Some conservatives see Santorum's tax plan as 'welfare in disguise'

Republican voters taking a deeper look at Rick Santorum will discover a tax plan that dovetails with the former senator’s blue-collar, socially conservative persona, but diverges from GOP orthodoxy.

Santorum’s plan has drawn fire from free-market conservative activists, who say the candidate is dabbling in “welfare in disguise” and trying to use the tax system to pick winners and losers.

Yet by proposing aid through the tax code to families and domestic manufacturing, it could prove to be a political winner for Santorum in New Hampshire as the Pennsylvania Republican tries to distinguish himself from other presidential contenders.

“He probably has the most politically effective and powerful economic plan, one that is completely synced with his image and campaign theme,” James Pethokoukis of the conservative American Enterprise Institute told The Hill.

He said Santorum has been dealing more directly with kitchen table issues than some of his rivals in the GOP race.

“His plan is a cruise missile aimed at the concerns of the beleaguered middle class,” Pethokoukis said.

Santorum – who used relentless retail politicking to score a virtual first place tie in the Iowa caucuses – has been making the case that strengthening families will help the American economy.

“People say: ‘Well, you know all we need to care about is cutting taxes and cutting government and everything will be fine,’” Santorum said at a Wednesday event in New Hampshire. “If people don't live good, decent moral laws, government's going to get bigger. That's why I say families and faith is an important part of the foundation of economic limited government.”

To that end, Santorum, who strongly opposes same-sex marriage and is fervently against abortion rights, has proposed tripling the deduction taxpayers get for each dependent child and scrapping provisions that cause some married couples to pay more in taxes than they would if they had stayed single.

The former senator’s tax plan would also keep an array of tax preferences that help families – like deductions for mortgage interest, charitable giving and retirement savings – while also lowering the top individual rate to 28 percent.

On the business side, Santorum would try to give a spark to the manufacturing sector by zeroing out their tax rate, while cutting the rate for other corporations in half, to 17.5 percent.

Santorum has pressed those ideas while trying to become the conservative alternative to Mitt Romney, the presumed front-runner for the GOP nomination.

While some conservative analysts have derided Romney’s economic and tax plan as timid, right-leaning economists have also found plenty not to like in Santorum’s plan.

For instance, Will McBride of the right-leaning Tax Foundation, who gave Santorum’s tax plan a D+ grade, said the manufacturing proposal “may be the worst idea of any of the Republican candidates.”

McBride argues that the proposal would encourage companies not thought of as manufacturers to try to be classified as such for tax purposes. And he said he was skeptical about Santorum’s argument that manufacturers create more jobs outside of their sector than other industries.

“That doesn’t make any sense. There’s no economic basis for that statement,” McBride told The Hill. “No other candidate has proposed such a grossly unfair system.”

Free market analysts also say that Santorum’s proposal to triple the deduction for children also would mean more people wouldn’t owe any income tax – at a time when many Republicans have made the argument that more taxpayers need to be paying. 

“The massive distortions introduced to favor manufacturing and the social engineering from radically higher exemptions are horrible tax policy,” Kevin Hassett, director of economic policy at AEI, wrote on Friday.

As Howard Gleckman of the non-partisan Urban-Brookings Tax Policy Center has noted, Santorum also would look to complement his tax plan by cutting $5 trillion in federal spending over five years – including freezing spending on Medicaid, food stamps and other social programs.

Pethokoukis noted that the Santorum plan – and the criticism it has received – underscore the differences between more populist conservatives and free market types.

“Santorum views families as being the core of society, while supply-siders would probably view the entrepreneur that way,” he said.

Not all conservative analysts are crying foul on the Santorum plan, either.

Ryan Ellis of Americans for Tax Reform said his group, founded by the anti-tax activist Grover Norquist, preferred the flat tax proposals from Rick Perry and Newt Gingrich.

But Ellis also said that, unlike other conservatives, he was not concerned that Santorum’s plan would mean far fewer people would owe income taxes.

Ellis added that the former senator’s proposals would also not be a net tax increase under ATR’s definition, and would also lower rates.

“If passed as is, the plan would be perfectly acceptable,” said Ellis, ATR’s director of tax policy. “Other campaigns have come out with stronger plans that do more.”

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