Bell Curve The Law Talking Guy Raised by Republicans U.S. West
Well, he's kind of had it in for me ever since I accidentally ran over his dog. Actually, replace "accidentally" with "repeatedly," and replace "dog" with "son."

Sunday, April 01, 2007

Welfare vs "Wealthfare"

John Edwards likes to talk about 2 Americas and he is right about that. What I'd like him to talk about more is how those two Americans have been created . . . through social engineering using the tax code. Here's fun fact:

Tax exemptions for homeownership in the United States amount to a government hand out of approximately $26 bil a year. Yet fewer than 1/4 of low-income Americans receive federal housing subsidies. Three quarters of Americans, usually the more affluent, get housing aid from the government in the form of favorable tax exemptions.

Every Administration since Reagan has cut HUD. Regan and Bush cut HUD by 70%. Clinton and the Republican controlled Congress lopped off another 25%. Slumlording, warehousing (holding empty apartments off the market hoping to sell them at inflated prices to developers), gentrification, and redlining in addition to discriminatory lending policies have locked lower-middle and middle-middle class citizens out of housing and turned our urban centers into ghettos and our farmland into suburbs for the white and wealthy.

To add to the fire, banks and corporations, defense, and agribusiness, all get some form of direct or indirect subsidy.

* The Savings and Loan bail out (which we are about to repeat) costs us about $37 bil a year and will for the next 30 years.
* Agribusiness gets about $18 bil a year
* In 1997, the FCC handed out broadcast licenses for digital TV for free. The estimated value had they been auctioned was set at $20-70 bil.
* Timber industry: $427 million +tax breaks
* Aviation: $5.5 bil a year, not to mention the bail out after 9/11.
* Mining: $3.5 bil a year
* Tax avoidance through off-shoring $12 bil a year
* Defense Contractors , the top ten of whom took home $67 bil in 2002 and $108 bil in 2006).

Add it up and you get something in excess of $126-$234 bil annually.

Now I am not saying that all subsidies are bad . . . well OK, I think most of them are. They skew the entire social system. They suck up resources needed to fix social security, medical care, and education in this country. They don't provide jobs really because they help maintain inefficient industries. Secure, fair paying jobs are more numerous in efficient and competitive industries.

At 34 years of age I am scared. I am scared about how I and my generation are going to pay for nursing homes and medical care for baby boomers, education and health for our own children, our own retirements and living costs, and still be able to have some kind of decent quality of life. I find myself scaling back my life expectations more and more so that I won't be as bitterly disappointed. (Says she who sits here typing on her $3000 laptop eating from her $5 quart of ice cream.)

In 1996, Congress and the President insisted on a total reform of the welfare system. They justified this by insisting that social benefits to the poor were too expensive and created a culture of dependency. Yet the welfare system for the poor is nowhere near as costly to the government, nor as damaging as the “wealthfare”. It is the corporate interests that are suffering from dependency, not the poor.


The Law Talking Guy said...

OTOH, the reason for corporate subsidies such as these is that when these corporations go belly-up, the only ones who suffer are the employees and pensioners. Top management still get their golden parachutes - even from pro-business bankruptcy courts (!).

Dr. Strangelove said...

Do tax exemptions for homeownership really fall in the same category as corporate bailouts? I am biased here... as one who is about to join that 75% of Americans who benefit from it--as someone who wants desperately to own his own home--the federal mortgage interest and property tax deductions (to which I assume you are referring) are crucial to me.

It is also interesting that you place defense contractors' normal business with the government as a form of "wealthfare." The "dependency" aspect is certainly accurate: the military-industrial complex furiously resists any attempts to wean it from government money... as you would expect it to. I can see military spending as an issue of skewed priorities, but I am not sure it qualifies as a tax bailout.

The FCC's choice to hand out broadcast licenses for digital TV instead of auctioning them has interested me for a while. It is not entirely a giveaway, since--unless I am mistaken?--they will be taking back the old frequencies without compensation. But the FCC could have demanded money anyhow, even though the big guys would say it was unfair. But so wha? The little guy gets screwed all the time.

