THE SCREWING OF THE AVERAGE MAN: Government Subsidies: Who Gets the $63 Billion?

Branch, Taylor

THE SCREWING OF THE AVERAGE MAN: Government Subsidies: Who Gets the $63 Billion? by Taylor Branch Third in a series. Ever since Teapot Dome, the average man and woman have suspected that...

...These inklings of the average man were recently firmed up by solid evidence in a historic study by Senator William Proxmire’s Joint Taylor Branch is an editor of The Washington Monthly...
...About 13,000 workers in the industry are subsidized an average of $8,000 apiece by the construction payments...
...Subsidy Pollution As the average man leaves his relatively unsubsidized house for work, the fresh air and nature’s odors may remind him of the $3.225 billion listed in the Proxmire survey as subsidies for natural resources...
...This would cost $21 billion in wages for nine million workers, according to the Urban Institute, a poverty think tank that compiles comprehensive statistics on income maintenance...
...He now speaks to people in smaller groups, where he lets it be known that a livelihood or a subsidy or at least a small fiscal hypo can be had for votes, or money...
...In addition to these payments, federal crop limitations have the effect of raising all crop prices about 15 per cent above the market level...
...Like hot air, the federal dollar floats upward, attracted by large buildings, as the average man contemplates from the bewilderness...
...The volume of payoffs in the Proxmire study becomes even more remarkable when you consider the sums that the Joint Economic Committee has omitted for various reasons...
...The university families receive a subsidy of $1,700 a year, while paying a total of $910 in all state and local taxes, for a net gain of $790...
...For example, the $63 billion does not account for waste, a comprehensive program by which the government pays more than it should (often intentionally) for items like weapons systems and operations research analysts...
...It was an idea worthy of the Sheriff of Nottingham...
...Subsidies can take the form of direct cash payments, such as a $5 million bonus for dairymen and beekeepers meted out by the Agriculture Department...
...He may recall the $130-14O-million payment to timber producers, for example, which results from a special law that their income is to be taxed at capital gains rates rather than at the rates for ordinary income...
...Although the distributive effects of these tax subsidies may deflate the average man’s pride in the public crusade for universally adequate shelter, he may still applaud the objective that was in mind when the subsidies were created, namely, to increase homeownership...
...The only water pollution subsidy given private polluters by the federal government is a provision in the 1969 Tax Reform Act allowing rapid depreciation schedules for investments to clean up the environment, costing $15 million a year...
...This would not only eliminate poverty as currently defined, but it would also be an enormous step toward achieving other national goals related tdpoverty, such as housing, medical care, and nutrition...
...Her next $1,000 in earnings will actually give her a net decrease of $147 in disposable income, for a marginal tax rate of 115 per cent...
...There are also “back door” tax subsidies, such as a $55 million boost for companies that operate primarily in Latin America or the $1.5 billion depletion allowance for the oilmen and their mineral colleagues...
...Treasurv Welfare The average man who takes a mental stroll through the Proxmire study is perplexed by all the subsidies and income redistribution he sees whirling around him...
...The average man is blamed for blocking the negative income tax, as more enlightened citizens bemoan his bigotry and Draconian social values...
...I mention this unpleasant situation only to point out the nonsense that many young people like myself fall prey to in thinking that all the poor can be fed from the drippings off David Rockefeller’s table...
...His consent to the plan is required not only because of his political attachment to the work ethic, but also because he will have to contribute modest sums to pay for it...
...The poor students like the program because it guarantees them a way to work through college, but they are not the prime beneficiaries...
...Some federal programs are more regressive than the loans, such as the $500 million paid out through the additional personal exemption for students-which gives money according to income and thus is a kind of special reward for wealthy parents who educate their children...
...Since only six per cent of families earn more than $25,000 and only 29 per cent earn more than $15,000, the income groups just above the average man will have to come up with some of the cost, and the average man will have to kick in a little, too...
...Rising Bribes and Subsidy’s Cousins The Joint Economic Committee defines a subsidy as any government financial assistance aimed at inducing particular private groups to alter their behavior in the marketplace, and the value of the subsidy is that portion which is “undeserved” by the harsh standards of private enterprise...
...As one pilot put the strategy to the Secretary of Transportation: “It would be a major advantage to the Communist plan to eliminate the vast facilities and National Defense Capabilities of general aviation’s fleet of over 1 10,000 planes...
...In 1970, only six per cent of all families had total money earnings greater than $25,000...
...This indicates that there are some wealthy students receiving subsidies who would remain in school without them, in which case the federal money reduces their costs but does not add to the total amount of education received...
...This costs people who don’t grow their own food about $4.5 billion annually-so that the combined payment and control programs for agriculture take about $10 billion to the farm every year...
...The $164-million cash payment for Higher Education Work Study is hailed as a very progressive measure, since all the money goes to poor students, whom the government pays to do chores around the campus...
...Such self-interest must sustain the capital gains tax subsidy alone, because the consensus among economists is that the public as a whole receives few extra benefits from capital gains treatment and would not suffer if they were taxed like ordinary income...
...About $7 billion of this subsidy goes to one group alone, the five per cent of the population that makes between $25,000 and $50,000 a year...
...The laws are not only written to favor the wealthy, but they are often so complicated that maximum rewards go to those who can hire a lawyer to gain a toehold over the tax digest, leaving the average man, as usual, screwed by the abstruse...
...These donations are the gyroscopes of subsidies, given not so much to obtain new benefits as to protect old ones...
...The Pechman-Okner study, commissioned by the Joint Economic Committee, shows that the largest subsidy for commerce comes from the special tax treatment given capital gains, which may be viewed as a $13.708 billion payment from the Commerce Department directly to stock traders, astute investors, and others who can keep Wall Street paper floating above par for six months and a day...
