04 July 2011

Hidden welfare for the wealthy

On this Independence Day, it's appropriate to link to a trenchant discussion of how most Americans are much less "independent" that they think they are.  It's popular these days to call for cutbacks of "government spending" with the expectation that such cutbacks will only affect "other people."  In an article in The Washington Monthly, Suzanne Mettler provides some eye-opening data:
Beneath the surface of American government lurks a system of social programs for the wealthy that is consuming the federal budget. It’s time for progressives to do battle with tax expenditures.

As a matter of budgeting, however, there is no difference between a tax break and a social program: both have to be paid for, either by raising tax rates or by adding to the deficit...

Of the three most expensive ones, the Home Mortgage Interest Deduction was created first, as part of the original tax code in 1913; the preferential tax treatment of employer pensions was established through a hodgepodge of administrative rulings and congressional statues between 1914 and 1926; and the tax-privileged status of employer-provided health benefits resulted from a similar conglomeration of policies during World War II and in the 1950s. In 2011, these three pillars of the submerged state are expected to cost the nation $104.5 billion, $67.1 billion, and $177 billion, respectively...

Whereas mainstream Democrats have traditionally taken the lead in creating our landmark direct social programs, it was originally Republicans and conservative Democrats who initiated the benefits that operated through the tax code. Doing so enabled them to court their favored constituencies and channel resources toward them, but without creating or enlarging government bureaucracies to distribute the funds...



Most Americans assume that U.S. government social programs aid primarily the poor and the middle class, but tax expenditures generally shower their most generous benefits on those in the upper reaches of the income spectrum...

On the rare occasions when policymakers do actually speak about the Home Mortgage Interest Deduction, they portray it as a middle-class benefit that helps to increase home ownership, a pillar of the American dream. Yet countries such as Canada and Australia manage to have U.S.-level rates of home ownership without offering a home mortgage interest deduction in their tax codes. Moreover, in 2004, 69 percent of the benefits of America’s home mortgage interest deduction were claimed by households with incomes of $100,000 or above—the top 15 percent of the income distribution...
Much more at the link.

5 comments:

  1. Thank you for the info! I say things to this effect in mixed company and always upset Somebody. (Somebody has been on the federally funded/tax deductible teet for most of his life...)

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  2. Many of these certainly apply, but going through, I felt an almost triumphant sense of pride...I've never used any of these save one: The home mortgage interest deduction.
    However...they aren't *giving* me any money for that, they simply take less away from me in the first place. Is a tax deduction really considered welfare?...what about charity tax deductions...how is me Giving Away Money considered the same as someone else Giving Money To Me.

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  3. It does mean that the house costs you less than it would have without the tax deduction...

    You might feel that spending less is not the same as receiving money, but that's the point of the article - that it is effectively the same.

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  4. You may never have used any of these programs, but don't get too proud just yet. Did Medicare pay for your parents' medical care so you didn't have to? Ever go to a public school or send your kids to one? Ever visit a national park or drive--for free--down an interstate highway? I think the author hit the nail on the head with the statement that people typically think that cuts in government "social programs" will just affect someone else.

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  5. I really think this is off the mark. Granted there is less money coming into the government because people take advantage of tax deductions but that is far different then people getting welfare. It is like if you go to a restaurant and use a coupon…sure you save some money on the meal, but it’s your money. That’s not the same as going to a soup kitchen and getting a meal 100% that someone else paid for.

    Also, the reason that there are tax deductions is that our representative want to encourage use to do and participate in certain activities…they want us to invest in homes and save for our childrens educations. To then turn around and say, “Hey you’re a bad person because you save up money for your child’s education and you did not use a grant that some other kid could now use…you’re a bad bad person!” is both shallow and miss directed.

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