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I can think of many liberal critiques of Biden’s infrastructure bill. Three obvious ones are that it isn’t big enough, its scope is not sufficiently ambitious, and there should be a carbon tax. But you can choose your weapon. None of these arguments are likely to alter the bill’s outcome.
The one liberal critique that has the capacity to foul up the politics of Biden’s proposal is the idea that it is fiscally too progressive. This is not a fringe complaint. Among this line’s likely backers are Chuck Schumer, the Senate majority leader, and Nancy Pelosi, speaker of the House of Representatives. The demand in question is that Biden should lift the $10,000 cap on the state and local tax, or Salt, deduction against federal income taxes, which disproportionately hits the wealthy. Eight lawmakers from New York and New Jersey wrote a letter to Janet Yellen requesting that she abolish the cap. That’s enough votes to defeat the bill in the House. Seven Democratic governors — from New York, New Jersey, Connecticut, California, Illinois, Hawaii and Oregon — sent a similar letter to the White House. The House letter claimed that scrapping the $10,000 Salt cap would make a “critical difference to making ends meet for our middle class”. The governors claimed that “middle-class Americans are struggling under this tax burden”. Such claims come close to outright lying. The cap has no effect on middle class take home pay.
Lifting it would do three things. First, it would sound good because the cap was imposed as part of Donald Trump’s 2017 tax cut. No doubt Trump’s aim was to punish Democratic-run states since most Republican ones do not have high enough local taxes to qualify for the deduction. But motives and outcomes should never be confused. Trump’s reasons were partisan. His cap was the only progressive element to an otherwise very pro-rich piece of legislation. At the time, Schumer said the cap was a “cynical one-two gut punch to the middle class”. It would be “Dead. Buried. Gone” when he became majority leader.
Second, it would rob Biden’s bill of revenues. The year after Trump’s tax law, Salt’s cost to the Internal Revenue Service fell from more than $100bn to just over $20bn. An $80bn loss to the taxpayer is non-trivial, especially considering how hard it will be for Biden to push through other funding measures, such as the global minimum tax, that would help pay for the roads, bridges and broadband that he wants. He is unlikely to give it up without a fight.
Third, it would be heavily regressive. A Brookings study found that scrapping the Salt cap would give the top 0.1 per cent of taxpayers an average of $145,000 a year in tax cuts while the top 1 per cent would get a $33,000 tax cut. By contrast, the bottom 60 per cent of Americans would get $27 a year — barely enough to pay for that FedEx to the Senate majority leader complaining of hypocrisy.
Why am I so exercised? Because liberals are on thin ice when it comes to double standards. They like to sound moral while serving their own economic interests. If such a move were included in a bill that claimed to be redistributive, it would give Republicans a giant cudgel to use against Biden. It would also rob Democrats of credibility to rail against future Republican attempts to pass tax cuts for the rich. The easy response would be to say that Democrats like tax cuts too, as long as it is their patrons who benefit.
A modest history lesson before I bring this rant to an end: in 2009 Barack Obama proposed a 28 per cent cap on the tax deductibility of charitable donations. The outcry in San Francisco and New York quickly killed that provision, which would have raised more than $300bn over a decade. The claim, led by Pelosi, was that Obama’s proposal would disincentivise philanthropy. At the time I remember thinking that the charitable impulse was supposed to be driven by non-financial motivations. In any case, its fate served as a good example of how liberal elites are not as progressive as they like to think.
Rana, I suspect I’m pushing at an open door here but I might be wrong. Ordinarily I would ask you whether I’m being too cynical. Instead, let me ask whether I’m being too generous? Welcome back from book leave by the way!
While we’re on the subject of Biden’s $2.3tn infrastructure bill, my column this week looks at the scale of his fiscal gamble. It might be that we have a near unique situation in which Larry Summers and Bernie Sanders are in agreement. The former thinks Biden’s $1.9tn stimulus was too large. The latter thinks Biden’s infrastructure bill is too small. Both think the bill is flawed.