...The survey does not include outright welfare payments and transfer payments, such as the $9 billion federal share of public assistance and all of Social Security...
...But Congress overrode the veto, convinced that the new subsidy would rescue the large number of small tree growers on the margin of insolvency...
...They make about 75 per cent of all landings and take-offs requiring the facilities of FAA control towers, and 80 per cent of the private flights are’ deductible as business expenses for the executive owners...
...For conservatives, a guaranteed annual income would be pleasant because it would restore a modicum of work incentive to the poverty population, which now faces a system of outright discouragement...
...Although he is not quite ready to turn his stockbroker or his time card in for a lobbyist, something in his bones says that the last rainbow has plunged into Washington and that others have beat him to a treasure which he does not yet fully understand...
...The average man may get a share, but for those on either side of him the tax law says that we value a summer rest in Florida (travel expenses deductible, if prescribed) more than the poor person’s chest x-ray...
...Schultze also calculates that the poorer half of the farm population receives 9.1 per cent of the total federal subsidy, while the wealthiest 19 per cent takes home 62.8 per cent of the federal money...
...National Defense...
...The tax loss may be applied against other earnings to produce a tax rebate on what would otherwise be paid to Uncle Sam...
...This is the core of the argument, although it is usually toned down a bit in congressional hearings...
...Political Wall Street The average man may derive a third notion from the Proxmire report-that nearly every federal bill has an impact on the distribution of income, and that people may like the substance of a proposal for business or pollution or education, but not the unnecessary effects on income distribution...
...In the subsidy-filled economy, however, there is no stigma attached to special benefits...
...If you know how to tickle the right p1ace.s in the Agriculture Department, for example, you may get the government to build a lake on your land at far less than cost under the $78 million Watershed Works of Improvement program...
...Although high incomes are supposed to make people bribe-proof and relatively...
...I suppose they’d probably say that ‘satisfactory figures are not now available,’ ” he replied candidly...
...This bonus comes to $12,320 a week if they are millionaires...
...The discovery of this huge sum-about one fourth of the total federal budget, and growing-promises to have a jolting impact on the way we think of public economics...
...immune to material weaknesses (as is frequently asserted by congressmen who want their salaries raised), this principle has not yet drifted out into the population at large, where bribes, like champagne, remove scruples in proportion to the amount of the luxury consumed...
...The recipients of capital gains get a bonus on their take-home pay-above the spending money they would get if their check came from hourly earnings at an auto shop instead of appreciation in Ford stock...
...The average man, having learned not to expect decent, honest treatment from any association of professionals and degreeholders (that he is not a member of), having realized that truly remunerative work is one part show business and two parts terminology, and having divined that complaints about problems like unsanitary food only bring a diet of more chemicals, is now confronted with documentary evidence that he is being screwed by the government buck...
...If Congress wants to help people because of their hardship-that is, if it is more concerned with the recipients of the money than with accomplishing some broad social goal-it makes a great mistake by not transferring the money directly to the recipients based on their low income alone...
...World Bank economist Jeremy J. Warford catalogs them in Public Policy Toward GeneraZ Aviation, his book on subsidies to the owners and operators of private airplanes...
...Since these figures are smoothed out by all the people who don’t get sick, they indicate that a person with a major medical expense will get no help from the tax system if he is poor, and that a wealthy person will receive four to six times the assistance meted out to the average man...
...The contradiction can be concealed, as it is far easier for students to hide their affluence while identifying with the poor than for the poor to get away with the trick in reverse...
...Families without children in state higher education pay the costs...
...The companies, which don’t miss out on the federal benefits, throw in some contributions, too, and the result is a tiny, well-knit lobby with almost nuclear powers per man...
...There has been no monograph on subsidies in the English languagethere are several in German-until the recent work of this committee...
...In the same period, the average Medicare recipient got $3.40 in care on the dollar...
...He will have an ample selection, since the Proxmire study has already uncovered $1.23 1 billion in annual transportation subsidies...
...Most interests were once hesitant to make the little-guy point because it appears too socialist in its sympathies...
...for which the society as a whole, rather than the aircraft operators themselves, should be called upon to pay...
...The challenged group will marshal1 its forces and begin reciting its virtues in such a way as to transmit little information that would enable one to measure the value of the subsidy...
...It’s Better than Working If the distribution of benefits from the medical tax subsidies foreshadows all the other tax expenditures, the Treasury has good reason for withholding the estimates...
...As Joseph Albright has written in Newsday, the maritime subsidies have been repudiated on national defense, welfare, and balance of payments grounds-leaving the merchant marine’s government income floating on tradition, sentiment, and one of the most politically potent lobbies in Washington...
...Nearly all of these planes are capable of flying and operating from dirt strips, sections of streets and highways to anywhere in the country...
...If you were the chairman of the House Ways and Means Committee, you might get them, but it still might take a long time...
...And if a truly fair distribution of the subsidy largesse is beyond his immediate grasp, the practical implication for the average man is that he had better get in there and scrap...
...In other words, whether you have a job or an adequate standard of living may depend not on the Federal Reserve’s interest rate policy or the general level of government expenditure, but on whether Uncle Sam has slipped you a little booster with your own name on it...
...The two should be evaluated somewhat differently: the subsidy is successful if it gets the market performance it bargained for as cheaply as possible, whereas a welfare payment is successful if it efficiently redistributes income to the poor...
...Access to these $700 million in government benefits is carefully protected for the few companies that have always been enrolled, and these companies present a united front to the government in alliance with the three major seafaring unions...
...If itemizing homeowners are increasingly pleased with this law as their incomes rise and their houses expand, so are the bankers...
