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As Washington debates how to increase America’s indebtedness, American families watch their wealth shrink: A lesson for lawmakers

Ryan Streeter
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Pew has a new survey out today on the wealth gap in America, showing that the wealth gap between whites and minorities is at an all-time high. The report will be used by many enthusiasts of class warfare and racial politics to drum up a range of bad ideas and policy recommendations.

But we shouldn’t let that take our eyes off the reality behind its findings: between 2005 and 2009, American families – and especially minorities – saw their overall net worth take a big hit.

Because assets among minorities have been concentrated mostly in their homes, America is at a fragile point in our socioeconomic history: cynicism about the American Dream is real and even understandable. We have pushed homeownership as the main fulfillment of the Dream for a long time, and now it is the main reason why many Americans - and especially minorities - are feeling poorer these days.

Some key findings from the report:

Net worth is down dramatically. Between 2005 and 2009, whites saw their net worth drop 16%, while Hispanics experienced a 66% drop and blacks 53%. Let those minority figures sink in. They're huge. And they're owing to the fact that a disproportionate amount of net worth among minorities was wrapped up in homes, while whites have  diversified their wealth more.

Zero or negative net worth has spiked. More than one third (35%) of black families and 31% of Hispanic families have zero or negative net worth, compared to 29% and 23%, respectively, in 2005. Among whites the figure rose from 11% to 15%. Even if people have jobs and are paying their bills, the loss of a sense of forward progress for many Americans has a dangerous dampening effect on aspiration and a willingness to try hard to get ahead.

Business equity is way down. Buried in the report, and ignored in the headlines altogether, is that – as a percentage – business equity has dropped the most for all racial groups. More than housing, more than anything. The housing bubble recession has also taken a huge toll on enterprises, especially those of minorities – business equity dropped by 54% for Hispanic and 57% for black households.

While everyone’s consumed with the debt negotiations, there are three very important points that lawmakers should take away from this report:

The politics of debt is hitting home for ordinary Americans like never before. Most Americans never knew when Washington rose the debt ceiling in the past. Now they do, because Washington's profligacy stands in stark contrast to the reality of their lives. Across America, people feel poorer – because they are. They are shedding debt as Washington takes more on. They are most interested in how the actions of lawmakers in Washington affect their prospects. Lawmakers will not earn their praise for reaching a "deal" but for finding a solution that increases opportunity.

We clearly need a renaissance of the American Dream. The Dream will likely be revived through a new emphasis on entrepreneurship and business creation, not homeownership. This was Walter Russell Mead’s point here. It makes sense because (1) we need to increase the rate that we create new companies in America if we want job growth, and (2) the downward pressure on home values will continue for some time, even as prices start to slowly climb (meaning, home values won’t rise as rapidly as we once expected them to do). New businesses and growing investments among Main Street Americans is the way forward.

Washington needs to focus on upward mobility. Whether people have had an opportunity to improve the quality of their lives has always mattered more than how unequal America is. That is, so long as people have a shot at upward mobility, they don’t care as much if the rich are richer than they are. The question for Washington is what drives upward mobility. Right now, we are living through an undemocratic recovery – that is, one that is benefitting the affluent while everyone else struggles. Republicans need to understand that what Americans want isn’t just jobs, though they want those, too: they want opportunity, a way up, a realistic shot at improving their lives over time.

Upward mobility and the American Dream are in peril at a time when Washington wants to raise the debt limit to a number larger than our entire economy. That's not only terribly ironic. It's also the main conclusion lawmakers should draw from the report as they explain to their constituents what exactly it is that they're trying to do in Washington these days.

Beneath the jobs numbers and questionable economic recovery, there lies a more disquieting question: Is America still a place where it's worth it to work hard to get ahead?

Ryan Streeter
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Is it still the best place on earth for people of all stripes to realize their deepest hopes and aspirations? We never used to pause before answering this question. But trends these days are forcing us to stop and think a little before we answer now.

