Washington Post's Wonkblog makes a good point this week: Many government programs are effectively transfers to the wealthy. But the wonks at Wonkblog make that point in a very unusual way. They pick mostly on tax deductions, rather than actual handouts. I agree tax breaks often ought to count as subsidies — some are even rightly called "handouts" (such as refundable tax credits).
But Wonkblog picks the weirdest tax policies to get upset about. Some of these aren't even deductions, but just taxes that aren't levied that the wonkbloggers wish were levied — a definition of "handout" with no logical limit.
First, let me comment on their list. Then I'll add my own.
1) Mortgage Interest Deduction
Absolutely this is a tax break that shouldn't exist, and that affects the wealthy much more than the poor. I'd quibble with saying it's a "handout" to homeowners to allow them to keep more of their money. It's more accurately called a handout to mortgage bankers, homebuilders, and Realtors —all of whom are richer, as a class, than simple homeowners.
If you were looking for government handouts to yachts, wouldn't it make sense to look at the money the government spends to help yacht owners? The Water Resources Development Act is a regular congressional bill that authorizes all sorts of projects on the taxpayer dime, often dredging harbors to accommodate larger yachts. Consider this $850,000 grant to Annapolis, where the harbor needed to be made deeper because the 70-foot yachts coming in needed the depth.
Wonkblog instead goes after tax breaks for yachts. One of these breaks is absurd, and is really part of the above tax break: the interest on your second home is tax deductible, and so if your yacht is your second home, you can deduct the interest.
But here's where Wonkblog gets weird: If you own a yacht as a business asset — that is, if you rent it out — your costs of ownership, including insurance and maintenance, are deductible as a business expense. This strikes me as fairly obvious. We tax businesses on their profits, not on total revenue; money spent running a business is always deductible, even when that business is charter yachting.
3) Rental property
Here the Wonkbloggers get to their weirdest in their notion of a handout:
"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."
Being a landlord is being a small businessman. Every month you take in some money in the form of rent. Over the course of the year you shell out some money in the form of repairs, fees, advertising, et cetera. The difference between your revenue and your expenses is called your profit. The government taxes you only on your profit. The government doesn't tax you on the portion of revenue that goes to you covering your costs, and this is a handout?
I wonder if the Wonkbloggers consider it a handout that the Washington Post gets to deduct the cost of their new offices, and the cost of hosting Wonkblog, and of paying the Wonkbloggers.
4) Fancy business meals
This one hits a bit closer to the target. A business meal is a business expense, sure, but this aspect of the tax code does seem to provide an incentive for executives to dine more lavishly than they might.
5) Capital gains tax rate
There's a lot of debate about this one. I happen to think investment income should be taxed the same as labor income. I'd fold both into the same tax code. A lot of people disagree with me, and they have decent arguments. But I think the tax code should be neutral.
Here's the thing, though: The tax code is nowhere near neutral. Corporate shareholders already pay taxes through the corporate tax code, which has very high rates. So cap gains taxes represent double taxation.
6) The estate tax
Yes! The estate tax is corporate welfare for the second-richest man in America, Warren Buffett, who is able to get a discount on family-owned business that are forced, by the estate tax, to sell. It's also a subsidy to the insurance and estate-planning industry.
Wait, that's not what Wonkblog means? How else is "The estate tax" a handout?
"The tax, as it currently exists, only kicks in on estates worth $5.4 million dollars 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."
Oh. This isn't about a special tax deduction or tax credit. This is Wonkblog objecting that the estate tax doesn't tax every penny of inheritance?
When Grandma dies as leaves her nice old coffee table behind, should that be taxed? If it's not taxed, is it a handout? Pops passes away suddenly, and Sonny inherits the old shotgun shack. Under current law, Sonny doesn't have to pay taxes on the shack's $75,000 value immediately — is that a handout?
Again, we're stretching the definition of "handout" to include "money that would be taxed if the tax code were totally different." Is there a limiting principle to this definition?
7) Gambling loss deductions
If you make $100 one night gambling and lose $200 the next night gambling, Wonkblog thinks you should be taxed for the $100 you earned. That's a valid point of view, I guess, but I don't think it counts as a "handout" to say that your net gambling proceeds for the year is your taxable gambling income.
Also, I'd like some wonky evidence that this tax deduction benefits the rich.
8) Social Security earnings limit
Here we get an even clearer picture of the Wonkblog definition of "handout." It's supposedly a handout that people pay Social Security taxes only on their first $118,500, but not a handout that rich people get Social Security benefits?
Wonkblog writes "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." But this doesn't trigger their handout alarm, the taxation does?
This framing reflects either a deep confusion or an ideological commitment to maximizing the size of government: Never criticize spending, always demand higher taxes.
9) Retirement plans
Again, we already have a federal retirement plan that disproportionately hands taxpayer money to the rich. I'd start there. It's called Social Security. But Wonkblog goes after a different target.
The critiques of employer-sponsored retirement plans are understandable, but if you're going after IRAs in a blog post on the rich maybe you should mention that somewhere in the low six figures, taxpayers lose the ability to contribute to their IRAs.
Even if the examples are mostly off-base, the main premise of this piece is correct: Government's growth often accrues to the benefit of the well-off. This is the nature of government.
So, to backup the wonks in their central point, here, free of charge, are some good examples of actual handouts to the wealthy:
1) Social Security and Medicare
Warren Buffett collects Social Security income and can use Medicare. This means that regular people are paying their taxes so that Uncle Sam can cut checks to Buffett. And again, the wealthy live longer, so they spend more time pocketing this money.
2) Farm subsidies
Billionaires receive actual handouts from the government in the form of farm subsidies — 11.3 million in handouts from 1995 to 2012.
3) Student loans
No matter how rich you or your parents are, you can get a subsidized student loan. Children from wealthier families are more likely to have a ton in student debt than other children. College graduates make more than those who never went to college, meaning that subsidizing student loans is subsidizing higher income people.
4) Export-Import Bank
This government agency puts taxpayer money at risk to subsidize U.S. exporters, mostly Boeing.
A major Ex-Im initiative in the Obama era has been subsidizing the sale of private jets. One deal involved a direct loan to the largest bank in the world — a state-owned bank in China — to subsidize sales of private jets made by a small jetmaker that was owned by Goldman Sachs.
The richest woman in Australia got Ex-Im financing. Warren Buffett and Carlos Slim not only got Ex-Im financing, they got counted as small business getting Ex-Im financing.
5) Sugar subsidies
The Fanjul brothers are very rich. They are also the biggest beneficiaries of the U.S. sugar program, which keeps their prices high, and often just hands them taxpayer money if prices fall too low.
6) The Wall Street bailout
Handouts to the rich.
7) Big Government
Six or seven of the ten wealthiest counties in America are in commuting distance of the U.S. Capitol. This is because of government's growth. These people — lobbyists, contractors, revolving-door consultants — all get richer the more government grows.