...The amount of money in the program is so small that it is not a monstrous outrage, or even necessarily a bad program, but a close look does show how some efforts that are passed off as “aid to the needy” are not what they seem...
...The government also pays $238 million a year to subsidize the construction of ships for the merchant marine, a curious program resting on arguments of military necessity (but not included in the military budget...
...The upshot of the distributive picture is that you can expect the majority of tax subsidies, and the other ones as well, to be rebated if necessary from those far richer-but you should be prepared to throw in a little yourself, just like a bad guy...
...Thus, Uncle Sam places these farmers in the top five per cent of families by income in the United States...
...Meanwhile, the small farmer-for whose protection the entire system was ostensibly designed-receives only miniscule tribute...
...In 1968, Surrey succeeded in persuading the Treasury to begin publishing an annual compendium of “tax expenditures,” reasoning that all deductions and exemptions are equivalent to direct government appropriations and should be evaluated in the budget as if the taxes had been collected and then paid out to the beneficiaries of the tax breaks...
...The first one is that anyone who receives an incentive payment to accomplish some social objective should be accountable for how well he spends the taxpayers’ money...
...But the $482 million to the maritime industry has effects that have been roughly measured...
...Of course, a subsidy program that yields no return to the taxpayers may in effect only be transferring income to the wealthy, in which case we have a welfare payment to the rich...
...Engrossed in the intricate demands of all the separate beneficiaries of government, the politician simply has nothing of substance to say to the people in general anymore...
...The poorer families with children in the poorer quality state and junior colleges also receive a net subsidy over taxes, although a much smaller one...
...This argument, arising contemporaneously with rural nostalgia, means that it would be a good idea to build airports out in the country so that private plane owners can touch the bellies of their Lear jets down out there and check rural depopulation...
...The federal government pays $224 million each year to some 14 shipping companies to cover the entire wage differential between the earnings of an American merchant seaman and a foreign one...
...When the Aircraft Owners and Pilots Association and the National Business Aircraft Association troop before Congress to support the federal payments to themselves-their measly 400 million scotch highballs-the average man is not likely to be well represented at the gathering...
...Although the average man’s weekly check would nearly be exceeded by the postal charges required to mail it, many common citizens applaud the capital gains provisions as a compliment to their investment genius and as at least a little something to help with the bills-eyes riveted on the quarter flowing into the left pocket while a buck is extracted from the right one to reward the holders of high-volume capital...
...The $300 million subsidy value of national defense and guaranteed student loans, for example, is distributed almost evenly among the populationwith the richest quarter receiving a bit more than the poorest quarter...
...The maritime unions dole out more than $1 million each election to members of Congress, who are moved to nautical hyperbole in approving appropriations each summer and who are always trying to increase the subsidy...
...After the medical asistance programs, the largest federal health subsidies arise from the tax deductions allowed for medical expenses ,and medical insurance programs, totaling $3.150 billion annually...
...Gore said that industry may need stimulating and pollution certainly needs controlling, but that the Senate and the public could no longer afford to let a worthwhile purpose blind them to the outrageous impact of some government actions on the distribution of income...
...Senator Albert Gore tried to eliminate accelerated depreciation on the floor of the Senate, arguing that its distributive effects were intolerable, but he lost decisively after Senator Muskie stated that “this tax relief is only a stimulative to industry to make the investments called for by air and water quality standards...
...He probably doesn’t yet know about the subsidy, for one thing, or about the character of the benefits...
...For the average man, the guaranteed annual income would get liberals off his back for awhile, allowing him to concentrate on his own advancement without having his conscience pricked by the words of people who make more money than he does...
...Proxmite’s staff man Jerry Jasinowski has been working for more than a year to assemble a compendium of all large government subsidies-all the modern opportunities for the informed person to beat the IRS by taking home more than he sends in...
...Of course, it is no news to discover that the government plays a large role in the economy-ever since President Kennedy had to roll out the nukes and the space ships to achieve prosperity, the private economy has seemed lame in spots...
...After refusing to supply the numbers as a matter of policy, one Treasury official was asked how his superiors would respond to an official Freedom of Information request for them...
...Surrey’s demystification of the mortgage interest deduction, for example, shows how the current program would be designed if it were transferred over to the Department of Housing and Urban Development: ofor a couple making more than $200,000 a year, HUD pays the bank about $9,800 of the mortgage interest payments on their $200,000 home...
...There is a shred of validity in the assertion that private airports stimulate rural industry location, but it is largely specious upon examination and ludicrously short of justifying such an enormous subsidy...
...Of the $77 billion generated in tax subsidies in the Pechman-Okner calculations, 47 per cent came from the handful of the population with incomes greater than $25,000, and 43 per cent came from those with incomes between $10,000 and $25,000...
...To the extent that they transfer money without pushing behavior toward the stated subsidy goals, tax subsidies are equivalent to welfare payments...
...for a couple too poor to pay income tax, HUD pays nothing to the bank at all, leaving the couple to talk things over with the loan officer...
...The negative income tax is the most efficient way to do so, for it provides income supplements without loopholes for the big timber companies to sneak through...
...Needless to say, there is little incentive for the companies to hold down wages, since the government picks up the tab...
...To guarantee every family a standard of living at the poverty level or above would cost $27 billion...
...12.52 to those earning $10,000-1 5,000...
...So the average man who decides to fight pays 48 per cent of the jet owners’ lobbying expenses as a taxpayer and all of his own as an unsubsidized private citizen...
...This curiously named tax advantage allows the processors of natural resources to deduct, rather than depreciate, their capital costs...
...Joseph Pechman and Benjamin Okner have calculated from IRS returns that $77 billion in federal revenues would be recovered by canceling all the tax subsidies and returning to a flat progressive income tax with no preferences...