While the daily commentary on the nature of our post-2008 economic malaise is practically endless, we spend very little time talking about how the nature of America's opportunity environment has changed - even prior to the recession. 

As we look to recover from our current economic stagnation, this deeper question about whether America is still the land of opportunity should be keeping us up at night.

The trends are disquieting.

Fewer people of working age are working. Our employment to population ratio, a measure of how many people of working age are actually working, has grown worse than Europe’s for the first time in history. The ratio was worsening before the recession, and Europe passed us by before the dark days of 2008.

Life below the top 20% is stagnant. America continues to be the aspiration nation for the upper middle class. But what about everyone else? Wages have basically been flat over the past decade. It’s getting harder to say to working and middle class Americans, “Hey, if you work hard, you’ll get ahead.” Getting ahead hasn’t been the experience of a vast number of Americans for quite awhile now. The long-term effects of stagnation are hard to predict, but a loss of aspiration is surely one of them - which is bad for America.

We aren’t creating new businesses like we used to. New and young businesses have driven job creation in America for years. But the rate at which we create new companies has been flat for 20 years, suggesting we’ve peaked in our ability to produce high-growth enterprises. Without increasing our rate of new firm formation, it's unlikely we'll see the kind of job growth our economy needs long term.

The working class is basically self-destructing before our eyes. By just about every measure of socioeconomic health, the lower middle class is falling apart. From higher divorce rates to out-of-wedlock childbearing to detachment from the workforce, the working class - which resembled the upper middle class in just about every measure except income a generation ago - now looks more like what is sometimes unflatteringly called the welfare class. Our image of working class America as the cauldron in which the ingredients of upward mobility are brewed is now outdated.

Young people are taking longer to grow up. This is especially true of men, as Kay Hymowitz has recently detailed in her book, Manning Up. A significant share of men in their twenties live in a strange zone between boyhood and manhood in which they live at home, don’t marry, and bounce around vocationally. And in general, people in their twenties delay marriage more than ever. The net effect is the slow death of the social norm that says people should graduate from high school or college and get about the business of making their own way.

Young people’s poor economic prospects are sowing the seeds of a potential lost generation. While unemployment among college-educated people is low, people in their twenties with college degrees have nevertheless been hit hard by our economically troubled times. Young workers are losing ground economically. They face lower wages, a tattered housing market, and a future colored by interest payments on public debt. We are likely witnessing the rise of a generation that will be worse off than their parents, which has a dampening effect on aspiration and how one views the future.

The American Dream as we’ve defined it for over a generation has been shattered. The American Dream has evolved over time. For everyone alive today, the Dream has essentially been wrapped up in the idea of homeownership, as Walter Russell Mead has recently recounted. The burst of the housing bubble changed all that. The crisis of default and depressed home values that followed has, for the first time most people can remember, refuted the notion that homeownership is the best long-term strategy for building equity. Uncertainty about how to build assets long-term is now pervasive in homes across the country, which dampens people's hopes about the future.

We are losing our affection for the transcendent. Many on the left, and some on the right, won’t think this matters. But by just about every measure, religiosity correlates with all the habits and virtues necessary for upward mobility. For this reason, it’s disturbing not only that we are growing more secular as a nation, but as Charles Murray has pointed out, secularism is growing more substantially among lower-income Americans.

Taken together, these trends cast a long shadow over our idea that America is the world's premier aspiration nation. America can't just be the land of opportunity for the top 20%. If hope and aspiration are largely a thing of the past for younger and poorer Americans, then it won't be long before our nation's greatest days are also a thing of the past.

Reversing these trends is perhaps the greatest calling of today's policymakers and cultural leaders. Let's hope enough of them heed the call before it's too late.

