It is the upper middle class that nominee Joe Biden sought to appease when he pledged not to levy taxes on anyone who earns less than $ 400,000 a year. Upper-middle-class Americans – those with household incomes in the top 20 percent – may not have incomes this high, but they are comfortably in the six-figure range. They also have solid retirement accounts, children who take four years of college for granted, good health care, and valuable homes in good neighborhoods.
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But all of these things don’t just come from their own hard work and brilliance (although they really like to think so). Every step of the way, the government is there to help. Your wealth – perhaps your wealth – is tainted with generous tax breaks and restrictive zoning laws. This is welfare for the wealthy.
Do you remember how Bill Clinton promised to “end welfare as we know it”? He kept that promise in his 1996 legislation, which is known to give the poor a “hand up, no hand out”. But that philosophy died in Congress this year with the introduction of an unconditional cash transfer to families with children that Democrats want to make permanent as part of the pandemic stimulus.
Good: Giving handouts to those most in need is both economically rational and morally correct. But giving handouts to the wealthy is economically wasteful and morally offensive.
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Start with the tax code. Dozens of special federal tax breaks mostly benefit the wealthy. Appendix A is the deduction for state and local taxes or SALT. President Donald Trump capped this regressive benefit at $ 10,000 per year. Now some Democrats, especially those representing upscale Liberal districts, are struggling to get the entire trigger back. However, if the cap is lifted and it accumulates more than $ 70 billion a year, 96 percent of the benefit goes to households in the top fifth of the income distribution.
Indeed, that reform would be much more distorted for the rich than the Republican tax law, which the Democrats rightly denounced as regressive. Unsurprisingly, the Biden administration thinks the idea is cool. The results of this struggle will show how far the Democrats have now become a party of the liberal upper-middle class.
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Or how about 529 tax-privileged education savings accounts? This is the product of George W. Bush’s tax cuts and offers real financial benefits only to the wealthy. However, we would not expect any movement here soon. When President Barack Obama tried to reform it, he was forced into a U-turn by liberal members of his own party who felt the heat of their vocal voters.
As Paul Waldman wrote for The Post at the time, the proposal “targeted what is possibly the most dangerous constituency for anger: the upper middle class. That’s because they’re rich enough to be influential and numerous enough to be a major electoral bloc. “In recent years, the influence of the upper middle class on the party seems to have increased.
Next, you should consider restrictive local zoning laws, such as: B. Single-family house mandates or minimum lot sizes that make living more expensive. These are good for the wealthy. You can afford large mortgages (with a little help from the mortgage interest deduction) and higher property taxes (with a little help from the SALT deduction). Beautiful, is not it?
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Unfortunately, the same zoning laws also praise less affluent residents and consolidate inequality in the neighborhood: the class division between families with children increased by 14 percent between 2000 and 2010. They harmed the economy by limiting the number of workers with access to high productivity areas: restrictive zoning laws have been estimated to cut economic growth by more than a third from 1964 to 2009.
There are some moves on the part of the Biden administration to reverse at least some upper-middle-class welfare benefits – but the White House should better prepare for a fight. Wealthy Americans see these benefits as critical to maintaining their lifestyle. You could even call it welfare addiction. Upper-middle-class Americans are also gaining political muscle – and seem ready to use it.