...The property tax and mortgage interest deductions cost $5.4-5.7 billion annually, as calculated by Jasinowski and the Treasury Department...
...His government is selecting the richest farmers, with market incomes already above his own, and writing checks to double their pay up to $27,500...
...man will observe the politics buzzing as soon as he begins to question any of the premium payments to a special interest...
...Private, or general aviation, aircraft account for 98 per cent of the 130,000 planes in the country, with the regular airlines owning the rest...
...The political obstacles weigh heavily against any effort to rearrange federal outlays fundamentally, but it is not impossible...
...The citizen will now have more than his traditional reasons to curse Washington, but ultimately he lifts his eyes there in time of war, recession, accident, unemployment, and general malaise-and the insults he directs at the politicians are a measure of their significance...
...In addition, they can deduct a percentage of their revenues instead of their actual investment costs, which usually means that they deduct more costs than they have...
...Over the next decade, Warford estimates that the subsidy will cost about $3,500 per aircraft per year...
...The California system is widely hailed as progressive and pro-education because the state pays almost all college fees for its students, but the HansenWeisbrod analysis shows why the large public contributions to higher education are not necessarily equitable, much less a boon to the poor...
...Much of this money is new, such as $270 million in mass transit subsidies, so that its distributional effects are not yet known...
...The regressive features of federal grants to public universities are mirrored in state systems, where most of the educational benefits go to wealthier people...
...Finally, $250 million of indirect, “ship American’’ payments that are not yet included in the Proxmire study bring the total maritime payoff to more than $700 million each year...
...Knighthood in the Closet A second notion that strikes the average man on perusing the Proxmire report is that programs to supplement the income of the little person tend to get subverted unless they are tied only to his income and not to his occupation...
...Our kinky moral position should check the full battle cry against the robber barons-it is like going to the barricades with a proclamation of knighthood tucked away back home in the closet...
...According to Brookings economist Robert Hartman, the state of Ohio has recently enacted a plan for financing state higher education that would do two things...
...The repayment is a small percentage of the student’s income, beginning only when and if income reaches $7,500 per year and increasing in mildly progressive steps for higher incomes...
...If welfare payments are defined out of the study, others are abandoned because of measuring difficulties...
...He sees through the loopholes and wired contracts only dimly, but every time he sets out into private enterprise to seek a fortune where it is supposed to be, the crosshairs of some farsighted financial instinct intersect over a public coffer...
...But the new, vitally important contribution of the Proxmire effort is that it will begin to show in detail exactly how the budget affects people in all their individuality...
...They have relaxed their capitalist principles enough to take advantage of the attention the hardship argument will win in the media...
...And even if payments to a public interest lobby were tax deductible, the average man would not benefit as much as most corporations because he is in a lower tax bracket-because, in effect, the subsidy ?or lobbying is unfairly designed...
...As Senator Fred Hams testified before the Joint Economic Committee, “Subsidies are to modem politics what patronage was to the politics of the 19th century...
...Stern testified, using Brookings Institution figures, that the weekly welfare check from all tax subsidies, including pro-poor ones like the tax exemption for welfare and Social Security income, is graduated far more steeply than the federal income tax: $.31 a week to the poor...
...Medicaid (health assistance for the poor) and Medicare (for the aged) have subsidy costs of $3.1 10 billion and $2.070 billion a year, respectively, taking up the majority of health subsidies...
...The health system, of course, is a disaster, but Proxmire’s work shows that what federal help there is tends to go to the right people, with some exceptions...
...The Investment Tax Credit was repealed on President Nixon’s recommendation in 1969, because, as he explained, 15 per cent of plant capacity was then idle and the companies needed demand, not new investment...
...Those making $500,000 to $1 million get extra weekly grocery money of $3,173, a figure 30 per cent greater than the amount being bandied about as a yearly guaranteed annual income for the poor...
...Thus, the university gets full tuition from all students, the poor students get a trifling wage for their labor, and the non-poor students come out as the real some thing-for-nothing beneficiaries by getting a government-sponsored reduction in charges...
...The paying families have a lower average inEome than the receivers, and they in effect subsidize the families of the students-giving progressively more subsidy to the families with higher incomes and with children in the higher quality institutions...
...The Rich Man’s Purple Heart ~~ While staring at a politician, the average man may have his fourth revela tion about Senator Proxmire’s work on subsidies-that the politics of subsidies are stacked against him, and that the whole situation has arisen with a push from more gnarly forces than economic miscalculation...
...Normal education appropriations must pass through the education and appropriations committees each year, where they can be scrutinized and criticized and adjusted...
...Instead of pinpointing assistance for those who are in need of shelter, the program now gives far more help to those in need of a winter home in Key Biscayne or even a third hideaway in San Clemente-more for a sitting room than for a furnace, more for an orchid greenhouse than for indoor plumbing...
...The U. S. Treasury estimates the annual subsidy value of percentage depletion as approximately $1 billion...
...The construction differential subsidy may amount to the cost of one bottle of beer...
...In fact, the subsidy study will begin to provide the knowledge which may show that the selective smiles and favors of government have more influence on the economy than the broad fiscal and monetary policies that have preoccupied people since Keynes...
...Like an old rotary seed-planter, the federal budget spits them out to those who position themselves well, and everyone in your neighborhood is likely to get a different amount...
...It would be a very minor job for them to riot and bum the few major airline terminals...
...And the tax subsidies are almost always permanent, handed out through the Treasury every year regardless of performance...
...According to Warford, the aircraft operators have decided that “general aviation helps to arrest the decline of sparsely populated regions, thereby conferring benefits...
...This sum is almost exactly equal to the subsidy cost of one single tax advantage in the Pechman-Okner report: income splitting, by which married couples are allowed to divide their joint income to get into lower tax brackets...
