Build Back Better: Socialism in America

America has been pushed one step closer to becoming a full-fledged European welfare state. On Friday, President Biden and the Democrat majority in Congress had reasons to celebrate when the House of Representatives passed the Build Back Better Act. This bill is an open, unabashed vehicle for expanding socialism in America.

No, this is not a rhetorical point. It is an analytical fact, and it is about time that the conservative movement in America comes to grips with the fact that the American welfare state is indeed socialist in design, intent and function. If, and only if, conservatives recognize that our welfare state is socialist, will they be able to understand why the left continues to expand the welfare state.

That recognition, in turn, is a necessary condition for anyone who wishes to put an end to the growth of the American people’s dependency on government. Or, which is to make the same point from the opposite angle: it is a necessary condition for anyone who wishes to protect and restore the values upon which the United States of America was founded.

This ideological insight is badly needed, not only among the broader community of conservative public policy pundits but among Republicans in Congress as well. While six Democrats refused to support it, 13 Republicans helped Speaker Pelosi bring the BBBA over the finishing line. Reports Breitbart:

The 13 establishment House Republicans who voted to pass the $1.2 trillion “bipartisan” infrastructure bill, which will now go to Biden’s desk to sign, sprung free the far-left framework of the reconciliation package. The reconciliation package is a measure far-left Democrats had been fighting over for months while holding the infrastructure bill hostage

There is no doubt that this Act will leapfrog America closer to a fiscal crisis. Ironically, this may be the very reason why the welfare-state expansion embedded in the bill ultimately fails, but conservatives or libertarians cannot pin their hope of saving America on the self-destructive fiscal mechanics of the Democrats’ latest massive spending bill. The federal government’s already brink-dwelling debt problem is a weak branch to hold on to when the left is so close to fulfilling their ideological dream:

Turn America into a full-scale Scandinavian welfare state.

They won’t stop until a fiscal crisis has destroyed America as we know it. We, on the other hand, can’t wait with defending America until that point. We have to step up and take the ideological fight for our country, and we have to do it now.

The Build Back Better Act is the perfect place to start, but in order to use it as a launch point to save our country from fiscal, economic and social ruin, we first need to understand why the BBBA is a vehicle for advancing socialism.

It is a widespread conventional wisdom, especially among conservatives in America, that socialism begins when government seizes private businesses. This is not the case: the confiscation of private property is merely a special case of socialism. The general case of socialism is economic redistribution:

  • The goal of socialism is to eliminate economic differences between individual citizens; this goal is derived directly from Marxist economic theory;
  • The means to advance socialism are either revolutionary, which leads to the confiscation of private property, or reformist.

The reformist version of socialism means that you gradually expand government in order to gradually reduce economic differences between private citizens. We know the reformist version as the welfare state. Its architects, among them Swedish economist Gunnar Myrdal and his American colleague John Kenneth Galbraith, were open about their intent by creating welfare states that took from “the rich” and gave to “the poor”: eventually, with gradual expansion of government, all economic differences would disappear and everyone would have the exact same standard of living.*

It is in view of this ideological agenda, this proper definition of socialism, that we must see the BBBA if we are going to understand its purpose – and how to fight back against this unending growth of government.

The BBBA is filled with tax-and-spend provisions that expand economic redistribution in America. Let us start on the tax side, which is summarized by the Tax Foundation. They did a decent job of studying the bill but they do not mention the ideological profile:

Create a new surcharge on modified adjusted gross income (MAGI), defined as adjusted gross income less investment interest expense, equal to 5 percent on MAGI in excess of $10 million plus 3 percent on MAGI above $25 million.

This is one of the jewels in the BBBA’s ideological crown. Raising taxes on “the rich” is as common under socialist reformism as prayer is in church. Granted, this tax hike has been watered down to moderate its impact on the tax base, but it is still there and will be celebrated by the left. It will also encourage them to seek more tax hikes in the future.

Extend the American Rescue Plan Act (ARPA) Child Tax Credit (CTC) expansion through 2022, and make the entire CTC fully refundable on a permanent basis

I was among the very few analysts who pointed out, when the CTC was created, that it would become a permanent entitlement program. I saw the ideological intent behind it. Now, it is on its way to becoming permanent: barring a major fiscal crisis, come 2025 Congress will secure that the CTC is as permanent as the Earned Income Tax Credit. It does not matter who is elected president in ’24, nor does it matter who controls Congress after that election; no entitlement program has ever vanished without being replaced by another.

Taken together, the CTC and the EITC inject a significant amount of cash into the budgets of low-income families. The CTC has a much higher income-eligibility threshold than the EITC, capping out at $150,000 for a married couple, but that does not change the fact that it adds a major, new cash entitlement program to the package of benefits that the federal government offers to low-income families.