What Republicans need to understand about jobs: economic growth depends on new enterprises, not existing corporations

Ryan Streeter
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Any jobs agenda, such as congressional Republicans have formulated (pdf), should put small, new firms at the center of its priorities. That’s the conclusion of a very smart Weekly Standard piece this week by David Smick. He writes:

[O]ver in the dark corners, new small businesses are starting up. These firms create the vast majority of net new jobs. Picture a highly unpredictable, boiling cauldron of winners and losers engaged in fierce competition. That’s the definition of a vibrant, job-producing economy. Some of these new firms produce society-transforming technologies. But most provide everyday services, sometimes with specialized niche products ignored by corporate America. Most of these highly risky startups fail, but others spring to life to take their place. The net result is an expansion of the job base.

Smick says that the GOP should (1) focus more on the individual than corporate tax code, which would benefit the entrepreneurs who create new firms, and (2) “be wary of becoming the political face of corporate America. The same goes for those Republicans who lately have been defending Wall Street’s incompetent, too-big-to-fail bankers.”

He’s right to imply that there's nothing inherently conservative about defending large corporations and banks. And he's right to point out that the importance of new firm formation is overlooked by policymakers, given how important new firms are to net job creation in our economy.

We can make Smick’s point even more clearly by looking at Kauffman Foundation data on the issue:

• Firms between three and five years old make up less than one percent of all companies in America, and yet they create 10 percent of new jobs.
• The top performing one percent of all firms create 40 percent of new jobs, “averaging 88 jobs each annually, with most ending up with 20 to 249 employees.”

Corporate America, at the end of the day, does very little to create new net jobs. They expand, and they cut, expand, and cut, and so on. New, not just small, firms are essential to the American job creation story.

There are some immediate conclusions that spring to mind when one becomes aware of the importance of new firms:

1. Keep the focus on individual tax rates not just about small businesses (which Republicans talk a lot about), but new businesses. Many of these entrepreneurs, as small businesses, do not pay the corporate tax. They file as individuals. These are not “the rich.” They are the job creators, the innovators, the providers of services that large corporations overlook. Most of them are indeed small businesses, but their dynamism comes from being new. Their newness should be the focus on policymaking.
2. We need health care reform, not just repeal. Repealing ObamaCare just returns us to the status quo. That status quo was marked by skyrocketing (“job-killing,” to use a favorite Republican expression) health care costs. Replacing the bad health care law with one that creates a universal credit, allows purchasing across state lines, and the like, will go a long way to lift the burden that small businesses feel on the health care front.
3. Cost assessments and congressional review of regulations are a good idea. The House Republicans’ plan includes this provision. It can be tightened and strengthened. Any new regulation with an estimated cost impact over a specified level should be submitted to congressional review and be shot down.

In the end, when we talk about “economic growth,” whether we know it or not, we are actually talking about creating more new firms. So it would be wise for our public debate and policy options to reflect that reality.

Republicans need to have a growth agenda beyond spending cuts

Ryan Streeter

As we continue the heated public debate over spending cuts, three true statements should be in the heads of every congressional Republican:

• Cutting discretionary spending and reforming entitlements are essential to deficit reduction 
• Deficit reduction is essential to creating economic growth
• But deficit reduction is not sufficient in itself as an economic growth strategy

There's a case to be made that lawmakers cannot keep multiple big issues at play simultaneously in a constructive way, and so congressional Republicans should focus mainly on keeping up the drumbeat on spending cuts.

But that's a different issue than conflating spending cuts with economic growth.

Now, to be fair, no Republicans have conflated the two issues directly or plainly. But in the absence of a positive vision of jobs growth, that's the risk they take. Paul Ryan has recently written that spending cuts and fiscal discipline are essential to future prosperity and economic growth.

This is right, and it heeds to the first two bullets above. But it risks running afoul of the third without something else to say about the matter of growth and jobs. Uncertainty in the economy is indeed related to Washington's spending binge of late, but it's not the only thing creating timidity in our economy. There are a host of other tax and regulatory issues, for instance, that create  uncertainty as much or more than Washington's fiscal situation.

