"We have a fundamental issue, and that is: Who is our government going to work for? Is it going to just keep working for the rich and the powerful … or are we going to have a government that works for everyone else?"
"Poverty...is the one thing that can bring this country down."
"Let’s be clear, it is a national disgrace that 46.5 million Americans are living in poverty today, the largest number on record."
Liberal candidates in 2020 have argued that America should raise taxes on the wealthiest Americans by as much as $10 trillion over the decade and redistribute those resources toward the most vulnerable members of society. Yet the benefits of the new programs they have proposed, from Medicare for All to student debt forgiveness and free college, would flow predominantly to the professional class—upper-middle-class, highly educated households. Many of their tax proposals, meanwhile, would disproportionately burden low-income households or benefit high-income taxpayers.
Free public college and student loan forgiveness, as well as repealing the $10,000 cap on the state and local tax (SALT) deduction, would send more than $1.5 trillion in benefits to higher-earning households versus less than $300 billion for their lower-earning counterparts. Medicare for All offers almost no benefit to poorer households, which are more likely to have government-sponsored coverage through Medicaid already. Those families likely would, however, pay new, broad-based taxes to fund “free” health care for families much higher up the income distribution ladder.
1. The most expensive line item in most progressive agendas, Medicare for All or some form of public subsidy for health insurance, does little for the poorest quintile of Americans, who already receive Medicaid.
- Approximately 75 million Americans are enrolled in Medicaid, 80% of whom are children and working-age, able-bodied adults. Most states offer coverage to families and individuals earning up to at least 138% of the federal poverty level.
- Medicaid enrollees earning less than 150% of the federal poverty level may not be charged premiums (with limited exceptions), and the copays for most drugs and medical services may not exceed $8. This means that Medicare for All would save them very little in premiums or copays.
- However, Medicare for All will likely include broad-based taxes that low-income households must also pay, leaving them to help cover the cost of providing health insurance to higher-income households.
2. Most Americans still do not complete college degrees or accumulate college debt—and those who do land overwhelmingly in the top-earning two income quintiles. College-educated millennials earn a median salary of $56,605.
- Two-thirds of millennials did not attend college or did so without loans. Roughly half of universal loan forgiveness would go to those with graduate degrees, such as doctors, attorneys, and MBA business executives.
- Pell grants, student loans, state aid to universities, and university-based aid already finance the tuition of most college students from families earning under $35,000. Thus, only 8% of the benefits from a free public school tuition program would reach them. Families earning more than $120,000 would capture 38% of the benefits.
3. Transparently regressive tax proposals would also leave lower-income households paying more for an agenda that does not benefit them.
- Funding the $30 trillion cost of Medicare for All would likely require a new payroll tax and may also include a value-added tax (VAT).
- Carbon taxes are among the most regressive taxes imaginable, landing disproportionately on the lowest-income households, which must allocate the highest share of their spending toward energy—households would see their electricity bills spike by 14% and natural gas bills by 32%. Mandates for zero-emissions cars and homes likewise raise prices that low-income families can least afford.
- Repealing the new $10,000 cap on the state and local tax (SALT) deduction—perhaps the most progressive part of the 2017 tax cuts—would tilt those tax cuts further to Americans with higher incomes. Of the $620 billion realized from the full restoration of this deduction, 96% would flow to the top-earning quintile and 57% to the top 1% (saving this group $34,000 annually on average).
On the Record
"Many of the 2020 presidential candidates have focused their campaigns on attacking inequality and redistributing income from the wealthy to the most vulnerable. Yet on issues including health care, college, climate, and even taxes, the main beneficiaries of their proposals would be the professional class. Low-income communities would receive few of the new benefits but would face tax increases and higher energy costs."
—Brian Riedl, senior fellow, Manhattan Institute
Progressive Programs Prioritize the Professional Class
Proponents of single-payer health care have long asserted that this system is necessary to cover the uninsured and address the high cost of health care for vulnerable populations. And some form of Medicare for All has become the leading proposal of most Democratic presidential candidates. But shifting health-care costs to the government would save money only for families whose health-care savings (from no longer paying insurance premiums and out-of-pocket expenses) exceed the cost of their new taxes that would finance the program. Most of the 75 million lower-income recipients of Medicaid currently pay no health premiums and would not see premium savings under Medicare for All.
For low-income families with private health insurance, the effect of Medicare for All would depend on its financing mechanism. Realistic estimates suggest that Medicare for All would not likely reduce national health expenditures, as the cost of higher utilization (estimated at $7 trillion over the decade) would eat up any administrative or provider payment savings. In that case, replacing health premiums with more progressive federal taxes would likely redistribute income from the highest-income households to the middle class. Working Medicaid recipients would likely be included in any new payroll (and other) taxes that would be necessary to finance this $30 trillion federal takeover of health care. In other words, most Medicaid families would face higher taxes without any offsetting health-premium savings.
