Democrats’ fiscal policy mocks their progressive commitments

THE TAX President Joe Biden’s plans were once full of lofty promise. He and Democrats in Congress would reverse Don ald Trump’s tax cuts, make the rich pay more, and fully fund all kinds of desperately needed climate and social policy programs with the proceeds. The middle class would grow and the richest 1% would come out. As the messy drafting of Mr. Biden’s main spending bill, the Build Back Better Act, comes to an end after months of negotiations, it is clear that in tax matters the result is not at all. noble.

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The president has been unable to force his weak majorities in Congress to overturn Mr. Trump’s tax law and raise marginal rates on the highest capital gains, corporate profits, or individual incomes. And so his plan to raise incomes is a catch-all of unorthodox measures, including a new minimum tax on corporate income, an excise tax on share buybacks, and a new surtax on those whose incomes are greater than $ 10 million. The wisdom of these measures can be debated. What cannot is a last-minute addition to the bill that would spend hundreds of billions of dollars to subsidize the wealthiest residents of New York and California.

State and local tax (SALT) The deduction allows Americans to reduce their federal tax liability if they pay a lot of state and local income and property taxes. Prior to 2017, this provision was unlimited, allowing plutocrats in high-tax states to deduct all property taxes on their mansions and state income tax on their millions, at the expense of federal taxpayers around the world. Mr. Trump’s tax law capped the tax exemption at $ 10,000. Rather than welcome this as a step towards their goal of more redistribution, Democrats in high-tax states moaned that they had been targeted in a punitive manner. Just before the adoption of Build Back Better in the House of Representatives on November 19, they raised the cap to $ 80,000 per year.

The result is a tax fiasco. Over the next five years, the benefit will cost $ 275 billion. Exactly none of this will go to the poorest 60% of wage earners. Instead, 70% of the earnings will go to the top 5%. For a party that has come to power condemning Mr. Trump’s tax reform as regressive, the stain of hypocrisy will be difficult to erase.

If the policy is bad, the policy is worse. The central promise of Mr Biden’s program was to create a more muscular state that will be able to deal with long-term threats such as climate change, pandemics and social dysfunction. But what is supposed to be better reconstructed will count for nothing if it does not exist. In order to pay for this $ 275 billion giveaway, Democrats gave up some of Mr. Biden’s commitments, including free community college tuition, and planned for others to disappear in a few years. They bet that a future Congress will be ashamed to find the money to save them from the ax. This may turn out to be wishful thinking.

It is also insensitive. The increase in family allowances has dramatically reduced poverty among Americans most in need, but the program is due to expire after just one more year. If the Democrats withheld the hundreds of billions of SALT deduction, they could almost entirely finance a permanent family allowance scheme. They prefer to give each member of the richest 1% of earners an average tax cut of $ 15,000, five times the amount the benefit pays for each child.

The best hope for improving the bill comes from the Senate, where all Democrats must vote for it to pass. Mr. Biden is so desperate to see the bill become law that he won’t criticize it. Some, like Bernie Sanders, have offered a compromise limiting the greater SALT deduction for families earning less than $ 400,000 per year, which tells you how regressive the current bill is.

There is no way to change the SALT deduction to make it desirable. It should be completely scrapped. But because it won’t happen, the debate is whether it can be turned into something less bad. Considering the constant degradation of Build Back Better, optimism would be reckless.

This article appeared in the Leaders section of the print edition under the title “SALT in Wounds”


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