Our new poll of grassroots conservatives shows that voters also sense this distinction. A plurality of respondents think well of House Republicans' efforts on spending reductions, but 69% say they do not think Republicans in Washington are doing a good job explaining how they plan to spur economic growth and job creation.

A few more talking points right now among Republicans about the conditions of job growth - especially as it flows from tax and regulatory reform - would be wise. Voters are listening and paying attention, and I think congressional leaders would find they would be rewarded if they get clearer on this issue.

Why today's Census report is an even bigger deal for the GOP than the mid-terms

Ryan Streeter

The Census data released today is widely reported as good news for the Republican party - and it is. But in a way slightly different than most are reporting.

Most news reports of the Census’s reapportionment of congressional seats have focused on how the American population is moving south and west to red states, which is good for the GOP. Texas gained four seats, Florida gained two, and Arizona, Georgia, Nevada, South Carolina, Utah and Washington all gained one.  Meanwhile, New York and Ohio each lost two seats, and Illinois, Iowa, Louisiana, Massachusetts, Michigan, Missouri, New Jersey, and Pennsylvania all lost one.

This is indeed a good news story for the GOP politically, but it’s an even more important policy story for the GOP. People generally do not move from one state to another because they prefer the politics of the party in power, and climate alone can’t explain the western and southern trajectory of U.S. migration. California, after all, has been losing population (though it was spared a lost seat, a possibility many had been predicting). Movement is not random and without explanation, however.

People and businesses head to places that have a good quality of life, reasonable cost of living, the prospect of upward mobility, and the best chance of growing new enterprises. The states that have gained the most seats are the ones that, in general, have the best policy environments: favorable taxes, lower costs of doing business, good infrastructure, and less expensive public sectors.

On November 2, American voted overwhelmingly for Washington to spend less and get its house in order. But for the past ten years, Americans have been voting with their feet for a broader policy portfolio of lower taxes, good government, and pro-enterprise rules and regulations that Republicans typically advocate. One can argue that the 2010 mid-terms delivered a fairly straightforward, singular message about spending. The Census report, on the other hand, reflects a collective vote by Americans for pro-growth policies that are good for families and businesses.

In the Enterprising States report produced this year by the Praxis Strategy Group for the U.S. Chamber of Commerce, Florida, Nevada, Utah, Arizona, Georgia, and Washington are all in the report’s list of the top ten infrastructure performers. The only state to lose a congressional seat in the top ten is Illinois. In fact, in the reports multiple ranking sets by growth, taxation, innovation, and so on, the states that lost congressional seats today are largely absent.

Or when we look at Beacon Hill’s 2010 State Competitiveness Index, Florida and Nevada top the rankings for sound government and fiscal policy, while New Jersey ranks last, New York 46th, and Pennsylvania 44th. In fact, the states gaining seats trend toward the top 20 states in this ranking, and the states losing seats trend toward the bottom 20 states.

By almost any index or metric, the results are clear. Americans do not like living in places with high taxes, dysfunctional and expensive public sectors, and low or negative growth. Being in or close to exciting urban centers or wine regions is not enough of a magnet to keep families and businesses in the neighborhood.  People are looking for “opportunity environments” more than anything the left thinks of as appealing. 

The Democratic party has virtually no narrative to help it reverse this trend. Its green left wing and its public sector patrons make it almost impossible for the party to talk coherently and persuasively about growth and opportunity. Republicans, on the other hand, have virtually no internal conflict with promoting the lessons contained in the 2010 Census.

Republicans have a history of looking to the states as “laboratories of democracy” to inform federal policymaking. No time is better than now for Republicans to build upon what the states are teaching us about tax policy, regulatory policy, human capital formation, and infrastructure investment. If the GOP succeeds on this front, it could be another good ten years.

David Brooks, Kevin Hassett, Gary Andres, Nick Schulz and Ross Douthat on what the GOP can do to improve the prospects of the middle class

Ryan Streeter

Demographer and futurist Joel Kotkin observed Monday on ConservativeHome that the “huge, mainly suburban working, middle and upper-middle class” are politically up for grabs. He says:

These include managers, store owners, lone entrepreneurs and skilled laborers in the private sector. Neither party focuses on presenting a positive vision for growth and improvement of quality of life for this segment. So people in this group shift back and forth, making havoc of the best laid plans of both parties.

