WELFARE FOR THE RICH
Rodgers, Harrell
Despite rhetoric about free enterprise, big business has long sought government aid to protect it from the rigors of the market, insure large profits, and allow it to escape taxes on profits and...
...But through tax expenditures, we have such a program...
...failure to prosper is traced to personal deficiencies...
...142 An equitable reform would not be hard to formulate...
...During this same 5 Cushing Dolbeare, "Let's Correct the Inequities," ADA World, 1975 Convention Issue, April-May 1975, p. 9. 6Joint Economic Report, Ninety-second Congress, 2nd Session, Congress of the United States, March 23, 1972, pp...
...But not all the more lucrative deductions are included in the taxexpenditure budget...
...Direct outlays would also be open to public scrutiny and presumably much less invidious and more beneficial to the public good...
...3/bid., p. 126...
...Government Printing Office, 1977), p. 119...
...Such a reform will not come easily, of course...
...For example:4 • If in 1977 a taxpayer earned in excess of $200,000, his/her deduction would result in a tax savings of 70c for every dollar spent for mortgage interest and taxes...
...Figures released by the Census Bureau in June 1977 show that the wealthiest 40 percent of the population increased their share of total income from 64.2 percent in 1968 to 65.2 percent in 1975...
...No matter how much one loved the rich, no congressperson in his/her right mind would vote for such a bill...
...Tax expenditures are too pure a product of the capitalistic imagination to be eliminated without a first-rate struggle...
...For example, between 1972 and 1975 a total of 590 citizens had earned incomes in excess of $200,000 but paid no federal taxes...
...In 1976 tax expenditure cost the nation $91.8 billion...
...Aid received in check form would have to be accepted for what it is—welfare...
...George F. Break and Joseph A. Peckman, Federal Tax Reform: The Impossible Dream...
...q 143...
...90.5 Phelps-Dodge 44.6 Freeport Minerals 35.2 These exemptions from taxes for wealthy groups magnify the tax burden of middle-income and poor citizens and increase the severity of wealth maldistribution...
...When cuts in the budget are needed, it is always the highly visible, and therefore controversial but less costly tax payments that are the focus of attention...
...The third problem with tax expenditures is that not only do they frequently pay people to do things they would do anyway, but they pay people to do things they may well not do (e.g., increase investments...
...Welfare for the nonpoor, on the other hand, requires ideological backpedaling and must therefore be camouflaged...
...In 1972 the Joint Economic Committee of Congress concluded: " . .. there is no body of significant evidence showing that these special tax provisions achieve their objectives efficiently...
...5 By contrast, the 1976 budget provided only $2.6 billion for aid to housing for those too poor to benefit from tax breaks...
...But by any standard applied, tax expenditures exceed tax payments such as welfare by three or four times...
...For example, the deduction for mortgage interest and taxes is a tax expenditure...
...If in the same year a taxpayer earned $10,000, his/her deduction would result in a tax savings of 19c for each dollar spent for mortgage interest and taxes...
...If the government found it necessary to aid certain businesses or groups, a cash outlay system could be established...
...Camouflaging this welfare is not all that difficult...
...2 The label "Tax Expenditures" gives official recognition to the fact that many tax deductions constitute official policy decisions to provide aid to certain groups...
...Despite rhetoric about free enterprise, big business has long sought government aid to protect it from the rigors of the market, insure large profits, and allow it to escape taxes on profits and wealth...
...If the whole deduction system were abolished, a much lower tax rate could be established for all income groups...
...But the deduction aids the wealthy a great deal more than it aids middle-income citizens, and it does not help those too poor to own a house at all...
...but since it does not show up in the regular budget, few appreciate this fact, and 75 percent of the benefits went to those in the upper half of the income distribution, with the top 1 percent 4 See Surrey, Pathways to Tax Reform, p. 37...
...In 1976 the tax expenditure for housing cost $11.3 billion and, as in previous years, represented the largest housing assistance program in America...
...The tax code is one of the best devices for hiding welfare for the nonpoor...
...A couple of decades ago, corporations contributed about 30 percent of the tax dollar—but because of increased tax breaks they contributed only 13c of each tax dollar in 1977...
...The low visibility of tax expenditures covers up this fact and allows gross inequities year after year...
...The basic problem is that to enjoy a tax break one has to have a good income...
...Despite these facts, there is no serious movement in Congress to deal with the tax loopholes that cause these problems, and Carter's new proposals are predictably disappointing...
...6 Tax expenditures and deductions are often so lucrative that some of the richest individuals and corporations manage to pay little or no federal taxes year after year...
...There is a basic logic to an aid program such as tax expenditures...
...period 29 major corporations reported total profits of almost $3 billion but paid no federal taxes, and 64 other corporations paid at rates of 10 percent or less despite profits of almost $11 billion...
...8 Not surprisingly, poverty increased 10.7 percent in 1975, to 25.9 million persons...