TANF (AFDC's successor under the 1996 change) is budgeted at $16.5 billion per year. Food Stamps are an additional $31.1 billion. The federal budget actually lists $367 billion for "unemployment and welfare" (not sure exactly what that breaks down to) and another $276 billion for Medicaid (not Medicare). So anyway, assistance programs are not tiny--although admittedly these figures do not indicate which class of society receives these benefits.

USWest said...

Tax breaks for housing: They don't fall into the same category as corporate welfare. However, like corporate welfare, they contribute to benefits for a specific segment of the population perhaps to the determent of others.

Since poor and lower middle class Americans can't really afford to own homes, they don't get tax breaks for home ownership nor can they even consider that as an option. They have to rent. They don't get credit for rent. So their landlords gets the break, they don't.

I think some tax breaks for homeownership are acceptable. But if you want to be equitable, then renters' credit should also be considered since most people are paying more than 30% of their gross income in housing costs. In California, the tax breaks for ownership are so generous that the state basically pays the mortgage. This tends to drive up home prices and encourages people to take out larger-than-life mortgages. In addition, it encourage speculation and multiple home ownership, although the tax breaks are somewhat different for second homes.

Regressive of taxes: Since most taxes, such as payroll taxes for SS, Medicaid, and unemployment insurance, are regressive in nature, poor people pay a greater portion of their income in taxes than the more wealthy.

Social services: Unemployed people are more likely to be poorer people who are also less skilled. And, as LTG points out, they are more likely to be put out of work by the dude who walks with the golden parachute. If you really want to incentivize a CEO, then you should punish him for knocking 30K people out of work rather than just rewarding him with more stock options.

At the same time this is going on, corporations get huge tax breaks and incentives to spend and build in local communities. They are no different than the old company towns created during the industrial revolution. Then these companies open a mailbox in the Caymans and avoid US taxes.

Broadcast licenses: All radio stations and current broadcasters had to purchase their licenses. It is less of a purchase than a lease. The airwaves are part of the commons and thus belong to the public. Why were digital channels favored? To encourage the adoption of digital TV? And compare the cost of the license to the to profits broadcasters will gain from advertisers, cable fees (also paid for my the subscribers can afford it), and other promotions.

You are right Dr. S., social services take up a large part of the budget. Social security, medicated, public education, etc. take up large portions of the budget. And some of those are also supported by businesses, usually smaller businesses. Also, some might consider those “wealthfare” because poor and nonpoor alike take advantage of them. And this is like good “wealthfare” . Everyone should get the benefit of their tax dollars. But unlike corporate “wealthfare”, or tax breaks and loopholes, social services are a line item than be accounted for .

The Law Talking Guy said...

Keep in mind re: the 'tax break' for home ownership a few things. Low mortgage rates lead to increased housing prices because the market can bear higher nominal rates when the actual payments are lower. Similarly, the tax break helps drive housing prices up. In the absence of the tax break, I suspect housing prices would slowly drop. Naturally, for those already with mortgages, this would be unacceptable.

Dr. Strangelove said...

I would support tax credit for renters. But of course this also skews away from the lower classes, who may little in income tax: deductions mean nothing if you are not paying that much in taxes anyhow.

The Law Talking Guy said...

Far too many people bought houses in reliance on the tax breaks, and the market is too dependent on these breaks, for us to change them now.

The best way to eliminate the market-skewing effect of the mortgage interest deuction is to make a certain percentage of rent tax deductible, and make it function as a refundable credit.

I also advocate having a high ($1m) deduction for capital gains tax from the sale of the primary residence - jack up the capgains on stock dividends to its 1999 levels. Surely nobody can argue that the economy in 1998-1999 was crippled by excessive taxation.

Simple Man said...

Well said. I have been trying to get the exact amount spent on corporate welfare but cannot

SKITZ said...

Who cares what people do with their property?

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