The Econmist - USA (2021-11-06)

20 Briefing Social mobility in America TheEconomistNovember6th 2021

maximum.  But  America  could  at  least  as­

pire to a less imperfect distribution of op­

portunity.  Several  tranches  of  policy  that

are especially influential on rates of social

mobility  are  in  areas  in  which  America

happens to lag behind its rich peers. 

The  most  obvious  missed  opportunity

is  the  lack  of  investment  in  early­child­

hood education programmes, and as well a

welfare  state  that  does  little  to  reduce  in­

come  poverty  among  children.  Those  al­

ready about to enter the labour force would

benefit from better tailored education and

training. A system of progressive taxation

can  pay  for  it  all.  It  can  also  lower  poten­

tially unhelpful wealth inequality, particu­

larly through levies on inheritances.

Even  a  president  with  huge  sway  in

Congress would have to take his time pur­

suing such reforms as far as they might go:

Denmark was not built in a day. Mr Biden is

no  such  president.  Six  months  ago,  when

the arpprovided for $1.9trn in new spend­

ing, he seemed to labour under the illusion

that  a  Democrat­controlled  Congress

would  give  him  all  he  wished.  The  subse­

quent  strength  of  internal  dissent  has

shattered that illusion. That does not mean

a social­mobility agenda is off the table. It

does mean making a series of choices.

Together we could break this trap

Start with the youngsters. “We have pretty

unambiguous  evidence  that  more  finan­

cial resources [for families with small chil­

dren]  have  lasting  impacts  on  health  and

well­being  and  intergenerational  mobili­

ty,”  says  Maya  Rossin­Slater,  a  Stanford

economist.  But  before  covid­19  America

had one of the highest rates of child pover­

ty in the oecd—almost triple Poland’s. 

The reason for this is not a mystery. The

typical  oecdcountry  spends  2.1%  of  gdp

on  child  and  family  benefits;  America

spends  only  0.6%.  As  originally  pitched,

Mr Biden’s “Build Back Better” agenda fea­

tured a suite of policies intended to make

America much less of an outlier, including

a generous child­tax credit that mimicked

the child allowances many Western coun­

tries  use  to  reduce  poverty,  universal  pre­

kindergarten and child­care subsidies. 

This pillar of spending is not looking as

grand  as  advertised  in  the  framework  put

out  by  the  White  House  on  October  28th.

The expanded child­tax credits which have

already reduced child poverty were part of

a  stimulus  package  passed  in  March;  as

things stand they will be extended for only

one more year. Universal pre­kindergarten

would be funded for six years, according to

the  latest  negotiations,  as  would  a  child­

care subsidy programme. Universalist pro­

grammes, including the child­tax credit re­

ceived  by  most  families,  were  appealing

when the Biden administration was work­

ing with an effective blank cheque. Choos­

ing a universal but short­lived programme

over a targeted and permanent one is hard­

er to justify. As it is, more will probably be

spent subsidising care homes for the elder­

ly than on children.

Measures  which  might  have  improved

social  mobility  for  those  already  in  the

workplace  are  being  pared  back  to  some­

thing much less consequential. The presi­

dent had originally envisaged two years of

tuition­free  community  college  to  every

American;  spending  $80bn  on  worker  re­

training;  and  the  creation  of  a  scheme  for

paid  family  and  medical  leave  (which

America  is  almost  alone  in  the  developed

world in lacking). All three proposals have

been  jettisoned  because  of  the  objections

of some Democratic senators. There is now

roughly  as  much  spending  proposed  for

higher­education  and  workplace­training

($40bn) as there is on expanding Medicare

so as to better cope with deafness ($35bn). 

The  supports  that  remain  in  place  are

helpful,  but  comparatively  modest  and

time­limited.  The  expanded  earned­in­

come tax credit, which tops up the wages of

working­class  Americans,  would  persist

for  just  another  year.  Subsidies  that  allow

workers  to  buy  health  insurance  through

the exchanges set up by Obamacare would

persist for another four years. 

Thisisnotthestuffofthegibill,the

vauntedlegislationwhichofferedgener­

ouseducationbenefitstosoldiersreturn­

ingfromthesecondworldwar(thoughin

waysthatworkedtothedisadvantageof

blackveterans)andhelpedcreatethehigh

socialmobilityofJoeBiden’syouth.Noris

it thestuffoftheNewDeal,anexamplethe

administrationreachedforwhenitsug­

gestedthatmassivepublic­worksprojects

onclimate­changemitigationandinfra­

structure building could providea new

kindofstablejobtotheworkingclasses.

MrBidenpromisedthat90%ofthesejobs

wouldnotrequireafour­yeardegree.As

thespendingavailablefortheseproposals

hasshrunk,sotoohastheirchanceofin­

stigatinga Rooseveltianmobilisation.

Convoluted as they are, the Democratic

spending  plans  look  crystal  clear  com­

pared  with  their  plans  to  raise  revenue.

European­style  welfare  states  require

European levels of taxation. But Mr Biden

has  promised  that  no  family  with  an  in­

come of less than $400,000 will pay more

taxes.  And  the  50­50  split  in  the  Senate

means  that  Kyrsten  Sinema,  a  Democratic

senator from Arizona, has been able to veto

conventional  alternative  ways  of  raising

revenue, like increasing rates of tax on cap­

ital gains and corporate profits. 

No place left to hide

Gone  too  is  a  sensible  proposal  to  elimi­

nate  a  loophole  allowing  inherited  assets

to  escape  capital­gains  tax  (which  might

have raised $204bn). And some Democrats

are also threatening to kill the whole pro­

posal  unless  a  tax  break  allowing  the  de­

duction of state and local taxes is reinstat­

ed.  That  $90bn  annual  break  overwhelm­

ingly benefits the rich; (54% of benefits go

to the top 1% of earners). 

As  a  result  the  president’s  stalwarts

have grasped at more exotic revenue­rais­

ing schemes of a sort which should not be

designed on the fly, as they have been, and

which risk distorting incentives for invest­

ment. Among these are a new minimum of

15% of tax on accounting profits for corpo­

rations, a penalty for stock buy­backs, and

newly  created  levies  of  5­8%  on  house­

holds earning more than $10m. 

Bringing  together  all  the  president’s

ambitions in a single package would have

been  hard  enough  even  if  the  original

$4trn had been forthcoming. At half that, it

is impossible. And besides, very few Amer­

icans  understand  what  the  unwieldy

whole  is  really  meant  to  achieve.  The

White House might profitably pare its am­

bitions  down  to  the  investments  most

suited to equalising opportunity for Amer­

ica’s  children.  If  it  did  so,  it  could  at  the

same  time  clarify  its  message.  The  presi­

dent  could  claim  thatthething  he  had  at

least  started  to  buildbackbetter  was  the

American Dream itself.n

Downward mobility

United States, children earning more than their

parents at age 3, by year of birth, % of total

Source:“ThefadingAmericandream”, by Raj Chetty et al.

100

80

60

40

20

0

1940 8480706050

Year of child’s birth