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Thanks, Obama: How a Divisive Presidency Invigorated the GOP

The President’s True Legacy: Scott Walker?

President Obama’s latest moves have focused on his legacy: the trade deal, the Iran agreement, and the new EPA rules are aimed to give the first black president a historic policy send-off. But the president’s true legacy isn’t these new policies, it’s a reinvigorated Republican Party across the nation.

In the past six years, Republicans haven’t just taken hold of state legislatures and governorships — they have enacted real changes and seen incredible results.

Scott Walker

(Image: Associated Press)

New conservative leaders are cutting taxes, cleaning up regulation, and cultivating a strong environment for business. For the first time in a long time, manufacturing jobs are coming back to the United States.

A few factors have propelled this new wave of electoral success, but by far the most powerful has been backlash to the tax increases imposed by President Obama and Democratic governors in recent years. Like the Tea Party movement before it, this revolution of governing finds its roots in the accession of the man who may be our most liberal president ever.

Tax Reform: Low Rates, New Ideas

After the 2008 election of a very liberal president, Democratic governors unleashed a new era of big government. In 2009, states piled on $29 billion in new taxes, the largest single-year state hike ever recorded. In states across America, the era of big government was decidedly not over — or so they thought.

The results of the 2006 and 2008 elections did not mean Americans suddenly wanted to pay more taxes, and elections since have again favored the party which is easier on taxpayers’ pocketbooks. As RealClearPolitics author David Byler pointed out, since 2009 GOP majorities have taken state houses, state senates, and governorships by storm. The Republican Party has not been this strong — on state, gubernatorial, and congressional levels — since 1928.

In some blue states, the anti-tax issue clearly propelled GOP governors to victory. Maryland Governor Martin O’Malley’s  two terms of tax hikes lost his Democrat Party the governorship in 2014. Larry Hogan, founder of the anti-tax group Change Maryland, won a historic election in the state that Gallup rated as America’s second-most Democratic. That year also saw Republican governors elected in Massachusetts (the most Democratic state) and Illinois (the ninth-most Democratic).

In 2010, following the emergence of the Tea Party, Republican governors across the country started cutting taxes. Michigan Governor Rick Snyder replaced the Michigan Business Tax with a flat corporate income tax. New Mexico Governor Susana Martinez cut corporate rates by 22 percent. Ohio’s John Kasich decreased rates for personal incomes and small businesses. North Dakota’s Jack Dalrymple cut corporate and personal taxes by $750 million between 2011 and 2013. New Jersey’s Chris Christie cut his state’s abnormally high business taxes by $600 million in 2011 and vetoed personal income tax increases.

These governors and others also simplified their overly complex tax codes. North Carolina’s Pat McCrory consolidated the income tax into a single rate and lowered business taxes, a net decrease of $700 million in 2013. Sam Brownback simplified Kansas’ three income tax tiers to two lower rates, cutting taxes by $800 million. Snyder and Martinez also eliminated loopholes and exemptions, making their tax codes more straightforward.

The tax-cutting spirit continued into 2014. Hogan has rolled back a new “storm-water remediation” fee, which cost Marylanders $9.5 billion under O’Malley’s two terms. Hogan also put through an income tax reduction for seniors.

Arkansas Governor Asa Hutchinson — the first GOP governor of that state to have a Republican legislature in over 100 years — decreased income taxes by $90 million, with most of the savings going to middle class workers making between $21,000 and $70,000 per year.

Consumption Taxes

Not only are conservative governors simplifying their tax codes, they’re also reinvigorating an old idea: shifting from income taxes to consumption taxes.

America’s Founding Fathers supported and enacted taxes not on income, but on consumption. Income taxes have two drawbacks: they penalize earning money rather than spending it, and they make it harder for taxpayers to realize and to control how much they are being taxed.

In the Federalist Papers, Alexander Hamilton argued:

It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess…. If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds.

Hamilton concluded:

This forms a complete barrier against any material oppression of the citizens.

In other words, consumption taxes do not discourage work, and they also force government to keep itself relatively small, something conservatives tend to like. They empower taxpayers, rather than making the  contribution of citizens to government something hidden and automatic.

A move away from taxing income and toward taxing spending instead also has other benefits. Taxing income heavily arguably discourages savings and investment, since the money you invest will be taxed twice — when you make it and when you gain it back with interest. A sales tax, however, leaves individuals with bigger paychecks and businesses with higher profits, as only when they choose to spend the money does it get taxed.

Kansas’ Brownback, Ohio’s Kasich, Maine’s LePage, and South Carolina’s Nikki Haley have shifted their states away from income taxes and toward consumption taxes. LePage even proposed extending the sales tax to products like personal services (including haircuts), repair and maintenance contracts, entertainment tickets, and professional services, but he tied these reforms to a cut in personal income taxes, especially for the poor.