...The oil import quota system alone is estimated to place about 5 billion regulatory dollars in the accounts of the petroleum industry each year...
...The same formula now applies to all property taxes: the federal government pays 70 per cent of local taxes and interest payments for the rich, 20 per cent for the average man, and nothing for the poor...
...The distributive effects of these subsidies, which are available only to those who itemize deductions, have been pointed out repeatedly by former Assistant Secretary of the Treasury Stanley S. Surrey...
...This situation may be compared with the current subsidy arrangement for people at the other end of the income scale, where a skillful operator can combine capital maintenance expenses with a capital gain in such a way as to show a tax loss while making a profit...
...First, it would provide loans to all students who want them and who qualify for state universities...
...Like his poorer underlings, he may not see very well, but he can feel...
...As recently proven, Communist-led and -controlled civil rights mobs rioting, burning and looting are capable of closing entire cities...
...According to government sources, five large companiesWeyerhauser, Boise Cascade, Georgia Pacific, U. S. Plywood, and International Paper-now receive about $100 million of the $140 million timber subsidy...
...The private skymen have risen to the occasion with the claim that they constitute a kind of unorganized reserve air force, whose mobility would be of great military value if the airfields were knocked out and the bigger planes couldn’t operate for lack of adequate runways and facilities...
...The upshot of all this is that the hearings are lopsided enough for the private airmen to sell their putrid arguments easily and take home the cheese...
...His contact with subsidy programs begins early in the morning when he is likely to eat a Wheatie, and thus becomes acquainted with an agricultural subsidy structure that the study puts at $5 billion a year...
...Economists have always focused on the broad government policies designed to promote the general economic welfare, as opposed to the more individually tailored benefits which now seem to weigh heavily in the budget...
...President Roosevelt vetoed the act, saying that the timber provisions provided relief “not for the needy but for the greedy...
...Thus, the country could increase the overall amount of education received by the young simply through a redistribution of subsidies so that they hit where they are most critical...
...Preliminary estimates from the Treasury Department, however, show that the government pays about $23 of the average man’s doctor bills through the tax system, while paying $1 10-150 for people with incomes above $50,000 and only about $1.50 a year for the poor...
...No guaranteed annual income plan will produce that kind of incentive for the Chicago mother, but it will give her 50 cents of every earned dollar to keep...
...The folklore of capitalism has apparently wiped the idea of a government handout from the minds of economic scholars, but the Proxmire study may one day be looked back upon as a declaration both of de facto socialism and of a fundamentally inequitable formula for socialist distribution...
...The analogy is an apt one, although the current subsidy arrangement is so thorough that one might say subsidies are to modern society what patronage was to 19th century politics, spelling out how each person gets along and where he fits in...
...The Sailor’s Scotch Highball The average man, perhaps a bit groggy from the more than $20 billion in upward-bound subsidies he has already encountered, may think about travel subsidies while riding to work...
...Strictly speaking, this is an argument for a welfare payment, based on human tenderness for the less fortunate fliers, and it should really carry no weight in the luxury field of air travel, but it apparently does...
...by Taylor Branch Third in a series...
...By conferring the vast preponderance of assistance on people who are of such means that they would own their homes regardless of tax breaks, these subsidies operate so little toward increasing the number of homeowners that they are essentially welfare payments, distributed-like White House invitations-inversely according to need...
...Each executive in the informal air reserve can imagine himself hopping into his Cessna at a moment’s notice, strafing militants, and saving the day...
...Most federal education subsidies fall short of the required-for-education criterion, but not nearly as regressively as some programs the average man has encountered while thinking about the Proxmire study...
...If the airmen contributed as much as one per cent of their $500 million Treasury payment, they would have a political war chest of $5 million...
...229.07 to those earning $50-100,000...
...With laws like that, you don’t need to be dishonest...
...The average man will reflect that these two gifts will be granted to companies in accordance with how much they do not need them, like the write-offs for pollution equipment...
...If he did, he might reason that it wouldn’t be worth trooping all the way to Congress to contest his tiny pro rata share of two jiggers...
...If we can bless the 25-granders with $7 billion for being married, we can certainly spend an equivalent amount to eliminate malnutrition...
...Of course, the government itself has not made much of an effort to measure the effectiveness of all the subsidies that have accumulated piecemeal over the years-how much new housing is produced by the housing subsidies, how many small farmers get substantial aid under the farm programs, and so on...
...He sees the regressive Social Security tax rising several billion dollars a year so that it may catch the Pentagon budget in a year or two, while corporate taxes fall by $6 billion of new subsidies in a single year...
...Because these programs include some progressive limitations-only the first $150 in insurance premiums and expenses above three per cent of income may be deducted-they have long been considered relatively even-handed, as a boost to medical care without problems for the public conscience...
...For every one of those controversial programs that give alms to the poor or to him, it turns out there are several that grant blessings primarily to those with incomes above the $10,000 median citizen...
...Congress has been passing laws since 1949 declaring universally adequate housing to be a national goal, and most people, supporting this endeavor, have been distressed that an invisible wrecking ball has laughed at the effort...
...Learning by Payoff By the time the average man gets home from work, he may decide that he needs more education to earn a subsidy in an economy that requres some skill and a little clout to get a fiscal handshake...
...The arrangement appears especially senseless when one reflects that the government could take the $5 billion in direct payments alone and distribute an income floor of $3,000 to the smallest 1.8 million farmers who comprise 60 per cent of the total...
...This money would be well spent on friendly candidates, since the group would be buying dollars with pennies...
...Of the Seafarers’ International Union, Albright writes that “although it represents only 20,000 jobs, the Seafarers’ Union’s political kitty is bigger than that of any other union in America and four times as big as that of the million-member United Steelworkers Union of America...