“Free college” and student loan forgiveness programs face a similar challenge. Bernie Sanders has proposed having the federal government pay off the entire $1.6 trillion in outstanding student loan debt. Elizabeth Warren has offered a scaled-back loan forgiveness program that would cancel up to $50,000 in student debt for individuals and include families with incomes up to $250,000. Both have also proposed shifting all public college tuition costs to taxpayers. These benefits would accrue almost entirely to households whose children attend college and borrow to pay for it—that is, the upper middle class.
Manhattan Institute senior fellow Beth Akers has noted 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% 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—men and women 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. Student loan forgiveness would provide $544 billion in benefits to the top-earning quartile, versus $192 billion to the bottom-earning quartile.
Pell grants, student loans, state aid to universities, and need-based institutional aid have 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% of students at community colleges and 60% of students at public four-year colleges. These low-income students would receive only 8% of the benefits from a free public school tuition program, while 38% of the benefits would go to students from families earning more than $120,000.
Tax Policies for the Top, Too
While insisting that wealthy households must pay their “fair share,” many progressives support giving high-income taxpayers a large tax cut, to be achieved by repealing the $10,000 cap on the state and local tax (SALT) deduction that was included in the 2017 Tax Cuts and Jobs Act (TCJA). According to the Tax Policy Center (TPC), repealing the SALT cap would reduce federal revenues over a decade by $620 billion, 96% of which would flow to the top-earning quintile and 57% of which would flow to the top 1% (an average of $34,000 annually).
Presidential candidates Amy Klobuchar and Tulsi Gabbard recently joined nearly all other congressional Democrats in voting for bills and resolutions supporting the SALT cap repeal (Warren and Sanders missed the vote). The House legislation would have partially offset full SALT deduction restoration by raising the top income-tax bracket back to 39.6%. That bill would essentially raise taxes on the top 1% and redistribute the money within the top 20%.
Notably, lawmakers critical of the “regressive” TCJA have made little effort to repeal the portions of the law that most benefited upper-income earners, such as the pass-through deduction, corporate tax-rate cuts, and relief from the estate tax and the Alternative Minimum Tax (AMT). Instead, they target the most progressive part of the law, the SALT cap, which raised taxes on upper-income earners. Or they call for repealing the 2017 tax cuts entirely, which would mean eliminating the expanded child tax credit, the 10% income-tax bracket, and other changes that produced an average of $450 in annual savings for families outside the highest 40% of income earners. While $450 may seem negligible for the professional class, it is not negligible for struggling families.
New tax proposals, meanwhile, often land squarely on struggling households. The long-term centerpiece of the climate agenda has been an aggressive carbon tax that would, according to TPC, raise household electricity bills by 14% and natural gas bills by 32%. 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—2.0%, as compared with 1.0% for the top-earning quintile. TPC reports that rebating the carbon tax’s revenue to households on a per-capita basis would be necessary to mitigate this regressivity—not even a payroll tax cut would be sufficient—but momentum is moving toward allocating the revenue to green investments rather than to families.
Finally, it is virtually impossible to finance Medicare for All without a broad-based payroll tax or a value-added tax—as every other country with a universal health-care system has learned. While taxing the rich is a common slogan, the reality is that seizing all currently untaxed income earned above $1 million would raise just $9 trillion over the decade—far short of the (lower-bound) $30 trillion Medicare for All price tag. Thus, Sanders’s menu of tax options for his Medicare for All proposal—which funds only half the proposal’s cost—relies heavily on a new payroll tax. Warren’s Medicare for All plan lacks these taxes—yet is perhaps $10 trillion short of funding. If any Medicare for All proponent actually produces a fully funded plan, basic math will require that it include these broad-based taxes. And Medicaid families that are not paying health premiums will receive no offsetting savings from which to pay this new tax.
Redistribution is a zero-sum game. An agenda built to transfer society’s resources to upper-middle-class professionals cannot help but do so at the expense of lower-income households. To be sure, some smaller proposals aim more squarely at struggling families. Common promises to raise the minimum wage and increase spending for family leave, child care, public housing, and K–12 education are intended to primarily benefit lower-income households (whether the policies would have that effect is another question). But the largest initiatives would essentially tax billionaires as well as lower-income Americans to benefit high-income, highly educated Americans—the professional class. Lower-income families may receive some modest benefits, but they will also be saddled with higher taxes and energy bills.
The proposed spending spree will eventually result in much higher taxes for the middle and working class. This is because the Congressional Budget Office projects a $103 trillion Social Security and Medicare cash shortfall over the next 30 years, which many experts have assumed will eventually require historic tax rates on the wealthy. If those tax increases are taken now to fund a spending spree on comparatively well-off Americans that could well exceed $50 trillion in just the first decade, middle-class and working-class people will be left with the tab when they must shore up entitlement programs themselves or watch their retirement benefits dwindle. Even 100% taxes on the wealthy could not finance both the underlying, growing budget deficits and this deluge of new spending. Lawmakers will have to prioritize. Thus far, 2020 candidates are prioritizing the upper middle class.
