Trump Should Follow Nixon’s Lead
The similarities between Donald Trump and Richard Nixon are well known. From his “law and order” victory speech at the Republican National Convention to his populist strategy for converting working-class Democrats, Trump implicitly paid homage to the late president throughout his campaign. Yet there is much more that Trump and his team can learn from Nixon’s legacy — at least on tax and welfare reform.
Say what you will about Paul Ryan’s conservative reform agenda, dramatic cuts to the safety net are not what Trump ran on. Indeed, Trump differentiated himself from his primary rivals early in the game by pledging to protect Medicare and Social Security, stating that, under a Trump administration, “nobody is going to be dying in the streets.”
Nixon, too, attempted to balance worries about growing government dependency with the goal of ensuring a basic level of economic security for every American. The synthesis he came up with was the Family Assistance Plan (FAP), inspired by Milton Friedman’s “negative income tax” proposal. Friedman proposed replacing the welfare state with a simple cash transfer guaranteeing an income floor for families with children as well as the poor, on the condition that they accept work or training.
The plan cleared the House in 1970, but ultimately failed in the Senate, largely due to Democratic Senators who wanted it to be more generous. Instead, in 1975 Congress passed the Earned Income Tax Credit (EITC), a policy inspired by the FAP that subsidizes the wages of low-income workers. The EITC went on to be the most cost-effective, anti-poverty ,and pro-work policy in U.S. history.
Now that Republicans control the entire legislative branch, President-elect Trump has an unprecedented opportunity to revive the negative income tax as a key piece of comprehensive tax reform. A negative income tax that guarantees an adult a minimum income of $5,000 per year, phased-out with earnings at a rate of 30 percent, would require roughly $185 billion a year. While costly, Trump has already proposed one of the largest tax cuts in U.S. history — $6.2 trillion over 10 years. The negative income tax could be paid for simply by cutting taxes marginally less on the nation’s wealthiest, while shifting some of the relief to those without large tax liabilities.
Proponents of the negative income tax point to the cost-effectiveness of streamlined cash support over the current complex array of welfare bureaucracies. Less discussed, however, is the boost of dignity it gives to the recipient, who receives a simple tax refund instead of navigating a demoralizing benefits system. This sends the message to folks reeling from job losses and globalization that they can be trusted to manage their own lives better than technocrats in Washington.
The main impasse is implementation. Today’s IRS is stretched thin by a byzantine tax code and a paper-intensive administration. The resulting waste and fraud plaguing otherwise successful programs, such as the EITC, has been a constant source of frustration for poverty advocates. Yet comprehensive tax reform has a shot at pulling the IRS into the 21st century with electronic payment systems and technology for improving income verification. By creating the conditions for a negative income tax, the Trump administration could modernize both the tax code and the welfare state in one fell swoop.
The negative income tax is also good politics. It would help eliminate deep poverty, helping to win the support of crucial Senate Democrats. At the same time, it empowers Speaker Ryan’s “Better Way” proposals for the welfare state by allaying worries that reforms will cut too deep.
We may remember Nixon today for being mired in scandal, but we shouldn’t forget how he combined a bold domestic agenda with nimble political maneuvering. Coming out for a negative income tax would be an equally bold move for the President-elect, and it would lend credibility to his promise to defend the interests of all Americans.
Samuel Hammond is a poverty and welfare analyst at the libertarian Niskanen Center.