...The 11 major corporations who paid no federal taxes in 1975 are listed below along with their earnings: Earnings (In Millions) Ford Motor Company $148.1 Western Electric 185.6 Bethlehem Steel 225.0 Lockheed Aircraft 84.1 National Steel 43.4 Delta Airlines 73.7 Northwest Airlines 45.3 Manufacturer's Hanover 166.1 Chemical New York Corp...
...The least affluent 40 percent's share declined from 18 percent in 1968 to 17 percent in 1975...
...11 IF CONGRESS TRIED to convert the tax expenditure program for housing into a cash outlay, that too would be controversial...
...Thus the wealthiest 40 percent gained a full percentage point, or about $10 billion from the lowest-income families...
...Between 1953 and 1975 the tax rate for families at the median income level almost doubled, while the rate for the richest 20 percent of families increased slightly less than 30 percent...
...Thousands of other citizens had very high incomes but paid very little in taxes...
...Additionally, between 1974 and 1975 the per capita income of families in the lowest income quintile increased 4.3 percent (during a period of 7 percent inflation), while the income of those in the highest income quintile increased 6 perc7nt...
...A recent study released by the Joint Committee on Internal Revenue Taxation estimated that tax expenditures will increase to $168.7 billion by 1982...
...Additionally, and quite inequitably, tax expenditure breaks increase in monetary value with income...
...Rather than provide incentives to investors, businesses, home purchasers, etc., tax expenditures frequently provide financial windfalls—mostly for those who need help the least...
...Imagine a bill that would send a cash payment to homeowners, the size of the grant being highest for those with the highest salary...
...This $2.6 billion, of course, was in the form of a cash outlay, was highly visible and, as always, the subject of considerable controversy...
...Being "illegitimate," welfare for the poor is generally meager (to avoid rewarding sin), is clearly labeled as welfare (to make people feel badly about accepting it), is as much as possible in the form of services rather than cash (because the poor cannot be trusted with money), and generally includes intervention into the lives of the poor (because the poor must be regulated...
...Excluded are such deductions as business expenses, gifts and bequests received, foreign tax credits, earnings of foreign corporations, personal exemptions, and the progressive tax rate) The Congressional Budget Act of 1974 defined tax expenditures as "revenue losses attributable to provisions of the federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability...
...In fact, because of its gross inequities such a program might never pass Congress...
...The tax expenditure program, then, would pay 70 percent of the mortgage interest and taxes for the rich, 19 percent for the lower middle-income taxpayer, and nothing for the poor...
...Those who made more than $200,000 a year would receive a check equal to 70 percent of their mortgage interest and taxes, and citizens earning $10,000 would receive a check equal to 19 percent...
...Second, the benefits of tax expenditures are not equally applied across income segments...
...Apologists for capitalism often hold welfare programs for the poor to be illegitimate...
...2Special Analyses, Budget of the United States Government, 1978 (Washington, D.C.: U.S...
...There are three major problems with the tax expenditure program...
...Washington, D.C.: Brookings Institute, 1975...
...In practice, however, this logic flounders...
...There are three excellent works on this topic: Philip Stern, The Rape of the Taxpayer (New York: Vintage Books, 1974...
...Through the tax deduction and exemption system billions can be pumped into the pockets of the nonpoor, and hardly anyone notices it...
...This automatically leaves out a large segment of the population...
...Businesses are not given welfare, they are 140 given subsidies (a larger check to fewer persons...
...This would serve to educate the public regarding the role of government...
...Stanley S. Surrey, Pathways to Tax Reform (Cambridge, Mass.: Harvard University Press, 1973...
...Businesses are not put on the food-stamp rolls, they are given low-cost loans, cost-overrun contracts, exemptions from antitrust laws, and tax credits and exemptions...
...Since 1974 many of these tax exemptions and deductions have been reported in a special budget labeled "Tax Expenditures...
...First, by not collecting a tax, the benefit that goes to particular groups is difficult to detect...
...While the government may be forgoing billions of dollars to help individuals, groups, or industries, the illusion is created that only those groups that actually receive cash payments or direct services are being benefited...
...7 Bureau of the Census News Release, June 7, 1977...
...141 receiving 10 percent of the total subsidy...
...If the government wants to aid some group or segment of the economy it seems reasonable, and less expensive, to reduce the group's tax rate rather than to tax them and then return part of the money in the form of a cash grant...
...3 This represents the largest welfare program administered by the federal government...
...While incentives may be necessary in some cases, the tax expenditure route is indiscriminate, inequitable, and wasteful...
...37-38...
...Included in this budget are deductions for interest and taxes paid on home mortgages, interest on life insurance, charitable contributions, common credit costs, the lower tax rate for capital gains, the investment tax credit, and dozens of other items...
...The deduction is designed to provide federal aid to citizens to help them purchase homes...
Vol. 25 • April 1978 • No. 2