This is the shifting middle of America. And many families in this group are facing grave economic stagnation compounded by social breakdown. I have talked about this problem here and here.  

The GOP does not yet have a coherent framework – rhetorically, politically, or in terms of policy – to restore middle class confidence. Or, in Kotkin’s terms, to present the middle class with a positive vision for growth.

Today, to get the discussion going, we feature a mini-symposium of some bright minds on the right, providing an answer in just a few lines apiece to the question: what should the GOP do to improve the prospects of the middle class?

The mini-symposium participants are: David Brooks, Kevin Hassett, Gary Andres, Nick Schulz, and Ross Douthat.

David Brooks

Columnist, New York Times

The most fundamental threat to the middle class is the stagnation of human capital. Graduation rates from college have been flat for a generation. Single parenthood is skyrocketing, among all races and ethnic groups. Social trust is breaking down.

There's no one solution. Building human capital is like nutrition. You have to do it in different ways every day. It starts with better early childhood education, the single most effective investment. It shouldn't be state run, but where applicable it should be state funded. Then there are mentorship programs to support students through college. Job training programs should be turned into voucher programs. Perhaps no job training programs work in the end, but the workers themselves should at least be in control. There should also be social entrepreneurship funds - locally-controlled pots of money to support secular and faith-based groups. 

Basically, people have to grow up in dense communities, with a thousand influences pointing them in the right direction, from conception onward.

Kevin Hassett

Director of Economic Studies, American Enterprise Institute

The most important thing that the GOP can do to help the middle class is cut the corporate tax rate. When Japan cuts its rate next year, we will stand out as the highest corporate tax country on earth. That encourages firms to locate plants in lower tax countries, and depresses jobs here at home. The impact of tax minimization by multinationals is so dramatic that there is a clear Laffer curve in the international corporate tax data. Higher tax rates depress revenue because it is so easy to transfer price profits into low tax jurisdictions.

This tax game has a terrible impact on blue collar workers.  My colleague Aparna Mathur and I studied many years of data, and found a very strong link between corporate tax rates and wages.  Low tax countries attract capital, and that capital increases the productivity of workers and their take home pay.

Earth to Washington: If you want to see higher job creation, cut what is soon to be the highest tax on earth.

Gary Andres

The Weekly Standard & Dutko Worldwide

Middle class Americans suffer due to a federal government that can’t take its hands off the wheel of power.  When Washington gets too big and demanding, it squelches creativity, burdens entrepreneurs – and disadvantages workers.

Education and training programs are a great example.  Republicans could champion the middle class by providing governors more flexibility to use Pell grants for shorter-term vocational programs.  Current rules are too rigid, aimed more at providing educational institutions money, not middle class job skills.

Giving states the authority to experiment with health insurance alternatives is another example. Obamacare’s one size fits all approach will ultimately hurt the middle class.

Finally, promoting pro-growth policies like lower taxes on business and more free trade agreements will create an environment where middle class job creation can flourish.

The best way to help the middle class is through a smaller, more flexible federal government – one that creates an environment for opportunity, not a Washington-based scheme to get there.

Nick Schulz

Editor-in-Chief, The American

The middle class needs two things -- rising economic growth and stable families. There is little policy can do to help the weakness of the family in the short run. How about growth? New firm formation is indispensible to economic growth. To get more of it, the GOP should make young firms exempt from payroll taxes.

We featured an interview last month with New York Times columnist Ross Douthat, in which he addressed the issue of how to strengthen the middle class. With his permission, we summarize his remarks here:

First, a reform of the health care reform that moves us in a more market-friendly direction than Obamacare, but also creates some kind of a tax credit/deduction for people who don't get insurance
through their employer and can't afford it on the individual market. This is something the Republican leadership hasn't been willing to embrace, but it's a necessity to make the health care system fair and equitable.

