The Wall Street Journal

  • JANUARY 14, 2012

‘Supply-Sider’ for the Working Man

Mitt Romney’s conservative rival Rick Santorum wants to grow the economy with tax breaks for manufacturing—and babies.


Manchester, N.H.

‘I’m someone who believes that making things creates wealth,” says Rick Santorum. It is primary day in New Hampshire, and the former Pennsylvania senator and current presidential candidate is describing his plan to slash corporate tax rates. To encourage companies to make things, he would completely eliminate the federal income tax on manufacturers. For all other businesses, the rate would be cut in half, to 17.5% from 35%.

Mr. Santorum also believes that making babies creates wealth. It’s very difficult to grow an economy with a shrinking population, he says, pointing to the “demographic winter in Europe” as a cause of that region’s troubles. To help avoid that fate in the U.S., he wants to triple the per-child tax credit and also cut individual tax rates.

In a still-crowded field of non-Romneys trying to compete for the Republican nomination, Mr. Santorum could emerge in the Jan. 21 South Carolina primary as the man who can bring together the old Reagan coalition. A champion of cultural conservatives with a blue-collar background, he is also making the case for deep cuts in federal spending. His credibility on this last issue derives from the political price he paid for being an early promoter of entitlement reform.

But as we drive around southern New Hampshire, he is still focused on making his final pitch in the Granite State. Though a career politician, he seems refreshingly unwilling to pander.

Outside a polling place in Bedford, a young mother expresses interest in early childhood programs. Mr. Santorum responds that Head Start has not delivered the promised results.

At Mastricola Elementary School in Merrimack, a wise voter suggests that Mr. Santorum should push even harder for growth with a flatter tax system that applies equally to everyone. Mr. Santorum is cheerful but gives no indication he’ll take the advice.

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Nor does he give ground in our discussion. I ask if his corporate tax plan opens him up to criticism that he and President Obama are both favoring particular sectors of the economy, with Mr. Santorum picking manufacturing while Mr. Obama anoints green energy. “Oh, green energy is not a sector, I mean, come on. It’s like a half-dozen companies,” says Mr. Santorum.

Does this mean the Obama policy would be more legitimate if the president were favoring a larger group of Solyndras?

“He’s talking about handing out tax-free grants and loans,” says Mr. Santorum, who adds that his own plan “is a conservative approach. It’s supply-side. It’s cutting rates. Why are we cutting the corporate rate to 17.5% and making it simple? . . . Because we think it’s what’s necessary to grow the economy. . . . So if what’s necessary to grow the economy in one sector of the economy is different from another, then why should we have the same tax rate?” He argues that manufacturing has been hit particularly hard by the costs of regulation and litigation.

To avoid a lobbying festival, Mr. Santorum says, the existing IRS definition of manufacturing, which includes companies that make and process goods, will remain in place.

“No, we’re not going to have a free-for-all over who is a manufacturer. It’s pretty clear if you’re making products you’re making products and if you’re processing products like if you’re an oil refiner, you’re a processor. . . . You’re making things, as opposed to a lawyer who is not a manufacturer.” And while only a small percentage of Americans still work in manufacturing, Mr. Santorum says that such businesses have a powerful “multiplier effect” as they support various other enterprises.

On the personal tax side, rewarding child-rearing is consistent with the pro-life views of Mr. Santorum, who has seven children. But the case he makes seems to echo the analysis of some Wall Street economists, who view population growth as a critical advantage the United States will enjoy over China and the euro zone.

Mr. Santorum argues that the cost of Europe’s massive welfare states made it too expensive for young people to have families. He notes that with plummeting birth rates, many European countries have resorted to “baby bonuses” to try to reverse the tide, but the demographic picture remains bleak, while the costs of entitlement programs have exploded.

“Who are benefits promised to, overwhelmingly? Well, they’re promised to older people. And if you have a society like Europe that is upside down where there are a lot more older people than younger people, you have economic calamity,” he says. Asked if giving generous per-child credits will result in an even larger number of households exempt from the income tax and therefore amenable to more spending, he says his plan will drive growth and that, in turn, will bring more people on to the tax rolls. Elimination of deductions might also keep some people paying income taxes. He aims to balance overall taxes and spending at 18% of GDP. Spending has soared to 24% in the Obama era.

But as the New Hampshire voter suggested, wouldn’t it be better for growth to just have a flat tax with a large household exemption? Mr. Santorum believes that such a tax, depending on its structure, might either fail to collect the 18% or leave too big a burden on families with modest incomes.

To prevent an economic calamity on this side of the Atlantic, he also proposes to cut $5 trillion from federal spending in five years. He calls the plan advanced by House Budget Chairman Paul Ryan “a good starting point,” but he notes that few of the spending cuts happen in the first decade of the plan. Also, Mr. Santorum says that he wants to reform Social Security, not just Medicare and Medicaid. “I like the Ryan plan on the Medicare side. I don’t like waiting 10 years. I don’t like waiting 10 years on anything. I’ve also talked about Social Security.”