...Taking Your Medicine The average man cannot enter his doctor’s office with the financial nonchalance of a sailor, and he may be reminded that the Proxmire study has recorded $9.406 billion a year in subsidies to medicine (roughly 6.25 billion scotch highballs...
...Both are financed by non-progressive taxes, but the benefits of the programs are so progressively distributed that they are, on balance, pro-poor and pro-old people...
...Once enacted, a subsidy is even more securely entrenched than the balance of forces at the hearing would indicate, because campaign contributions from the recipients give many politicians a deaf ear for the average man...
...Nor does it include a wide range of what Jasinowski calls “regulatory subsidies,” such as trade restrictions, licensing policies, and industry regulation-most of which amount to indirect payments from consumers and taxpayers to special groups...
...From the plans of every low-income unit and public housing formula has mushroomed a high rise, from every model city a shopping center, until the unhoused poor fear urban renewal more than they fear the landlord...
...Ever since Teapot Dome, the average man and woman have suspected that there must be a more satisfying way to do business with the government than just paying taxes, and they dream of more lucrative government securities than their W-2 forms...
...However, the experience of Medicare doctors has led many supporters of free enterprise to realize that socialism is not so bad if it combines socialized costs with capitalist benefits in a kind of guided collectivism...
...As economist Carl Shoup told the Proxmire committee, ‘‘Federal subsidies are the great fiscal unknown...
...It seems to me we might relinquish two libations per annum and support a proper shipbuilding industry and a prosperous U. S. merchant marine.’: The average man is attracted to the image of the subsidy programs as a kind of round-robin highball, but it seems that friendly libations go only to those who have earned them through conscientious lobbying, and that he serves only as a credit card for many mutual kindnesses among his betters...
...The subsidy operates on three principles: that the costs of pollution control are to be borne by the public rather than by the producers and consumers of the product, that a capital investment is to be favored over all other forms of control, and that the companies which need assistance the least will get the most...
...Thus, our sympathy for the little farmer lines the pockets of large corporate farmers, and the rescue mission for the little treegrower winds up mainly as a transfusion for the five largest timber companies in the country...
...In other words, the companies pay Japanese wages out of their own pockets, and the taxpayers make up the difference to cover the seaman’s living, which one source from the Maritime Administration estimated at $16-30,000 a year...
...This fact will have to be faced regarding any substantial income maintenance program, because the whole scheme cannot be financed from increased taxes on J. Paul Getty...
...The oil industry, for example, should not be allowed to take federal dollars as a subsidy for domestic exploration and then refuse, as a private enterprise, to provide access to records that are needed to determine whether the public is getting its money’s worth in new oil...
...The subsidy means that the average corporation that purchases a $150,000 certified pollution control facility will receive a direct government payment of: $1 1,952, if company profits are above $25,000, m$5,479, if company profits are betwen $0 and $25,000, $0, if the company has no profits, or a loss, m$O, if the company spends its pollution control money on measures that involve no capital expense, such as using low-sulfur fuel...
...and $13,854.78 to millionaires...
...Second, it would require that all instructional subsidies be paid back to the state...
...These effects are now considered carefully only by those special groups who stand to gain from them, and yet their cumulative weight is critical to almost everyone’s standard of living...
...If by some odd contrivance the average man succeeds in recovering these public favors, only to re-confer some of them on the poor, he will remain a screwed and unique citizen-absorbed with his labors, grabbing a little on the side-but his government will be a lot easier to swallow...
...Albright quotes former Maritime Administrator Nicholas Johnson’s appraisal of its achievement: “They have succeeded in getting congressional authorization for a pipeline into Fort Knox from which they are all sucking gold...
...The startling fact is that people who make below $5,000 receive $296 per person from such income maintenance payments, while those making $25-50,000 get $1,146 per person, or nearly three times as much...
...A Boost for Key Biscayne After breakfast, the average man may pause on his doormat to consider the $8.425 billion in housing subsidies that staff man Jasinowski has unearthed...
...Jodie Allen of the Urban Institute has shown that if a welfare mother of three in Chicago increases her income from $4,000 to $5,000, the extra $1,000 will net her $98...
...Of course, it is highly unlikely that such maintenance costs approach one per cent of the bonus, even for the maritime industry...
...The corner dry cleaner and small manufacturer will probably get nothing, but General Motors will get a great deal-both absolutely and in proportion to its income...
...To be sure, his actual contact with the authorities still consists primarily of draft notices and Series E savings bonds and license plate lines at city hall, fully in keeping with the grim reputation of the law’ and its servants...
...The Treasury’s generous underwriting of borrowing costs increases the demand for bank money, drives up the interest rate, and generally increases the return to capital in the economy...
...You may be scratching down through the dust in the chicken yard of private enterprise, hoping for the magistrates to sprinkle a few well-chosen policies around to make things more fertile for everybodybut the real morsels may be bartered over in the next field, where you must jockey with your style, educated poise, organization, confidence, and any other attributes that might convince people you deserve something...
...The Nixon Administration plans to increase this figure by about $700 million next year...
...National polls show, however, that more average people support a guaranteed annual income than do people in higher brackets...
...And if he decided to hire a public interest advocate like Ralph Nader, he would find that the costs of saving his two jiggers are not tax deductible, whereas the lobbying costs of corporate jet owners and all other corporations have been deductible since 1962...
...When you add waste and welfare and quotas and pensions to the at least $63 billion uncovered thus far in intentional subsidies, it is safe to conclude that the federal government had its discretionary teeth deep into the little fibers of the economy long before the wage-price controls...