Second, a comprehensive tax reform along the lines that Ramesh Ponnuru and Robert Stein have proposed, which lowers rates and curbs deductions (something most conservatives favor) but also makes the tax code more family friendly, through a larger child tax credit (something some conservatives are still skeptical of).

Finally, a broad move toward greater competition in the public education system, both in the context of K-12 education, and in public colleges and universities as well. Here's there's increasingly a bipartisan consensus on the value of choice and competition: What's needed is the political will to fight a long war of attrition to reform the public-school bureaucracy. 

Three unpopular ways the GOP can help the economy

Ryan Streeter

Political observers are debating whether Obama is “capitulating” or “triangulating” by expressing a willingness to go along with the Republicans on tax cuts. However one views the issue, one thing is clear: the Democrats’ attempt to own the “middle class” and paint Republicans as millionaires' friends hasn’t turned the public against extending the Bush tax cuts for all income brackets. As Rasmussen points out, Americans are fairly divided over extending tax cuts for all income brackets, but the trends throughout the fall have been in the Republicans’ favor.

The lesson for Republicans right now is this: the American public is more ready than ever to accept unpopular means of jumpstarting the economy. Enough people have gotten the message that extending the tax cuts for everyone - including the rich that everyone loves to loathe - helps growth. And this has helped the GOP gain the upper hand.

Republicans should capitalize on this current momentum and go into the new year making three complementary, though equally unpopular, arguments:

First, should the GOP succeed in getting a full, temporary extension of the tax cuts, they shouldn’t let the issue die. In the new year, they should take the lead in the public debate about more fundamentally reforming the tax code, continuing to argue that lower taxes for everyone is connected to economic growth, period.

The Congressional Budget Office’s (CBO) September analysis of the Bush tax cuts shows that a partial permanent extension (meaning for everyone except high earners) impedes growth more than a full extension, especially with a strong labor response. Under no CBO scenario does a partial extension have a more positive effect on the economy than extending the cuts for everyone.

The conclusion the GOP should draw from this is clear: the evidence is on their side that economic growth and lower taxes for everyone go together. We may not like letting the rich get richer, but if it means that you and I have a better chance at getting richer, then it’s the best policy.

Second, the GOP should build upon the deficit commission’s recommendations and push for lowering America’s corporate tax rate from 35 to 28 percent (if not lower) for the simple reason that it will create the growth that creates jobs. The OECD, no right-wing group, has determined that high corporate tax rates are the single-most harmful inhibitor of economic growth.

Republicans should also embrace former CBO director Douglas Holtz-Eakin’s proposal to couple the deficit commission’s proposal with an end to the U.S. practice of taxing companies worldwide, a draconian ritual that none of our economic competitors practice.  Again, arguing that “big business” should enjoy a lower tax rate and less international tax exposure will not win any friends in the media. But it will create jobs, both directly and by growing our international markets.

Third, Republicans should focus on making it more likely that investors will stop sitting on capital and invest it – which again will create new ventures and jobs. They could promote a recent proposal by economists Luigi Zingales and Oliver Hart in City Journal in which the Federal Reserve announces the minimum conditions that must be met to avoid being classified as “systemically important.” Those who cannot meet the conditions will face additional regulation. While a more fundamental reform of the new Dodd-Frank bill is still a good objective, Republicans should also do what they can to refine it now so that capital gets moving. The Zingales-Hart proposal is a good step in that direction. Freeing up bankers to invest and make more money is not popular. But, like the first two proposals, it stands a better chance of helping middle class families than anything the Democrats are proposing. The Republicans can make this point over and over.

Republicans have proved that unpopular arguments can succeed. They shouldn't shy away from continuing to make them - for the sake of the economy and, yes, the middle class.

