One involves the limit on the federal deductibility of state and local taxes (SALT). This “SALT cap” primarily affects high-income households in higher-tax areas with heavily Democratic populations, such as New York and California. Democrats have tried, unsuccessfully, to repeal it. “One of the first things” a Democratic-controlled Senate would do is eliminate the provision, per Senate Minority Leader Charles E. Schumer (N.Y.).
But lifting the cap would be even more regressive than the overall 2017 GOP tax law that put it in place. About 21 percent of that law’s benefits went to the top 1 percent of households, according to the Tax Policy Center; eliminating this cap would give almost three times as much of the benefit to that top percentile (57 percent).
Such a policy would, perhaps counterintuitively, give the biggest benefits to those with high incomes. That’s partly because lower-income people are less likely to have gone to college. Additionally, many borrowers with the largest loan balances attended graduate and professional programs (medical, business and law school) that lead to higher earnings.
A recent study from economists Sylvain Catherine and Constantine Yannelis found that student-loan forgiveness of up to $50,000 for every borrower would work out to an average of $700 for people in the bottom income decile and nearly $5,000 for those in the top decile.
There are progressive ways to address the very real social and economic problems of burdensome student debt. For example, the government could auto-enroll students in income-driven repayment plans or set income caps on upfront debt forgiveness.
Instead, so-called progressives insist on a regressive solution.
Then there’s the ongoing push for near-universal $2,000 stimulus checks. This proposal at least gives more money to the poor than to the rich — but why help the rich at all? The bill the House passed Monday would send payments to 94 percent of households, including some making more than $300,000, regardless of whether they were hurt by the pandemic.
Democrats could use their political capital to advocate for more aid to people who are actually struggling — for example, additional weeks of expanded unemployment insurance. But a growing contingent on the left seems to prefer less targeted, more universal programs. It’s the same contingent that wants free college and health care for everyone, including the ultrawealthy.
They argue that paying off the rich is the only way to get political cover for their true goal: helping the poor. But this sounds like the political-economy equivalent of trickle-down. There are in fact means-tested programs that target support to those who need it (Medicaid, the Earned Income Tax Credit) and that remain so broadly popular they have gained funding over the years.
Alternatively, some lefties argue that universality is the only way to ensure that enrolling in a safety-net benefit is not burdensome. I agree that the red tape barricading critical programs should be reduced, as I’ve written extensively.
But killing means-testing doesn’t necessarily equate to ease of enrollment. Medicare is a universal program, but its enrollment process is frustratingly complex. Other safety-net programs are restricted to the poor but still auto-enroll beneficiaries using records the government already has on file. Some states auto-enroll eligible children in the school lunch program, for instance. As a country, we could invest in the government capacity needed to shift more administrative burdens away from beneficiaries and onto the state, as scholars Pamela Herd and Donald P. Moynihan have argued persuasively. (Other countries already do this.)
At best, wasting money on benefits for the rich for the purpose of getting some aid to the poor represents a failure of imagination. At worst, it’s a ploy to indulge donors and allies at the expense of future generations. Making aid programs less targeted — and thereby more expensive — risks crowding out funding for other long-run “progressive” priorities, such as curbing climate change.
In the new year, under a new president, Democrats should remember their obligation to aim their fiscal firepower at those who need it most.