Biden says he’s ‘tired of trickle-down’ economics but his party is showering private equity firms with big Trump-era tax breaks in numerous states

President Joe Biden listens to Ukrainian President Volodymyr Zelensky during a press availability in the Oval Office at the White House on September 01, 2021 in Washington, DC.
President Joe Biden.

  • Democrats at the state level are making it harder for Biden to roll back “trickle-down economics.”
  • The Wall Street Journal reports that 20 states set up measures to bypass a Trump-era tax on wealthy.
  • Since the 1980s Reagan era, trickle down has held that “job creators” at the top should pay less in taxes.

President Joe Biden keeps saying he’s “tired of trickle-down” economics, but his party is making it harder to roll back a legacy of tax cuts for rich people stretching back many years.

Congressional Democrats are in the midst of sketching out a proposal to provide relief from the $10,000 limit on the state and local taxes taxpayers are able to deduct from their federal bill (SALT). Republicans put the cap in place as a way to help finance their 2017 tax law, and the measure hit wealthier taxpayers in high-tax states particularly hard — just the kind of highly educated and high-earning urban and suburban demographic that often votes Democratic.

Perhaps for this reason, lawmakers at the state level have been busy designing paths for business owners to bypass the $10,000 cap. The Wall Street Journal reported on Monday that 20 states, including the deep-blue California, New York, New Jersey and Illinois, have approved some alternatives.

There is no record of President Ronald Reagan ever using the term “trickle down,” per Investopedia, which also notes that he embodied it in practice by reducing taxes on the wealthy, in the hopes that the benefits would “trickle down” in the form of increased business activity.

The Journal’s reporting shows that at the state level, trickle down is alive and well.

“This is becoming the thing the cool kids are doing, if you’re a state,” Howard Gleckman, a senior Tax Policy Center fellow, told the Journal. “With state assistance, this is a classic case of business self-help in figuring out a way around this.”

Some law firms and private equity firms are taking advantage of the workaround, such as Simpson Thacher & Bartlett and Cerberus Capital Management, the Journal reported, citing people familiar with the matter. Neither firm immediately responded to Insider’s request for comment.

The provision varies across states, but typically, taxes are levied on certain businesses equivalent to that of their owners. They’re deducted and the rest of the income goes to owners, the Journal reported. State laws then provide relief to income tax obligations that’s separate from business income, so it’s not subject to the SALT cap.

Meanwhile, Senate Democrats are struggling to achieve a compromise on SALT, which could hobble their goal of approving Biden’s $2 trillion social spending plan by Christmas. Any rollback is bound to disproportionately benefit wealthier Americans who are better positioned to take advantage of the deduction.

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Bidenomics explained: Why building the economy from the middle out might be the most revolutionary concept in modern politics

Biden stimulus
President Joe Biden has taken an economic stance against neoliberal trickle-down ideals.

  • Paul Constant is a writer at Civic Ventures and cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • In this week’s column, Constant explains how President Biden has embraced the middle-out theory of economic growth.
  • The plan’s premise: Economic growth is stronger when the middle class is more stable and prosperous.
  • See more stories on Insider’s business page.

At the end of his time in office, Barack Obama famously compared the presidency to an ocean liner. “Sometimes the task of government is to make incremental improvements or try to steer the ocean liner two degrees north or south so that, ten years from now, suddenly we’re in a very different place than we were,” he told podcaster Marc Maron in a 2016 interview.

Obama was arguing against using the power of the presidency to affect change too rapidly. If you try to make a hairpin turn with a Carnival cruise ship, you’re going to kill a lot of people and destroy a very expensive boat. Instead, Obama believed in making small policy course corrections that would eventually result in enormous societal outcomes like a greener economy and a more inclusive society.

Obama’s ocean liner analogy was completely ignored by the Trump Administration, which veered all over the map and sometimes seemed to come up with policies on the fly. And true to the analogy, people did die when Trump exerted erratic control over the ship – recent analysis found that 40% of the United States’ COVID deaths were the result of Trump’s mismanagement of the pandemic.

