?
Well, we have big deficits. Not just social security. It’s not good to borrow money – it’s better to pay your bills.
You’re the co-author [with Philip J. Cook] of “The Winner-Take-All Society.” How is that going – specifically income distribution in the U.S. economy – now that we are a few years into the recovery?
That book is 20 years old: If you grab a copy of it, you’ll be surprised that it wasn’t written yesterday. It’s as fresh and applicable as it was then – maybe even more so. I can’t say that about every book I’ve written. But that one has held up unusually well. The kinds of forces we described there are in full-bore now and aren’t about to abate.