How can the GOP help the proverbial “capital on the sidelines” onto the playing field? Four ideas to support the innovation-driven entrepreneurs who will drive our growth

Ryan Streeter

The IBD’s editors draw our attention to an important point as we look at what needs doing in the lame duck Congress and the new 112^th.

 They write:

Today’s leaders, as with those in every one of the 26 market cycles since 1900, are the entrepreneur-driven innovators whose shares have been brought public in recent years…They are companies that are outmoding those that led the market as recently as 10 years ago, let alone those that set the pace in the last century.

They go on to write that Cisco, Intel, Microsoft and GE are all off their peaks and resting more on their laurels than current performance. Same for Wal-Mart and Home Depot.

I leave it to market analysts to dispute IBD’s implicit claims about valuation. The point worth focusing on is the blunt reality of America’s dynamism when it comes to innovation and new firms.  

Growth and innovating firms go hand-in-hand in our country, and in a political marketplace riddled with anxiety about growth and jobs, the GOP should absorb the underlying conclusions in IBD’s editorial.

First, the GOP cannot leave anything on the table when it comes to extending the Bush tax cuts.  Higher taxes on income and capital gains will do nothing to move capital off the sidelines to support the innovators.

Second, shame the Obama administration and Democrats in Congress publicly who will not act to provide predictability in financial markets. The fact that the Fed and other regulators have been delegated so much authority in Dodd-Frank has capital sitting around waiting to know what it can and cannot do.  Don't spend time publicly defending the financial services class and their value to society. They will survive. Focus on enterprise and say, over and over, how capital freeze hurts them.

Third, use the Bowles-Simpson proposals to make the point, over and again, that our 35 percent corporate income tax needs to be dropped. We are trailing the developed world miserably in an outdated corporate tax code. In the end, those who get hurt are the people who should be hired by innovating firms but are not – because the firms aren’t growing as fast as they could.

Fourth, make healthcare reform about enterprise. Obamacare has really only made things worse for business. Firms want to be competitive by offering healthcare plans to their employees.  Pushing people out onto the exchanges isn’t good for HR policy. But Obamacare has only made insurance more expensive, which curbs business competitiveness in a major way. This needs to be a major theme going forward.

The silent war over the middle class

Ryan Streeter

Middle class families are the backbone of the US economy - and as a result they form the territory over which today's ideological war in America is being fought.

No one knows exactly what the middle class is. But if we adopt the general idea that the middle class is what you have when you don't consider the top 20% and bottom 20% of income earners, we can say that families earning between about $30,000 and $100,000 are in the middle class. Now, that's a very wide swath, and amounts in that range do or don't go a long way depending on where you live.

But this is the center of America. It's where you get if you've climbed your way up out of poverty, and it's often where your children start when they go on to become more successful than you. And it's where the war over the future of America is being fought. 

Jim Capretta of the Ethics and Public Policy Center and e21 made an important point in a policy forum in Washington yesterday that often gets lost in policy debates but needs to find its way into the open public air. Obamacare can be regarded as the left's attempt to expand social welfare broadly and deeply into the middle class.

The law provides premium discounts on the government health insurance exchanges to families between 130%-400% of poverty. 111 million people fall into this category, or more than a third of the country (and that's a third of the country over and above lower income families who already have Medicaid coverage. And while the Congressional Budget Office estimates that "only" 20 million Americans will come into the program, there's really no way to say that it won't ultimately be 2 or 3 times that.

It is nearly impossible to make the case that the healthcare bill offers anything to economic growth. If anything, as Capretta notes, it will have deleterious effects on the economy, discourage employers from hiring poorer workers, and ultimately consume more income in tax to provide the healthcare coverage for the very people it's taxing. It's a viciously circular policy, certain to further downgrade our economic prospects.

Voters on November 2 were energized in part by Obamacare, but I would venture to guess very few of them see the bill in the terms I'm using here. As I've written before, GOP policy going forward needs to be evaluated through the lens of how it affects families and small businesses. Median household income in America is just north of $50,000. A family of four at that level can expect its new "coverage" to squeeze disposable income out of their pockets at a faster rate than it is able to experience income gains. Families have seen premiums spike since the bill came online and its provisions haven't all fully taken effect.