Biden’s ocean liner

Before his inauguration, most people (myself included) would have predicted that President Joe Biden would subscribe to his former boss’s ocean-liner theory of governance – slowly moving government to a more equitable place through steady, incremental change. Those predictions turned out to be entirely wrong.

On March 31st, President Biden delivered an economic speech that represented a clean break from the dominant economic paradigm of the last 40 years. In the speech, Biden laid out an economic vision for America that was a clear refutation of the neoliberal trickle-down economics theory promoted by the Reagan Administration and accepted as truth by every following presidential administration – Democrat or Republican – up until this year.

While the trickle-down philosophy centers corporations and the wealthy as the job-creating, wealth-producing engines of the economy, Biden offered a new understanding of where American prosperity is created. In the speech announcing his infrastructure bills, The American Jobs Plan and the American Families Plan, Biden described an economy in which “we all will do better when we all do well. It’s time to build our economy from the bottom up and from the middle out,” he announced.

“Wall Street didn’t build this country,” Biden said. “You, the great middle class, built this country.” He declared that his infrastructure plan would “build a fair economy that gives everybody a chance to succeed-and it’s going to create the strongest, most resilient, innovative economy in the world.”

A clean break

The next day, Bloomberg’s Peter Coy recognized Biden’s speech as a clean break from the past. In his embrace of “middle out economics,” Biden, Coy wrote, “was siding with the populist, liberal wing of the [Democratic] party and implicitly distancing himself from the low-tax, pro-business wing associated with former Treasury secretaries Robert Rubin and Lawrence Summers, among others.”

In his column, Coy says “Pitchfork Economics” host Nick Hanauer coined the phrase “middle-out economics” with his coauthor Eric Liu in their 2011 book “The Gardens of Democracy.” “The Biden administration is the first administration in my lifetime to actually believe that the neoliberal framework is wrong and to advance a counter-narrative and new agenda,” Hanauer told Coy.

The trickle-down theory

Many of us are familiar with the arguments of neoliberal, trickle-down economics, because they’ve been unthinkingly repeated by politicians across the political spectrum since the early 1980s: If you raise wages, you get fewer jobs. If you raise taxes, you’ll kill business. If you create regulations, you’ll strangle economic growth.

American leaders have treated those statements as uncontested gospel. They slashed taxes, deregulated business, and kept wages low in order to push money up to the wealthiest Americans, and they’ve waited for all that money to come trickling down to ordinary Americans. Four decades later, we can officially declare the experiment to be a disastrous failure. Inequality is dangerously high – in fact, the richest Americans have hoarded 50 trillion dollars that used to go to the paychecks of ordinary Americans.

Middle-out economics

Clearly, it’s time for a big new idea, and President Biden is betting on middle-out economics to turn this economy around. But what’s at the heart of this bold new strategy? Earlier this month, Hanauer explained to Democracy Journal that middle-out economics is “centered around the simple idea that the economy is ultimately made out of people, and the better people do the better the economy does; the focus of policymaking therefore should not be on enriching the few, but on improving the lot of the many.”

Hanauer continued, “When you help the broad population – the middle – become secure and prosperous, you not only have much faster rates of overall economic growth, but also a much more stable and secure democracy.”

By calling for huge investments that directly improve the lives of a majority of Americans, Biden is effectively making a 180-degree turn from the economic policies of the half-dozen presidents who came before him. Some neoliberals argue that this change is too much, too fast. But Biden seems to be confidently following the trail that was blazed by the last president to cast austerity aside and invest in the American people – Franklin Delano Roosevelt.

Biden is arguing that America can’t survive the kind of economic inequality we’re living with today, and that drastic action is necessary to fix the economy before it’s too late. Obama’s ocean liner analogy, after all, conveniently forgets the lesson of history’s most famous ocean liner – the ridiculously luxurious cruise ship holding some of the world’s wealthiest people which stayed steadfast on its course in dangerous waters, only to meet a disastrous end. You know the one. You’ve probably even seen the movie they made about it.

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