Also apropos of the fate of New York’s upper tax brackets, my colleague Joshua Chaffin had an excellent Big Read this week that asks “Is New York turning on the wealthy?” It isn’t just the Trumps who are decamping to Florida. Others are following . . .
For those interested in Brexit’s unexpected side-effects, do read the always obligatory Fintan O’Toole in The Irish Times about how the near pejorative term “Anglo-Irish” is getting a positive new lease of life. Many hitherto very non-Celtic English acquaintances of mine have recently discovered an Irish-born grandparent.
Finally, for another take on Biden’s fiscal supernova, read Elizabeth Kolbert in The New Yorker on whether it will amount to the global warming game changer Biden wants it to be. I apologise to Swampians who might think I’m obsessed with Biden’s spending and investment bills. Whether you agree with them or not, they mark a watershed in American politics.
Rana Foroohar responds
Ed, I’m excited to be back in the Swamp with you after a month of book sabbatical. I think you are being neither too cynical nor too generous. Indeed, one can never underestimate either party when it comes to tax boondoggles (a word that I just learnt this week, during a lunch with the venture capitalist and Cambridge professor Bill Janeway, was popularised in the 1930s when the Works Progress Administration was found to have spent $3m on white-collar worker training that included lessons in ballet dancing, shadow puppetry and making plastic friendship bracelets — a craft known as boondoggling). But I digress.
I think you are spot on that the Biden administration must hold the line on anything that looks like a break for the blue-state rich, who have, let’s face it, gotten relatively richer during the pandemic. Indeed, it’s absolutely crucial in the run-up to the midterm elections that Biden stand very much in opposition to the Pelosis and Schumers of the world. He needs to keep being Scranton Joe, giving speeches in Pittsburgh and leveraging federal balance sheets to raise the quality of jobs (as he has done by working provisions for union labour into the healthcare sector of his infrastructure bill) rather than lowering taxes for the rich.
Certainly, the corporatist wing of the Democratic Party has made many high-profile mistakes (both politically and in terms of policy) by doing the opposite. One thing that comes to mind is how coastal Democrats, particularly in California, supported tax breaks for stock options under the Clinton administration, which allowed paper millionaires to work their way around the $1m pay cap for executives by declaring an exception for stock options as “performance” based pay. Some performance. Asset prices ballooned, as did executive pay and the inequality gap, but innovation, jobs and the quality of the average American company certainly didn’t.
My only other wish on taxes — simplify, simplify, simplify. The fact that I had to call you by phone, Ed, to tease out the economic and political details of Salt is just one example of how convoluted all this has become. There was a Harvard Business School study a few years back that found that even more than lower rates, executives wanted simplicity. I wonder if they’ll ever lobby as aggressively for the latter.
And now a word from our Swampians . . .
In response to ‘Lessons for Democrats from the Lincoln Project’:
“I agree that ‘Trumpism’ is a political phenomenon that merits careful thought. I further agree that Trumpism has completely taken over the Republican party. Conceding the foregoing, I submit that we must keep in mind the distinction between Trump the man and the reasons for his appeal. Trump the person is in significant legal jeopardy. His pathological narcissism will drive him to seek adulation in some way. He thinks in terms of his past television success — The Apprentice and professional wrestling. News reports of Republican candidates seeking his endorsement correctly saw it as an Apprentice-like setting. Watch his public appearances over the next months in terms of a villainous character returning to the ring (stage). However, I am more concerned with the deep and popular strains of white male supremacy in American society.” — Jon Eddison, central Texas
“I too doubt that the Lincoln Project changed any votes. But I do suspect that it encouraged more people who lean Democratic party to actually vote. It seems to me that their ‘twitch muscles’ allowed for rapid and rapier-sharp replies to Republican positions so different than standard sleepy and boring Democratic party offerings that must have blasted some, normally too complacent to vote, to both register and vote. That, after all, is the most worthy objective — and why Stacey Abrams should receive the Medal of Freedom and The Lincoln Project should rise from the dead to roast anti-voting laws!” — Wayne Bazzle, Dallas, Texas