...But he has a feeling that there is something more behind the impoverished look of the postman and the tribulations of the policy analyst -something to explain why campaign contributors seem content with their investment even after suffering the skyrocketing costs of a share in a political candidate, and why today’s hustler is likely to be a junior pol instead of a junior salesman...
...Hartman writes that “on pure equity grounds it would be hard to beat this proposal,” but the executive director of the American Association of State Colleges and Universities called the Ohio Plan “a reversal of what public higher education has stood for for more than 100 years...
...The law itself rules out “soil, sod, dirt, turf, water, mosses, minerals from sea water, the air, or similar inexhaustible sources.’’ While the tree subsidy and the depletion allowance may hurt the environment by stimulating faster use of natural resources, a few smaller subsidies work in the opposite direction by encouraging people to clean up...
...He will then eyeball the $3.574 billion of education subsidies in the Proxmire study...
...On the other hand, there are some poorer students for whom the absence of a subsidy is the only factor keeping them out of the university...
...The costs of this gold drain don’t seem like much when you think of the contributions as spread out among every single person in the country, as former Maritime Administrator Emory S. Land told Albright: “The operating differential subsidy, per capita, amounts to the cost of one scotch highball...
...In the Revenue Act of 1971, President Nixon pushed through his proposals for adding the largest single boost to the parade of commerce subsidies in more than 40 years-$6 billion a year in tax credits and accelerated depreciation for corporations, which amounted to a 10 per cent cut in corporate taxes...
...And the Pechman-Okner report reveals that federal transfer payments-social security, railroad retirement, welfare, workmen’s compensation, unemployment benefits, and veteran’s disability compensation-give $7 billion more in supplements to people with incomes above $10,000 than below...
...The unequal benefits of the $19.388 billion on subsidies for commerce might be hard for any Administration to live with...
...One angle tossed to the Congress by the tree people was that the subsidy would place their industry on a more equal footing with the rest of the natural resources field, which was enjoying the percentage depletion allowance...
...Food prices would fall an average of 15 per cent without the government production controls, and the benefits of this $4 billion saving would accrue most heavily to the poor because people spend a declining fraction of the family budget on food as income grows...
...If you can get the Aircraft Owners and Pilots Association to admit that its members are subsidized, the first riposte will be that other forms of transportation receive subsidies-autos and bicycles through the construction of public roads, and so on-and that equity demands similar treatment for those who traffic privately in the sky...
...More than 80 per cent of the five to 10 ganders, the lower ranks of the average man, support a guaranteed job at the minimum wage for all capable people willing to work...
...And Warford concludes that the owners of private planes receive about $640 million per year in subsidies for air traffic control, airport construction, and the like, above their aircraft taxes and fees...
...Tax subsidies suffer the additional fault of falling under Stanley Surrey’s maxim that “the wealthier the individual the greater his assistance under the program,” so that even a justified subsidy is likely to be a disaster for the average man if it is designed by the Treasury...
...Extraordinary Public Benefits...
...The abolition of price supports would be like repealing a 15 per cent sales tax on food-a tax now collected basically according to the need to eat and distributed to farmers.according to their volume of production...
...This vital service to the citizenry has been overlooked partly out of ignorance and partly because so many of the subsidies are concealed in the tax laws, where the substantive committees of Congress and the responsible agencies of the Executive branch never see them...
...A recent study by economists Bruce Stuart and Lee Bair shows that when benefits are discounted by care forfeited from other programs and by administrative charges, Medicare patients receive almost no subsidy at all...
...No self-respecting special interest group can expect to get anywhere without at least one argument that can be located on the flag...
...The oldest housing subsidies, however, may have escaped his attention: the federal income tax deduction for property taxes and mortgage interest payments, two stimulants for homeownership hidden in the tax laws...
...The average...
...There is something strange about those of us who long to smite the filthy rich and crusade for the poor, while at the same time fully expecting to earn incomes that will place us in the richest 10 per cent of the population (assuming that a decent living wage is $20,000 or so...
...The regressive impact of the tax deductions more than offsets the net progressive gain from Medicare...
...Percentage depletion has been added to so many mineral products-like ball and sagger claythat it is easier to specify what is excluded than what is depleted...
...While Medicaid remains triurnphantly pro-poor regardless of the scrutiny directed at it, Medicare withers a bit...
...At last, it seems that a subsidy may be designed to aid those who need care most based on their ability to pay-and that there may be a subsidy to help the average man with his medical bills...
...mfor a couple making $25,000 a year, HUD pays $1,000 of the interest payments on their $50,000 home...
...With fiscal and monetary policy, officials have scrupulously tried to follow the old principle that government actions should treat people equally, and it is a great sin of conventional morality to use economic measures which discriminate among groups of people...
...He finds that the effective tax rate for all the federal assessments ranges from 25.6 per cent for the very poor to 29.9 per cent for the average man to 33.6 per cent for those making 25 to 50 grand, and that in the United States the distribution of income is not noticeably different after taxes than it is before them...
...That is where the average man should perk up, for he can use the preliminary Proxmire findings to calculate that his interests are not uppermost in the minds of those who design subsidies...
...If pressed for specific justifications, the recipients will respond with four predictable arguments...
...The Treasury Department has estimates for the income distribution effects of tax subsidies, such as the medical ones, but they have not been released to the public, nor are they available upon request...
...The airplane people next hold forth that any tampering with the subsidies would place unconscionable burdens on the airborne small fry, the Piper Cubs and single-engine jobs...
...Since state taxpayers subsidize about one third of university tuition costs from revenues collected on a roughly proportional basis in most states, and since the child of a wealthy parent is more than three times as likely to enroll in a state university as a child of a poor parent, the benefits of state higher education are distributed about like those from the medical deductions, anghng upward...
