Tax Reform Proposals Worry the Republicans I Know

My Republican conspecifics are discontented. Granted, they are mostly not religious right wingnuts, just old school Rockefellerl Republicans for the most part, but I find their recent concerns interesting.

My conspecifics are abuzz about the recommendations of the tax commission Bush ordered. They are primarily freaked out about the idea of capping the mortgage interest deduction and the idea of taxing employee health benefits, but they also question the notion of moving to a consumption-based system of taxation. Here in the Northeast, even the most modest home requires you to take out a mortgage over $300K. My conspecifics recognize that the impact of a lower mortgage interest deduction would fall on the coasts and urban areas and would not have much impact on the “Red States” or Red areas in “Blue States”. This idea looks like a way to screw the Blue Staters even more, and my conspecifics, despite being Republicans, already resent the fact that their tax dollars go to subsidize the slack jawed yokels in the Red States.

The taxation of health benefits makes no sense at all to my conspecifics. This really screws the working class more than it screws them, but they have a sense that taxing health benefits is inconsistent with longstanding federal policy to promote employer provided health insurance coverage. They reason that taxing health benefits lowers their value and would ultimately mean that employers would have to increase other forms of compensation to take this into account. Although the benefits would still be deductible by the employer, the compensation package as a whole is what many employees consider in accepting or staying in a job. Moreover, as executives (my workplace is crawling with mad scientists with only a handful of hunchbacks), they are concerned about being explicit with workers about the cost of their health benefits. Also, here in the Northeast, even highly compensated folks like my conspecifics can barely make ends meet, what with high costs of living and having to put offspring through college. Taxing their benefits would not be painless.

There is a sense that they, who do not regard themselves as rich even though they fall in the top 5% in household income, are being asked to fund tax cuts for people wealthier than themselves and to fund neo-con adventurism. I am surprised that they express little resentment for welfare recipients, something they used to rail about on occasion. I am not sure what has changed their mindset in this regard, but I suspect from the rants of my co-workers that it is the transparent corruption of the current regime and the shameless enrichment of cronies at the expense of the public treasury. Also, most of my conspecifics were born into working class families and have some sympathy for the plight of working people despite having entered the professional and managerial ranks.

This leads them to question the fairness of taxing consumption and taxing wages more than “unearned” income. Sales taxes take a proportionately bigger bite out of poorer people’s income and fall more on working class and lower class families than on families with the ability to save and invest. My informants have the suspicion that they are going to get screwed rather than benefit from the new tax scheme and that adding a federal sales tax will just mean that we will have sales and an income tax forever. The promised phase out of the income tax will never happen. The really poor will get a big exemption, and the really rich will hardly feel the sales tax (especially if yachts and luxury cars are exempted), and my conspecifics reckon that they will be the ones to pick up the slack.

Given the resistance of my Republican informants to the proposals, I wonder if they are non-starters. And what part of the “base” would the proposals appeal to?