The Ubiquitous Government Handout: Not Just the Purview of the Poor

It’s time to “Break It Down!”

In the world of partisan politics, few things are more scrutinized and criticized than government handouts. The topic has been a frequent target of Right Wing politicos for decades. The familiar screed asserts that the ubiquitous giveaway is expressly reserved; no, targeted for the undeserving lazy, unmotivated, shiftless poor of our society. After the main proposition come the supporting premise: We must eliminate this wasteful expenditure of precious resources.

The very notion is in fact a fallacy. The truth of the matter is, the well to do benefit directly from the largess of government subsidies too. As a familiar post-Obama meme goes, “We are all socialists now.” In fact, not only are we, but we have been for quite some time. “Social” Security, as it’s commonly called, for example, has been around since 1935, or 80 years. Undoubtedly, there have been, and still are efforts to roll back, or eliminate it ever since the original Social Security Act, a compendium of social welfare and social insurance programs, was enacted. Surely one can make the case that America employed policies that inured to the social or collective benefit of citizens before that time. However, the 1935 measure marks an undeniable line in the sand.

What I want to make perfectly clear at this juncture is, it is not just the poor who sup at the government’s teat. The well heeled seek, obtain, and accept benefits derived from government. Last week, Emily Badger and Christopher Ingraham wrote a piece in the Washington Post that not only made this case, but delineated 10 current day examples of how folks, including those not defined or thought of as poor, come to receive government sponsored benefits. I will list those items here for your edification:

  1. The mortgage interest deduction for big houses and second homes. Thanks to this tax break, the 5 million households in America making more than $200,000 a year get a lot more housing aid than the 20 million households living on less than $20,000. Deductions for mortgage interest incentivize people already capable of buying big homes to buy even bigger ones. This tax break applies as well to second homes (you only get one second home though!). Note: In the eyes of the Congressional Budget Office — the official word on this in Washington — the mortgage interest deduction is equivalent to the government offering you money, not you keeping your own
  2. The yacht tax deduction. If you’ve got a boat and you’re paying interest on it, that interest is tax-deductible – provided your boat is really, really big. If it has sleeping quarters, a kitchen and a toilet – e.g., it is a yacht – then it can be considered a second home and any interest you pay on it is deductible. But if you just have a garden-variety fishing boat or canoe, sorry – no deduction for you. Beyond that, if you have a yacht you can loan it out to a charter business for part of the year, and keep it for personal use the rest of the time. This allows you to deduct the purchase price, insurance, maintenance and slip fees too. [This image perfectly sums up inequality in America, according to the Internet]
  3. Rental Property. If you’re a landlord, which you probably aren’t if you’re very low-income, you can deduct many of the expenses you incur renting a home, including repairs, advertising, HOA fees and — again — mortgage interest. If you happen to rent out either your first or second home for 14 days or less — because, for example, Augusta National Golf Club is hosting the Masters nearby — you get to just pocket all that income without paying taxes on it at all.
  4. Fancy business meals. Talking business over an expensive dinner? That’s tax deductible, too, a fact that puts taxpayer spending on food stamps into relief. This is a good deal for, say, a CEO presiding over actual filet mignon at a five-star restaurant. Scott Klinger, now the director of revenue and spending policies at the Center for Effective Government, explains how this works here:
  • Imagine that the tab for dinner and drinks for 10 executives comes to $1,600. Current tax law allows companies to deduct half of the cost of business meals — in this case, $800. With a corporate tax rate of 35 percent, each dollar of deductions yields 35 cents of tax savings — so that $800 deduction saves $280 in taxes. This means one dinner for 10 people provides more public food assistance than the $279 an average household receives in food stamps for the whole month. [Missouri Republicans are trying to ban food stamp recipients from buying steak and seafood]
  1. The capital gains tax rate. This is the big one. Taxes on investment dividends and capital gains currently max out at about 24 percentwhen you add in a Medicare surtax that applies to some investment income. But the top income tax rate is 6 percent. So investment income is taxed at a much lower rate than regular income. The annual earnings of many of the ultra-rich come from investments, not from wages. This is why Warren Buffett famously has a lower effective tax rate than his secretary.
  2. The estate tax. “The Estate Tax is a tax on your right to transfer property at your death,” according to the IRS. Without the estate tax, super-wealthy families would be able to hoard that wealth in perpetuity, becoming ever more powerful in the process. The tax, as it currently exists, only kicks in on estates worth $5.4 million or more, affecting about the top 0.2 percent of households. For everyone else in the top 1 percent, congratulations! You can pass on your riches to your heirs tax-free. [The double-standard of making the poor prove they’re worthy of government benefits]
  3. Gambling loss deductions. Did you know that the government provides a generous tax deduction for literally throwing your money away? You can deduct your gambling losses up to the value of any winnings you earned. More gambling winnings mean more gambling deductions, incentivizing you to keep gambling more to at least break even. And if you’ve got more money to gamble, you’ll have more losses to deduct.
  4. Social Security earnings limit. Social Security taxes only apply to income up to $118,500 – anything after that is Social Security tax-free. So the more money you make, the less your effective Social Security tax rate is, making this tax about as regressive as they come. Technically, of course, Social Security is a savings plan, not a tax. But the rich tend to live longer than the poor and receive benefits longer than lower-wage earners, so an adjustment to the earnings limit would help offset this difference. Social Security’s own actuaries estimate that eliminating this cap would reduce the program’s long-term deficit by about 86 percent.
  5. Retirement plans. The federal government incentivizes retirement by allowing you to reduce your taxable income by saving money in 401(k) plans or IRAs. But employer-sponsored retirement plans only benefit those people with employers that offer them (so, largely not people who work in retail or the fast-food sector). And the benefit for IRAs doesn’t help people who have no money left over for retirement after they pay their living expenses. In total, about 66 percent of these retirement subsidies go to the top 20 percent of taxpayers. Less than 1 percent go to the bottom 20 percent.
  6. Tax prep. If you have hired an accountant to help you sort through all of these tax breaks to make sure you maximize them — which the wealthy are much more likely to do — you get to write off that expense, too.

Now, I’m not a tax attorney, or preparer, or a member of the one percent. I know the wealthy, as a rule, take great exception to most if not all ten of the points above. And that’s OK. Feel free to post your own thoughts on the subject. One thing that is beyond rational repudiation is that corporate and wealthy welfare is real. We can engage in earnest debate about whether such subsidies are earned, or simply a part of our economic system that needs repair.

I know folks who believe that arguments such as that proffered by the WashPo writers amounts to wealth envy. Interestingly, when arguments are made about the economic drain ensuing from the rich carrying the poor, few if any one from the ranks of the wealthy considers that poor envy. And of course, it isn’t. What wealthy person would actually want to be poor? None!

I don’t believe pointing out the systemic inequities listed in the items above is a function of any sort of envy. Rather it is a legitimate effort to foster a conversation about aspects of our economic policies and practices that could be realigned and improved.  Meanwhile, my postulation remains, The Ubiquitous Government Handout: Not Just the Purview of the Poor!”

I’ll leave it at that. I’m done, holla back!

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