Kasich declared his desire to “reduce Ohio’s reliance on the anti-growth income tax by transitioning toward a more consumption-based tax system.” Kasich would extend the sales tax to services like public relations, lobbying, and management consulting, while cutting income taxes on small firms and poorer households.

Regulatory Reform

Republican governors are also leading the charge to cut excessive regulations on the state level. Arkansas’ Hutchinson ordered all agencies to turn in their proposed regulations for review, while Arizona Governor Doug Ducey placed a moratorium on state executive branch regulations, ordering each agency to provide him a review of current rules.

Illinois Governor Bruce Rauner aims to jumpstart his state’s business competitiveness with a complete “Illinois Turnaround” plan. The state currently has the seventh-highest worker compensation costs and the ninth priciest unemployment insurance taxes in the nation. According to business leaders in a chief executive survey, it is the third-worst state in which to do business.

Bruce Rauner
(Image: Associated Press)

Rauner has prepared a package of reforms, targeting worker’s compensation costs, tort reform, giving workers the right to opt out of unions, and prohibiting unions employed heavily by government from contributing to political elections.

These reforms would mirror the work of Wisconsin Governor Scott Walker, whose 2011 budget-repair bill narrowed collective bargaining rights for Wisconsin government workers, saving the taxpayers a huge sum. Such reforms also allow for reforms on multiple levels, as the Wall Street Journal’s Holman Jenkins pointed out.

Mr. Walker’s revolution was driven by voters in towns and small cities who noticed that government workers had morphed into a privileged class — with the best pay, best benefits, longest vacations, and job security that made them basically unremovable.

Labor reform opens a whole host of potential areas of renewal, as shown by the work of both Democrats and Republicans. In the 1970s, Ted Kennedy fought the unions to promote airline deregulation. Kennedy later admitted that his greatest regret was allowing labor to block a health-insurance compromise with the Nixon administration in 1974.

In the 1990s, Democrat leaders like Bill Clinton, Dick Gephardt, and Tom Daschle supported private Social Security accounts, until the unions put their foot down. At Al Gore’s nominating convention in 2000, 20% of the delegates were union members, and they openly declared their primary goal: to keep entitlement reform off the Democrat platform.

Walker has done more than pare back the power of unions in Wisconsin, however. As he noted in this open letter to President Obama, Walker implemented a “lean government” initiative aimed at cutting away unnecessary regulations and making government more helpful to the people.

In its first year, the lean-government initiative eliminated 400 unneeded bureaucratic steps in state regulatory agencies, saved nearly 80,000 staff hours, reduced regulatory backlogs by an average of 54% and saved $1.6 million. Reforming the burdensome regulatory system acts as a tax cut, encouraging entrepreneurs and small business owners and putting money into the hands of consumers.

Economic Growth — Manufacturing Returns

Tax reform and regulatory reform can also spur economic growth. As Kasich pointed out, “when you go into a small business and you hassle them and impose rules that don’t make sense, you’re not hassling the business. You’re killing somebody’s job.” Conversely, when you cut those regulations, you enable jobs to come back.

One of the most encouraging signs of the past few years has been the return of manufacturing to American states — mostly to states with Republican governors.

Since 2010, the United States has added 660,000 new manufacturing jobs. Over 500,000 of those are in states with GOP governors. Michigan saw 102,000 new jobs, Texas 72,000, Indiana 63,000, and Wisconsin 34,000.

On the flip side, Democratic manufacturing strongholds saw little or no recovery. California added 8,000 new jobs, New York lost 9,000.

Former Texas Governor Rick Perry traveled to California, New York, Illinois, Connecticut, and Maryland to entice businesses to relocate. “When you grow tired of Maryland taxes squeezing every dime out of your business, think Texas,” Perry said in an ad.

GOP Governors Terry Branstad (Iowa), Gary Herbert (Utah), and Dennis Daugaard (South Dakota) also headed to California to woo firms. Walker and Florida Governor Rick Scott both stopped by Illinois to pilfer entrepreneurs.

Among characteristics which businesses find attractive enough to relocate is Right to Work, a legislative reform which allows workers to opt out of joining the local union. A 2012 survey by the trade publication Area Development found that 75 percent of manufacturing companies considered Right to Work an important factor in deciding location.

Every state with a Republican governor and legislature besides Ohio has also passed Right to Work. In the last three years, union strongholds Michigan and Wisconsin passed Right to Work, along with Indiana.

Taking It to the Next Level?

Republicans have achieved a great deal in recent years, but next year’s election poses an altogether more difficult challenge. If a GOP nominee can win in 2016, how can he or she translate these bold reforms to the national level?

We may finally be seeing a truly innovative Republican era, but is it really possible to get Right to Work passed in Washington or to begin the long transition from taxing income to taxing consumption? Or could a GOP presidency even reverse these great gains on the local level, shifting the political winds in the Democrats’ favor?

Only time, and the steely temperament of our star-studded crop of candidates, can tell.