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It is better, they say, to have half a loaf than nothing at all. That’s the case with this week’s tax proposals from Congressional Democrats, who have watered down Joe Biden’s campaign plan. But the metaphor plays down the good fortune of American billionaires, who, in the worst case, would have to give up a few crumbs. For a moment it seemed that the Democratic Party would confront American inequality head on. It already happened. Barring a dramatic shift in partisan arithmetic, the super-rich seem to have bought several more years of respite.
Not everything can be attributed to “moderate” Democrats, like West Virginia’s Joe Manchin, whose 50th Senate vote gives him great influence over the content of Biden’s $ 3.5 billion bill. Some people surely want to reduce their size. It will also ensure that Biden’s proposal to raise the US corporate tax rate from 21% to 28% falls short. Nor were Biden’s plans to nearly double the US capital gains tax to the top 39.5 percent likely to outpace the party’s centrists. These are the realities of having a very small majority. The limits of a president’s power are never as exposed as when he wants money from Congress.
But the loudest trumpet in this retreat belongs to the major liberal parties from Democratic strongholds like New York and California. They hope to repeal the $ 10,000 annual limit on the state and local (Salt) tax deduction, which allows residents of high-tax states to offset what they pay locally with their federal income taxes. Almost all the beneficiaries of removing the limit would be wealthy. The cost to the taxpayer would amount to $ 91 billion a year, which would more than eliminate the income tax increases that the wealthy would have to pay under the Democratic plan. The richest 0.1 percent would get an average $ 145,000 tax cut. For the average 60% of households, it would be $ 27 a year.
This isn’t just bad economics – it’s hard to find a single left or right economist who thinks it would be a good idea. It is also a terrible policy. In 2017, Democrats found a popular echo by attacking the inequalities of Donald Trump’s $ 1.5 trillion tax cut. But repealing the salt tax cap would be far more regressive than Trump’s tax cut. Passing it would give Republicans an easy opportunity to paint Democrats as hypocrites who claim to be pro-poor while serving their rich donor base. Worse still, such a review wouldn’t be too bad. How often are Republican lines of attack based on facts today?
It doesn’t help that Democrats are presenting their Salt plans as “relief for the middle classes” and now as “relief for the pandemic.” It was the Republicans who substituted “tax cut” for “tax cut” to make it sound better. Democrats are literally picking it up. “When Democrats say this is a relief to the middle classes, what exactly is their definition of ‘middle’?” asks Richard Reeves, a fellow at Brookings and a scholar of American meritocracy. “Do the words no longer have meaning?” It was Trump who put the $ 10,000 cap on Salt, no doubt for partisan reasons, to punish wealthy liberals in Democratic states. He was already moving his address to Florida. Many wealthy New Yorkers followed suit in the pandemic. Removing that cap would not make Democrats oppose Trump. It would just make them pro-rich.
The bill as a whole would still offer a vast improvement to America’s safety net. The pandemic child tax credit would become permanent. Early childhood learning would be universal, aligning the US with the rest of the developed world. And if Manchin doesn’t purge his green elements, the bill would mark a big step toward Biden’s goals of reducing America’s net carbon emissions.
But it’s also important to emphasize what you wouldn’t do. By increasing the capital gains tax only slightly and choosing not to tax asset appreciation in the estate, you would leave America’s plutocratic reality in place. Billionaires’ share of wealth has risen from one-third to 19 percent of gross domestic product since the start of the pandemic. Now is the most mature opportunity in a long time to correct inequality in the style of America’s late Rome. The fact that Democrats are so shy says it all.