The rich thimble game
Commentary: Uncle Sam subsidizes the lifestyle of the rich, famous
The budget hides $1 trillion in spending that primarily benefits wealthy and upper middle-class Americans and corporations.
If we reined in this hidden spending, it’d be a lot easier to balance the budget. But we can’t eliminate it — or even slow its growth — unless we’re willing to look at it squarely and call it what it is: welfare for the wealthy and for the middle class.
I’m talking about private spending that the government subsidizes through loopholes, deductions and credits in the tax code. These tax breaks — known as tax expenditures — subsidize some of the most expensive items in the family budget: buying a home, buying health care, saving for retirement and paying for college and child care.
Because the government provides these subsidies through the tax code instead of through direct spending, the benefits go largely to those who make the most money. A $1,000 deduction provides $350 in benefits to a taxpayer in the top 35% tax bracket, but just $100 to one in the bottom bracket of 10%. The 65% of taxpayers who don’t itemize deductions but take the standard deduction instead get nothing at all.
The richest 20% of families — those who make more than $115,000 a year — capture 71% of the benefits from the housing subsidies, as well as 80% of the benefits of retirement-savings deductions, according to the Tax Policy Center.
Meanwhile, the 20% at the bottom, who make less than $27,000 a year, get just 0.1% of the benefits of the housing subsidies and none of the benefits from the tax breaks for saving. Those in the exact middle 20% — families that make between $50,000 and $75,000 a year — get 8% of the benefits from the housing subsidy and 6% of the retirement subsidies.
The middle class doesn’t get much … just enough to ensure that Congress wouldn’t dare touch these giveaways.
These tax expenditures get in the way of balancing the budget, because the spending is largely hidden from view during the budget process. Congress doesn’t vote on these provisions each year, as it does for discretionary-spending programs, so they don’t get any scrutiny at all. In many cases, a direct subsidy would be a more efficient way of promoting a public good than a tax break.
Most of these incentives don’t actually do what they are intended to do. The deduction for mortgage interest just drives up the cost of housing, rather than making housing more affordable. Subsidies for saving mostly go to those who would save anyway. Also, one of the biggest reasons we can’t control health-care costs is that the tax code encourages us to buy too much health care.
In 2012, these so-called tax expenditures will amount to $1.1 trillion, more than twice as much as the $462 billion budgeted for nondefense discretionary spending. It’s a third of all federal spending, but you never hear about it.
The Republicans aren’t talking about the $1 trillion elephant in the room.
Fortunately a bipartisan deficit-reduction commission is.
Should we really be subsidizing mansions? Or cottages by the lake? Or “Cadillac” health-insurance plans? Or millionaires’ 401(k) plans?