Sunday, June 11, 2017

How The Top Quintile Uses Government Policies For Its Own Benefit

See Stop Pretending You’re Not Rich by RICHARD V. REEVES of the Brookings Institution in the NY Times.
"Things turn ugly, however, when the upper middle class starts to rig markets in its own favor, to the detriment of others. Take housing, perhaps the most significant example. Exclusionary zoning practices allow the upper middle class to live in enclaves. Gated communities, in effect, even if the gates are not visible. Since schools typically draw from their surrounding area, the physical separation of upper-middle-class neighborhoods is replicated in the classroom. Good schools make the area more desirable, further inflating the value of our houses. The federal tax system gives us a handout, through the mortgage-interest deduction, to help us purchase these pricey homes. For the upper middle classes, regardless of their professed political preferences, zoning, wealth, tax deductions and educational opportunity reinforce one another in a virtuous cycle.

It takes a brave politician to question the privileges enjoyed by the upper middle class. Recently, there have been failed attempts to make zoning laws more inclusive in supposedly liberal cities like Seattle and states like California and Massachusetts. The handout on mortgage interest appears to be an indestructible deduction (unlike in Britain, where the equivalent tax break was phased out under both Conservative and Labour governments by 2000).

Or look at 529 college savings plans, another boondoggle. These are tax-exempt vehicles for putting money aside for educational expenses. Thanks to legislation signed by George W. Bush in 2001, any capital gains in these plans are free of all federal taxes. Most states also allow savings up to a certain level to be deducted from state income tax. Almost all the benefits of 529 plans go to upper-middle-class families. But when President Obama proposed to end the federal tax break in 2015, uproar ensued, and not just from Republicans. Liberal democrats representing affluent districts killed the idea stone dead.

Progressive policies, whether on zoning or school admissions or tax reform, all too often run into the wall of upper-middle-class opposition. Self-interest is natural enough. But the people who make up the American upper middle class don’t just want to keep their advantages; armed with their faith in a classless, meritocratic society, they think they deserve them. The strong whiff of entitlement coming from the top 20 percent has not been lost on everyone else."

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