Has he ever, going back at least to the 1990s. Says Mr. Santorum, “Some guy just walked up to me at the [New Hampshire campaign] headquarters with a picture of me standing at the presidential podium in Kansas City, Missouri, in April 1998 when I went with Bill Clinton to talk about Social Security reform. I was the Republican lead on the issue,” he recounts, a dangerous proposition for someone representing Pennsylvania, a state with one of the oldest populations in the country. “And I won re-election after that, I might add.”

But after winning that 2000 election—his second Senate victory and his fourth straight win in Democratic territory—Mr. Santorum aggressively backed President George W. Bush’s call for allowing younger workers to own personal accounts.

“The Bush thing was a big disaster for me,” says Mr. Santorum. Mr. Bush called for Social Security reform immediately after his 2004 election victory but then didn’t roll out a plan for several months.

“Bush made one of the dumbest errors as far as rolling out a policy,” says Mr. Santorum. At the time Mr. Bush called for reform, “he had no plan in place. He had no structure in place. He threw a bunch of chum in the water and then expected the sharks to sort of wait four months for him to go fishing. . . . And I was foolish enough to take the bait. I was out there in the water swimming with sharks with a bunch of blood around me. I got chewed up.” Mr. Santorum lost his 2006 re-election campaign by 17 points.

Does he still support personal accounts? “I don’t think we can do personal accounts right now. I’m still for personal accounts, but how do you do personal accounts in this environment? . . . We have a $1.2 trillion deficit and you want to go out and borrow a few hundred billion dollars more so we can finance personal accounts that aren’t going to end up reducing any kind of federal outlays for 30 years?”

Today he favors entitlement reforms that are phased in gradually and don’t affect current retirees. He suggests means-testing beneficiaries and raising the early-retirement age of 62 by one month each year. He has also learned from the Bush experience the importance of having a national discussion that builds consensus for reform.

Are there any other lessons he learned from his 2006 defeat? “Yeah, don’t talk about Social Security,” he says with a grin. “I have good ideas. I didn’t say I was wise. Look, I think the environment has changed dramatically. People know that we’re in financial straits right now and everybody has to do their part to step up. If you tell a 60-year-old, ‘You have to wait one month more so you can retire early’? Come on.”

Mr. Santorum has so far refused to join rivals Rick Perry and Newt Gingrich in attacking Mitt Romney’s business career at Bain Capital. These attacks on free markets may disqualify Messrs. Gingrich and Perry in the minds of many Republican voters. Since Mr. Santorum has already beaten both men in Iowa and New Hampshire, South Carolina gives him the opportunity to emerge as the principal conservative alternative to the Romney juggernaut, even as Ron Paul continues to hold his libertarian constituency and Mr. Huntsman attracts party moderates.

It’s also possible that the appalling attacks on Mr. Romney could hurt both him and his attackers. Republican voters may reconsider Mr. Romney’s claim to electability and conclude that this isn’t the year for a wealthy financier to run for president.

Still, Republicans who might wish to consider Mr. Santorum often express concern about the drubbing he took in 2006. Was it because Mr. Santorum, who authored the federal ban on partial-birth abortion and opposes gay marriage, was too conservative on social issues? “That’s the lovely narrative that everybody likes to write in the media. I was too hard-line on social issues in 2000, too. But that didn’t seem to bother me in 2000,” he says. The grandson of a coal miner who began his congressional career representing Pittsburgh’s “steel valley,” he had developed a history of building bipartisan majorities.

But 2006 “was a horrible election year” for Republicans in Pennsylvania, with the gubernatorial candidate losing by 21 points and a historic defeat in the state legislature. Beyond Mr. Bush’s unpopularity, says Mr. Santorum, “we had one congressman who had [choked] a girlfriend in Washington, D.C., and was on the ballot. We had another congressman two weeks before the election whose office was raided by the FBI. I can’t even make this up.” Plus, his opponent “completely undermined what my advantage is against a Barack Obama.” Bob Casey Jr., son of one of the most popular politicians in state history “was a pro-life, pro-gun Democrat. . . . I wasn’t going to run to the middle and try to be something I wasn’t in order to try to win the election.”

This year, with high unemployment and swing states still populated with a fair number of people who cling to guns and religion, Mr. Santorum may present a tougher match-up for President Obama than would Mr. Romney.

Many Americans are turned off by overt religiosity in political candidates. But Mr. Santorum’s history of wearing his Catholicism on his sleeve may not be disqualifying given the timing and the opponent. The economy will likely be the overriding issue of this election. And given Mr. Obama’s history with Jeremiah Wright, the president is ill-equipped to attack his opponent’s beliefs.

Republicans may decide that Mr. Santorum’s blue-collar biography and a tax plan built for the industrial heartland can reach Reagan Democrats in a way that the founder of Bain Capital cannot. These voters are up for grabs, as they have never warmed to Barack Obama.

“That’s my selling point. Who’s going to win Missouri, Ohio, Indiana, Pennsylvania, Michigan, Wisconsin and Iowa?” says Mr. Santorum. “I feel very, very confident we’d give Barack Obama problems in those states.”

Mr. Freeman is assistant editor of the Journal editorial page


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