‘Tax the rich’ politicians are still looking out for their biggest political allies, not the poor.
‘Tax the rich’ politicians are still looking out for their biggest political allies, not the poor.
P olitics is rarely an honest game on either side of the aisle. The ruling party in D.C. offers a case in point: While Democrats advocate “taxing the rich,” they do so only when it is politically expedient.
Just look at what is happening with the state and local tax deduction.
Only six months ago, House speaker Nancy Pelosi (D., Calif.) launched a new Select Committee on Economic Disparity and Fairness in Growth — her way of showing voters that she is serious about addressing economic disparities made worse by the pandemic. Yet just last month, Pelosi also vowed to fight for the SALT deduction — a tax cut that would only benefit the richest Americans.
Democrats and most Republicans rightly argue that economic disparity is a drag on growth. Research shows that inequality has cost the U.S. economy nearly $22.9 trillion over the past three decades. Why, then, is the former endorsing a policy that would widen the gap between the haves and the have-nots?
Consider the political implications.
The U.S. population is aging and voters tend to be older. These older voters are also America’s wealthiest and top political donors. The largest share of taxpayers in each state are above the age of 45. According to data from the Survey of Consumer Finances, Americans 55 years old and up held $32 trillion in assets — or 76 percent of investable assets owned by all U.S. households — in 2016. With the exception of the 2020 election, Baby Boomers and Gen X were more likely to vote than any other group. And even though Gen Z helped to elect Joe Biden, young voters made up only 17 percent of ballots in 2020.
America’s wealthiest live in coastal states — and Illinois. Indeed, over 50 percent of the SALT benefit would accrue to top earners in such states as California, New York, New Jersey, and Illinois.
Secondly, those states are home to the largest public-sector unions in the country. Public-sector unions are the biggest contributors to the Democratic Party and also donate large sums to politicians in those wealthy states, each year. In the last election cycle, political spending of public-sector unions across the country reached nearly $100 million, the highest in 30 years. It shouldn’t surprise anyone that the American Federation of Teachers — a public-employee union — is among those supporting the increase in the SALT deduction.
Altogether, California, New Jersey, and Illinois have some of the worst public-employee retirement costs in the country. This is due in part to public-sector unions’ enjoying disproportionately higher compensation in the form of health and retirement benefits, preventing funds from flowing to the states’ neediest residents. This offers a masterclass in how, all too often, politicians answer to their biggest backers.
Illinois is notorious for constantly hiking taxes, but less and less of the revenue from these hikes goes toward aid for the poor. Instead, the money funds rapidly rising public-employee retirement costs. Since 2000, Illinois has increased pension spending by more than 500 percent, while education spending has gone up only 21 percent and spending for the disadvantaged fell 32 percent. New Jersey is facing a similar problem of tax increases, strained finances, and squeezed services.
In California, Speaker Pelosi’s own state, 57 percent of every dollar spent on education goes to keep up with the rising costs of the California State Teachers’ Retirement System, instead of classrooms.
You can’t lead the House Democrats for nearly two decades by ignoring the party’s top political donors. While Speaker Pelosi claims that the state and local tax changes aren’t “about who gets a tax cut, it’s about which states get the revenue they need in order to meet the needs of the people,” the needs of the people may not really be the top priority.
Since the benefit of the SALT deduction increases with a taxpayer’s state and local tax liability, raising the cap on SALT deductions is a subsidy from U.S. taxpayers in more fiscally responsible states to badly run, high-income, high-tax states.
And politicians know that without the SALT deduction, state and local officials will be under pressure to rein in those costs or face retribution from rich taxpayers in high-tax states.
For most Americans, raising the SALT-deduction cap simply means picking up disproportionately more of the federal government’s tab so that politicians in high-tax states with powerful public-sector unions can have it their way. The real beneficiaries: Big Labor and its favorite politicians. Unfortunately, that also means higher inequality and less economic opportunity for everyone else.