Richard V. Reeves is a senior fellow at the Brookings Institution, where Christopher Pulliam is a research analyst. Reeves is also author of “Dream Hoarders: How the American Upper Middle Class Is Leaving Everyone Else in the Dust, Why That Is a Problem, and What to Do About It.”
It’s the upper middle class that candidate Joe Biden was attempting to appease when he promised not to raise taxes on anybody making less than $400,000 a year. Upper-middle-class Americans — those with household income in the top 20 percent — may not have incomes reaching quite those heights, but they are comfortably into the six figures. They also have solid retirement accounts, kids for whom four-year college is a given, good health care and valuable homes in good neighborhoods.
But they don’t come by all these things solely through their own hard work and brilliance (though they really do like to think that). Every step of the way, the government is there to help. Their affluence — perhaps your affluence — is plumped up with generous tax breaks and restrictive zoning laws. This is welfare for the prosperous.
Remember how Bill Clinton promised to “end welfare as we know it”? He made good on that promise in his 1996 legislation, which famously provided the poor with a “hand up, not a handout.” But that philosophy died in Congress this year, with the introduction, as part of the pandemic stimulus, of unconditional cash transfer to families with children — which Democrats want to make permanent.
Good: Giving handouts to those most in need is both economically rational and morally right. But giving handouts to the affluent is economically wasteful and morally repugnant.
Start with the tax code. Dozens of special federal tax breaks overwhelmingly benefit the affluent. Exhibit A is the deduction for state and local taxes, or SALT. President Donald Trump capped this regressive benefit at $10,000 a year. Now some Democrats, especially those representing upscale liberal districts, are fighting to get the whole deduction back. But if the cap is repealed, at the cost of more than $70 billion annually, 96 percent of the benefit will flow to households in the top fifth of the income distribution.
This reform would in fact be much more skewed to the rich than the Republican tax law that Democrats rightly denounced as regressive. Unsurprisingly, the Biden administration is cool on the idea. The results of this battle will show just how far the Democrats have now become a party of the liberal upper middle class.
There’s also the mortgage-interest deduction, which costs $24 billion a year. This similarly lines the pockets of the affluent, with nearly 80 percent of the benefit going to the top fifth, but also distorts the housing market — and does nothing to broaden home ownership.
Or how about tax-advantaged 529 educational saving accounts? These are the product of George W. Bush-era tax cuts and, these too only offer real financial benefits to the affluent. We wouldn’t expect movement here anytime soon, however. When President Barack Obama tried to reform them, he was forced into a U-turn by liberal members of his own party, who were feeling the heat from their noisily entitled constituents.
As Paul Waldman wrote for The Post then, the proposal was “targeted at what may be the single most dangerous constituency to anger: the upper middle class. That’s because they’re wealthy enough to have influence, and numerous enough to be a significant voting bloc.” In the intervening years, the upper-middle-class grip on the party seems if anything to have tightened.
Next, consider restrictive local zoning laws, such as single-family-home mandates or minimum lot sizes, which make housing more expensive. These are fine for the affluent. They can afford big mortgages (with a little help from the mortgage-interest deduction) and higher property taxes (with a little help from the SALT deduction). Beautiful, isn’t it?
Unfortunately, these same zoning laws also price out less affluent residents and solidify neighborhood inequality: Class segregation among families with children increased by 14 percent from 2000 to 2010. And they hurt the economy by limiting the number of workers with access to high-productivity areas: Restrictive zoning laws have been estimated to have cut economic growth by more than a third from 1964 to 2009.
There are some moves afoot from the Biden administration to undo at least some upper-middle-class welfare benefits — but the White House had better get ready for a fight. Affluent Americans have come to see these benefits as vital for sustaining their lifestyle. You might even call it welfare dependency. Upper-middle-class Americans are also gaining political muscle — and seem ready to use it.
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