- Elizabeth Warren, Speech to Poor People’s Campaign Presidential Forum, June 17, 2019.
- P. R. Lockhart, “2020 Democrats Share Plans to Fight Poverty at Presidential Forum,” Vox, June 18, 2019.
- “War on Poverty,” website of Senator Bernie Sanders.
- Over the next decade, repealing the $10,000 cap on the deduction for state and local taxes (SALT) on federal income taxes will provide $595 billion in benefits to the top 20% of earners and virtually nothing to the bottom-earning half. “Free” public college (at an estimated $1 trillion total cost) would provide $380 billion in benefits to families earning more than $120,000 and $80 billion to families earning under $35,000. Student loan forgiveness ($1.6 trillion in total) would provide $544 billion in benefits to the top-earning quartile, versus $192 billion to the bottom-earning quartile.
The $1 trillion free college estimate comes from $79.2 trillion in total public college tuition and fees for the 2016–17 school year, extrapolated to grow 3% annually, and then covering the 2021–30 decade. See National Center for Education Statistics, Digest of Education Statistics, table 333.10. See note 13, infra, for the student loan distributional breakdown.
- States may apply for a waiver to impose modest additional fees. See Tricia Brooks, Lauren Roygardner, and Samantha Artiga, “Medicaid and CHIP Eligibility, Enrollment, and Cost Sharing Policies as of January 2019: Findings from a 50-State Survey,” Kaiser Family Foundation, Mar. 27, 2019.
- Beth Akers, “Issues 2020: Millennials Aren’t Drowning in Student Debt,” Manhattan Institute, Oct.10, 2019.
- Linda J. Blumberg, John Holahan, and Michael Simpson, “Don’t Confuse Changes in Federal Health Spending with National Health Spending,” Urban Institute, October 2019.
- While Senator Warren claims that she can fund Medicare for All without new broad-based tax increases, her proposal has been derided for its implausible mathematical assumptions. See Brian Riedl, “Warren’s ‘Medicare for All’ Plan Is 100 Percent Fairy Dust,” New York Post, Nov. 6, 2019. To date, no plan exists that would fully finance Medicare for All. See also Committee for a Responsible Federal Budget, “Primary Care: Estimating Leading Democratic Candidates’ Health Plans,” Jan. 24, 2020.
- Jeff Cox, “Student Debt Is over $1.6 Trillion and Hardly Anyone Is Paying Down Their Loans,” CNBC.com, Jan. 16, 2020.
- Abigail Hess, “Elizabeth Warren’s $1.25 Trillion Education Plan Aims to End the Cycle of Student Debt—Here’s How,” CNBC.com, Apr. 23, 2019; Tara Golshan, “Bernie Sanders’s Free College Proposal Just Got a Whole Lot Bigger,” Vox, June 23, 2019. See also Jordan Weissman, “Bernie Sanders Wants to Forgive All Student Debt. His Plan Doesn’t Make a Lot of Sense,” Slate, June 24, 2019.
- Sandy Baum, Victoria Lee, and Alexandra Tilsley, “Which Households Hold the Most Student Debt?” Urban Institute, May 2, 2019.
- Beth Akers, “Issues 2020: Millennials Aren’t Drowning in Student Debt.”
- Calculations based on $1.6 trillion of outstanding student loan debt, of which 34% is held by the top-earning quartile and 12% is held by the bottom-earning quartile. See Baum, Lee, and Tilsley, “Which Households Hold the Most Student Debt?”
- Sandy Baum and Sarah Turner, “ ‘Free Tuition’ Is the Opposite of Progressive Policymaking,” Washington Post, May 3, 2019.
- Howard Gleckman, “High-Income Households Would Benefit Most from Repeal of the SALT Deduction Cap,” Urban-Brookings Tax Policy Center, Sept. 24, 2018.
- For the 116th Congress, see Senate roll call vote #331, Oct. 23, 2019, and House roll call vote #700, Sept. 19, 2019.
- “Distributional Analysis of the Conference Agreement for the Tax Cuts and Jobs Act,” Urban-Brookings Tax Policy Center, Dec. 18, 2017. Figure averages out the bottom three income quintiles in table 1.
- Joseph Rosenberg, Eric Toder, and Chenxi Lu, “Distributional Implications of a Carbon Tax,” Urban-Brookings Tax Policy Center, July 2018.
- See Brian Riedl, “Issues 2020: Taxing the ‘Rich’ Won’t Pay for Politicians’ Promises,” Manhattan Institute, Oct. 17, 2019.
- Office of Senator Bernie Sanders, “Options to Finance Medicare for All.”
- See Riedl, “Warren’s ‘Medicare for All’ Plan Is 100 Percent Fairy Dust”; Committee for a Responsible Federal Budget, “Primary Care.”
- See Riedl, “Issues 2020: Taxing the ‘Rich’ Won’t Pay for Politicians’ Promises.”
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