Speaking of the EITC, the Tax Foundation notes that the BBBA extends

the ARPA’s temporary expansion of the Earned Income Tax Credit (EITC) eligibility, phase-in rates, and amount through 2022

With an eligibility cap at $57,414 for 2021, again barring a major fiscal crisis the EITC will become permanent in this expanded form. Given the negative incentives that the EITC comes with – creating an effective marginal income tax comparable to what you pay making eight times the EITC income cap – its expansion will only contribute to trapping low-income workers in the jobs they have; incentives to advance one’s career or start a business will be weaker, especially when the EITC and the CTC are added together.

These disincentives are not new to the expanded EITC, but have been embedded in the entitlement program since it was created almost 50 years ago. The expansion has only reinforced them, but the fact that Congress chooses to expand it is a sign that they prioritize the economic redistribution that the program carries out than the self-determination incentives that come with earning your own paycheck.

Raise the cap on the state and local tax (SALT) deduction from $10,000 to $80,000 and extend this cap through 2030. The $80,000 SALT cap amount would also apply to the 2021 tax year. For 2031, the SALT deduction cap would be set at $10,000. 

This is de facto a give-away to states with high income taxes, easing the pressure to lower taxes in those states. Since state income taxes are often progressive in nature, especially in high-tax states, this SALT cap increase reinforces the ideological profile of the U.S. tax system.

There are also some new tax features on the corporate side that could be said to contribute to the socialist ideological profile of the BBBA. They are, however, not nearly as strong, either economically or ideologically, as the changes to the personal-tax side.

The ideological motive behind the BBBA is further highlighted by what the Act does on the spending side of the federal budget.** The Heritage Foundation has the story:

Democrats are proposing the largest increase in means-tested welfare in U.S. history by far. The latest Democrat tax and spend reconciliation bill (also known as the Build Back Better bill), would increase means-tested welfare spending by $756 billion over the next five years.

I am not sure how Robert Rector and Jamie Bryan Hall, the authors of this Heritage report, define “largest in history”, but I would suggest that the very creation of the modern, redistributive welfare state in the 1960s was a bigger increase in means-tested welfare than what the BBBA brings.

In addition, the Biden administration has used administrative action to increase permanently food stamp benefits by 21%, for a cost of an additional $180 billion over five years. Added together, the total cost of the additions to these means-tested welfare programs over five years is $836 billion. The Democrat bill artificially hides the actual cost of the new programs by terminating or severely reducing them after the fifth year.

The expansion of the food-stamp program – also known as SNAP – is fully in line with the ideological push to grow the redistributive welfare state. While I find it curious that the executive branch can constitutionally expand an entitlement program, the main point here is that its expanded eligibility compounds the self-determination disincentives imposed by the CTC and the EITC. Even though SNAP caps out at 130 percent of the federal poverty line – currently $34,452 for a family of four – it cuts right through the income layers where people otherwise would be motivated to move from unskilled to skilled labor.

For this reason, the SNAP expansion adds to the socialist ideological profile of the American welfare state. It is technically independent of the BBBA, but the reason for this is likely just a matter of political tactics; if the Democrats in Congress had been convinced that they could expand SNAP under the BBBA, they would have included it in the bill.

It is noteworthy, as Rector and Hall point out, that the BBBA cuts off expanded benefits after five years. This is, of course, only a budgetary accounting trick; there is no way on God’s Green Earth that they will go back to those who benefit from expanded entitlements and say, five years from now, that “sorry, you are out of luck”. No, we should expect these expansions to be as permanent as the CTC, the larger EITC and every other ideologically driven measure in the BBBA or its immediate vicinity.

Rector and Hall also mention that BBBA

The increases in spending are unprecedented. For example, the bill proposes new spending of some $26 billion per year for low-income housing. This is roughly 50% above the current baseline spending level of $53 billion per year.

They also note that

Each poor family in the United States receives on average—today—roughly $65,000 per year in cash, food, housing, medical care and free education for their children

and that the BBBA

reverses President Bill Clinton’s welfare reform by removing work requirements from large cash-welfare programs. This resurrects a failed policy of paying families not to work. Clinton was elected precisely to eliminate this type of welfare.

They do not call out the BBBA as being a tool for expansion of the socialist welfare state. This is regrettable but understandable. The American right is notoriously uneducated on socialism. Hopefully, that will change with the growing size of the welfare state. But hopefully, that change will also come before the welfare state has permanently destroyed the American economy, which it will do by means of a fiscal crisis. Most major welfare states in Europe have suffered fiscal hardship or explosive fiscal crises, the outcomes of which have been a welfare state that provides badly starved benefits but pays for them with exceptionally high taxes.


Footnotes

*) It is worth noting that Galbraith was the main architect behind Lyndon Johnson’s War on Poverty, and therefore the de facto ideological architect of the modern American welfare state.

**) For odd reasons that defy logic, analysts of government spending tend to treat “refundable tax credits” as something that belongs on the tax side of the budget. Since a refundable tax credit pays out money, and since the payout is not merely the return of excess tax payments, it is by definition a benefit. Benefits are based on codified entitlement criteria and therefore part of an entitlement program. With that said, in order not to add unnecessary confusion to the conversation over the BBBA, for now I stick to the erroneous conventional-wisdom terminology and leave the CTC and the EITC on the tax side of the federal budget.

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