Republicans often like to avoid using the term "middle class" because it has "class" in it and thus smacks of class warfare. But they need to get over this if only because most Americans think of themselves as middle class (even if they're really too rich to qualify). More importantly, there really is a silent war going on over their future - maybe not in the Lou Dobbs sense, but it's certainly a battle in the Arthur Brooks sense.

I propose that we draw up a list of the policy reforms that would be most likely to free up disposable income in the middle class, encourage saving, and encourage enterprise. The newly energized GOP should make this its core mission.

For starters, as Capretta says, sending a strong message of repeal in this next Congress is needed, even if it can't be done. It will set the stage for full repeal later. And at the same time, we need to offer the full spectrum of policy reforms from savings accounts to pooling to purchasing across state lines to replacing preferential tax treatment with across the board credits for insurance purchase. And so on.

And then along with making the Bush tax rates permanent for everyone, we as Republicans need to get more creative on how we look at sacred cows we have not been willing to touch. For starters in that category, I recommend an honest discussion about the regressive nature of the home mortgage deduction. Harvard's Ed Glaeser makes a good case here for why tea partiers and other conservatives should favor its repeal. 

That's just a start. We will be focusing on these issues on The Republican in the weeks to come leading up the beginning of the 112th Congress. 

Pro-family and pro-small enterprise is what we should be about, not only pro-tax cuts, if we are to grow out of our troubles

Ryan Streeter

Gallup's latest poll on job creation summarizes many a complicated policy debate with a few straightforward statistics.

These data show that small business, the real driver of job creation in the United States, is still struggling in ways that should give all us grave concern - and policymakers a kick in the seat to tackle the issue broadly, not just with one or two signature policies such as tax cut extensions (as important and critical as those are). 

Here are the 3 main points anyone who cares about job creation in America needs to see:

1. Jobs ARE being created, but mainly in large companies. 42% of businesses with more than 1,000 employees report they are hiring, and 36% with between 100 and 1,000 say they are hiring. 28% of those with between 10 and 100 employees are hiring.
2. By comparison, only 9% of companies with fewer than 10 employees are hiring. They are the only category of businesses that reports trimming more jobs than they are adding.
3. The federal government is also adding more employees than it is letting go, by large margins. They match big business, in fact, with 42% of federal employees reporting that their particular agency is hiring more people than it is letting go.

Now, these survey results are based on a poll of employees. Not all employees will actually know their organization's human resources numbers, though we should expect that employees of small businesses would have the best grasp of their companies' situation. In any case the Gallup results are a clear gauge of a stark reality. Small businesses show that the growth element in our economy is weak and troubled. What is the American economy without its chief engine of growth?

The health of the American economy and society should chiefly be measured by two fundamental units - the family and the small business. 

All of our policy decisions should be assessed by their affect on the health and disposable income of average households and the viability of small enterprises. In my view, this is what differentiates all of us who call ourselves "capitalists" or "proponents of free markets." Policy should bolster the small, energetic units of American growth rather than big banks or big corporations. Every talking head on the right in Washington voices support for small businesses, but not all of them mean it.

Therefore, as Nick Schulz points out on today's Platform, without a broader growth agenda than tax cuts and fiscal stability, the GOP will not gain the political backing it needs to pursue a broader agenda. Which is why it needs to start talking about that agenda now.

A starting point would be tax policy that passes "the Douthat test," as I argued here last week. And then, we need to start laying out the specific elements of an alternative to Obamacare, since many of the best ideas out there - changing the tax treatment of health insurance premiums, allowing purchases across state lines, savings accounts - are favorable to small businesses and families.  

Instead of framing these issues along with tax cuts and deficit reduction as separate issues, they should all be framed together as a pro-family, pro-small enterprise agenda.