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Dems Want to Rob from the Rich—and Give to the Near-Rich

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Dems Want to Rob from the Rich—and Give to the Near-Rich

The Daily Beast October 26, 2020
EconomicsBudgetTax

From student loan forgiveness to health care, Democrats’ proposals will really benefit the upper middle class far more than the working class and poor.

The progressive movement talks incessantly about needing bold, revolutionary reforms to address poverty and inequality. Elizabeth Warren asks, “Who is our government going to work for? Is it going to just keep working for the rich and the powerful… or for everyone else?” Even before the recession, Bernie Sanders lamented the “national disgrace that 46.5 million Americans are living in poverty today.” Democratic presidential nominee Joe Biden asserts that “poverty… is the one thing that can bring this country down.”

But do progressive proposals really focus on redistributing from the wealthy to the poor? Distributional analyses show that many of their policies would mainly redistribute resources from the super-wealthy to the merely wealthy, upper-middle class, and professional class. They would redistribute from the top-earning 99th percentile to the 80th percentile.

This is a predictable result of a quiet political realignment. Much of the working class and middle portions of America have drifted to the GOP, while the far left increasingly consists of younger, educated, upwardly mobile professionals that primarily live in expensive cities and on the coasts. Democrats have also worked to make inroads with educated, professional suburbanites too.

A perfect example of progressive priorities is the aggressive push for student loan forgiveness. This is not exactly a leading contributor to crippling, multi-generational poverty. Most Americans still do not complete college degrees or accumulate college debt; those who do land overwhelmingly in the top-earning two income quintiles, with college-educated millennials earning a median salary of $56,605.

Most debt-frustrated journalists, pundits, and campaign staffers won’t tell you that two-thirds of millennials carry no student debt because they did not attend college or were able to avoid loans. Of those who did borrow, the typical $28,500 student loan for a four-year-degree graduate translates into a $200 monthly payment, or 4 percent of these individuals’ monthly earnings.

Nearly half of all student loan debt is held by individuals with graduate degrees—including doctors, attorneys, and MBA business executives—who borrowed as an investment in high future incomes that make the debt affordable. Meanwhile, loan forgiveness and other assistance programs are already available for those who truly cannot make their payments. Overall, data from the Urban Institute suggest that a $1.6 trillion universal student loan forgiveness program would provide $544 billion in benefits to the top-earning quartile, versus $192 billion to the bottom-earning quartile (many of whom will rise to higher quintiles over time).

The push for free public university tuition also primarily benefits higher-earning families. Pell grants, student loans, state aid to universities, and need-based institutional aid has made college accessible and affordable for the vast majority of low-income students who can earn admission. The Urban Institute reports that, among families earning less than $35,000 annually, financial aid already covers the entire cost of tuition for 81 percent of students at community colleges and 60 percent of students at public four-year colleges. These low-income students would receive only 8 percent of the benefits from a free public-school tuition program, while 38 percent of the benefits would go to students from families earning more than $120,000.

By the way, free public tuition would also devastate private universities, who may not be able to survive the tuition differential. This could close down a lot of small colleges and kill jobs in smaller cities and towns. Think here not of Harvard and Stanford, which will always be fine, but of small private colleges like Grinnell College and Davidson College, which are excellent schools that are also economically vital to their small towns.

The most expensive line-item in most progressive agendas, Medicare for All, does little for the 75 million low-income Americans who are already enrolled in Medicaid. Advocates suggest that today’s health premiums and co-pays would be replaced with a new federal Medicare-For-All tax, leaving families no worse off.

However, Medicaid enrollees earning less than 150 percent of the federal poverty level already may not be charged premiums (with limited exceptions), and the copays for most drugs and medical services may not exceed $8. These families would thus receive little-to-no savings. However, low-income families would be included in the enormous broad-based taxes (such as payroll and value-added taxes) that would now finance the U.S. health system—leaving them to subsidize the new health insurance benefits for higher-income households.

We can keep going. A carbon tax would, according to the Tax Policy Center (TPC), raise household electricity bills by 14 percent and natural gas bills by 32 percent. Hardest hit would be the bottom-earning quintile, who spend the highest portion of their income on energy bills and would therefore pay the highest tax as a share of their income—2 percent, as compared to 1 percent for the top-earning quintile. Generous family rebates can mitigate this regressivity, but momentum is moving toward allocating the revenue to green investments instead.

Proposals to eventually require zero-emission homes and cars will also raise prices and harm low-income families. Aggressively transitioning from fossil fuels to renewable energy will cost jobs in communities where the fossil fuel jobs are prevalent. Industries like coal have already been consolidating jobs due to automation and productivity gains, and climate policies may accelerate these job losses.

Progressives would also hike Social Security benefits for wealthy retirees who already come out ahead in the program. The leading House Democratic proposal (with 208 co-sponsors) would raise payroll taxes across the board, and spend much of these revenues on significant benefit hikes for America’s wealthiest age cohort. Joe Biden’s Social Security plan would also do little to extend the life of the Social Security Trust Fund, but would spend much of its new tax revenues on higher benefits for wealthy retirees, according to economist Andrew Biggs.

Speaking of taxes, Biden (and most progressives) promise to substantially raise taxes on the super-wealthy. Yet Biden’s promise of no new taxes for any family earning under $400,000 will exempt much of the professional class from paying for their own new spending benefits.

In fact, they’d be targeted for new tax cuts. It is revealing that the only part of the 2017 tax cuts that House and Senate Democrats have attempted to undermine was the part that raised taxes on the professional class–the $10,000 cap on the state and local tax (SALT) deduction. The Tax Policy Center calculates that permanently repealing this cap would provide $597 billion in benefits to the highest-earning 20 percent (including $350 billion for the top 1 percent), versus just $4 billion for the bottom-earning 60 percent over a decade. Not even the GOP has dared to propose a $600 billion tax cut this tilted to the rich.

To be sure, some smaller progressive proposals target low-income families. Raising the minimum wage and increasing spending for family leave, child care, public housing, and K-12 education are intended to primarily benefit lower-income families. Nevertheless, the largest initiatives would essentially tax the super-wealthy to benefit the professional class. Lower-income families may receive some modest benefits, yet may also be saddled with higher taxes, bloated energy bills, and job losses in certain industries.

Furthermore, the Congressional Budget Office already forecasts a staggering $104 trillion baseline budget deficit over the next 30 years (even with most of the 2017 tax cuts expiring), which many experts have assumed will eventually require historic tax rates on the wealthy. However, if those maximum tax rates on the wealthy are instead diverted into subsidizing a new progressive spending spree (with a first-decade cost of $11 trillion for Biden and more than $50 trillion for other progressive blueprints), then that will leave the middle class to pay the exorbitant new taxes to close that underlying shortfall.

After all, even seizing every dollar of billionaire wealth and also imposing 100 percent tax rates on millionaires could not fully finance current deficits, much less this deluge of new spending proposals. Lawmakers will have to prioritize. And despite their poverty and inequality rhetoric, progressive proposals prioritize the upper-middle class over the needs of the most vulnerable.

This piece originally appeared at The Daily Beast

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Brian M. Riedl is a senior fellow at the Manhattan Institute. Follow him on Twitter here.

Photo by SilverV/iStock

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