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It is better, they say, to have half a loaf than none at all. This is the case with this week’s tax proposals from Congressional Democrats, which have watered down Joe Biden’s campaign plan. But the metaphor downplays the good fortune of American billionaires, who, at worst, should give up a few crumbs. For a moment, it looked like the Democratic Party was going to tackle inequality in the United States head-on. Its already passed. Barring a radical change in partisan arithmetic, the super-rich seem to have bought themselves several years of reprieve.
It can’t all be blamed on “moderates” 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. Manchin will surely reduce his size. He will also ensure that Biden’s proposal to raise the corporate tax rate in the United States from 21% to 28% is nowhere near enough. Biden’s plans to nearly double the U.S. capital gains tax to the top 39.5% were also unlikely to overtake party centrists. These are the realities of having a very slim majority. The limits of a president’s power are never so exposed as when he wants money from Congress.
But the loudest trumpet of this retreat belongs to the Liberals of the ruling party in Democratic strongholds such as New York and California. They hope to repeal the $ 10,000 annual cap on the state and local tax deduction (Salt), which allows residents of high-tax states to offset what they pay locally with their federal income taxes. Almost all of the beneficiaries of the removal of the cap would be rich. The cost to the taxpayer would amount to $ 91 billion per year, which would more than wipe out the income tax increases the rich would have to pay as part of the Democratic plan. The richest 0.1% would get an average $ 145,000 tax reduction. For the average 60% of households, it would be $ 27 per year.
It’s not just a bad economy – it’s hard to find a single economist left or right who thinks this would be a good idea. It is also a terrible policy. In 2017, Democrats struck a chord when they attacked the inequalities of Donald Trump’s $ 1.5 billion 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 portray Democrats as hypocrites who claim to be pro-poor while serving their rich donor base. Worse, such a review would not be so wrong. How often are Republican lines of attack based on fact these days?
It doesn’t help that Democrats are presenting their Salt plans as “relief for the middle classes” – and now “pandemic relief”. It was the Republicans who substituted “tax break” for “tax cut” to make it sound better. Democrats take it verbatim. “When Democrats say it’s a relief for the middle class, what exactly is their definition of ‘average’? Asks Richard Reeves, a member of Brookings and an expert on American meritocracy. “Do the words no longer make sense? It was Trump who put the $ 10,000 cap on Salt, arguably for partisan reasons – to punish wealthy liberals in Democratic states. He was already moving his home to Florida. Many wealthy New Yorkers have followed suit in the pandemic. Removing this cap would not make Democrats anti-Trump. It would only make them pro-rich.
The bill as a whole would make another great improvement in America’s safety net. The pandemic child tax credit would become permanent. Early childhood learning would be universal, aligning the United States with the rest of the developed world. And if Manchin doesn’t purge his green elements, the bill would be a big step towards Biden’s goals of reducing America’s net carbon emissions.
But it’s also important to point out what he wouldn’t do. By increasing the capital gains tax only slightly and choosing not to tax the capital gain on estates, it would leave America’s plutocratic reality in place. The wealth ratio of billionaires has increased from one third to 19% of gross domestic product since the start of the pandemic. Now is the most ripe opportunity in a long time to redress the inequality in America’s late Rome. The fact that Democrats are so shy says a lot.