...He shows that the wealthiest seven per cent of farm families receive federal benefits averaging $14,000 apiece (raising their net farm income from $13,400 to $27,500), while the poorest 40 per cent receive an average benefit of $300 (boosting them to a net farm income of $1,100...
...But it pokes out every now and then with overtones of hypocrisysomewhat analogously to our demonstrating against the war while utilizing the college deferment to transfer its burden elsewhere...
...In 1966-67, the average Medicaid patient received $34 in care for every dollar he paid into the program...
...Thus, the average man is becoming exposed to a process that will make him regard Washington as he has always regarded Wall Street: he knows that in general his fortune may be indirectly determined there, where the economy is kept churning, but in particular he senses that he is being screwed...
...To stay at current levels of government expenditure, this $77 billion would permit an overall tax cut of about 50 per cent-reducing the rate to seven per cent at the lowest taxable level and 43 per cent at the highest...
...Meanwhile, the average man would provide the fuel for the whole affair by coming up with the subsidy for the special group, a tiny portion of which would be kicked back to the politician to pay for his TV spots...
...Author Philip Stern, among others, testified before the Joint Economic Committee that the welfare content is preponderant, after confessing that his own private fortune enabled him to evaluate tax breaks quite closely...
...The money saved by the university on labor costs can be applied to lowering overall operating expenses, or lowering student fees...
...Don’t Hurt the Little Guy...
...It is known as the subsidy multiplier, because once any gratuity becomes effective this mechanism is used to extend the benefits to any group that can claim the remotest likeness to the original beneficiary...
...This would still leave substantial subsidies of other kinds in need of evaluation, but it would end the longstanding travesty of huge gaps between nominal and effective rates at the higher levels...
...We want to be able to distinguish between government assistance that is ostensibly buying something for the money, as with a subsidy,” explains Jasinowski, “and welfare payments that are only meant to improve the living standard of the poor or disabled...
...mfor a couple making $10,000 a year, HUD pays the bank $350 of the interest on their $25,000 home...
...The federal budget presents no comprehensive summary of subsidies...
...She thus pays a marginal tax rate of 90 per cent by losing welfare benefits...
...Economic Committee...
...Those making $100,000 to $500,000 get only $435 each Saturday, and the benefits trail off from there down to the average man’s compensation of 17 to 46 cents per week...
...And these two tax subsidies give away more housing money every year than all the grand housing laws of the last twenty years combined...
...Although the owners of private airplanes would seem to have a fairly rough assignment in justifying taxpayer gratuities for the owners of executive jets, they make their four arguments with the confidence of people who have won skirmishes with the public before...
...Each dollar of capital gains is thus not only tax free, but it produces a tax bonus that rises according to the operator’s brackettruly a negative income tax for the wealthy...
...He concludes, in short, that a nose for subsidies is second only to the possession of a degree as an asset in finding a soft job, that the economy breathes, floats, and circulates prestige based on bonuses paid from the grand central subsidy of the Congress, and that one of the chief incentives for a person to become rich must be to get the inside track on a wide variety of relatively free subsidies-an inside track that the average man appreciates by running his counting finger over the Proxmire ledger...
...On his journey through the subsidy galaxy, one might form several notions about public bribes that deserve some thought during TV commercials...
...The first group gets about six times as much subsidy per capita as the second, but the more numerous “middle class” group comes out with nearly the same amount of federal gratuity...
...A study of California education by economists Lee Hansen and Burton Weisbrod shows that families with children in the University of California have higher incomes than families with children at the California state and junior colleges...
...But if the same measures are rewritten as tax subsidies, as virtually any program can be, the education committees and HEW will never have authority over them, and may not even see the bill as it passes through the Treasury and the Senate Finance Committee and Wilbur Mills...
...This view holds as long as certain measures that encourage investment risks, such as the deductibility of capital losses, remain in force...
...Jasinowski says that his work so far has merely “dented the surface” of money paid to special groups, but his preliminary figures show that more than $63 billion in subsidies flows from the federal government out through particular veins in the economy every year...
...The average man is beginning to reconsider the longstanding public consensus that the corridors of independent business are the best path to riches...
...Besides, there has been no economic evidence that the credit significantly increases national output...
...The candidates would take the contributions and use them to convince the voters of their dedication as public servants...
...Treasury estimates indicate that about 70 per cent of the tax assistance goes to families with incomes greater than the average man’s $10,000...
...Finally, the government provides “benefit-in-kind” subsidies by buying and selling goods and services on more favorable terms than the customers could find on the market...
...Nevertheless, in 1971, when the percentage of idle plant equipment had nearly doubled to 28 per cent, the President changed the name of the tax credit to Job Development Credit and passed a measure to throw money at the wealthiest corporations as an incentive for them to buy even more equipment...
...In 1943, Congress passed a bill that gave capital gains treatment not only to tree-growing but also to the returns from the seemingly more ordinary tasks of logging and processing...
...This line of reasoning skirts every question regarding whether the subsidy is justified and efficient, but it is politically potent...
...The result is that each seafaring job is subsidized approximately $12,000...
...Essentially, the federal government is bribing the universities to let poor students, rather than ordinary workers, perform the menial tasks of operation...
...This is perhaps the critical shortcoming of welfare proponents, who do fairly well with arguments one through three...
...But at least the generous citizen feels a murmur of warmth because the purpose has been noble and the subsidies aimed at those who need them...
...Economist Charles Schultze, former budget director under President Johnson, has completed perhaps the first precise measurement of the effects of this $10 billion on the distribution of farm income...
...The average man may have trouble with his breakfast as he ponders the figures...
...The arrangement is a model of circular stability, and economists should give up study of the business cycle to focus on the rhythm of election finance...
...In other words, special tax advantages are not needed to induce people to make money through investments instead of through work...
...Furthermore, it would enable the country to cut back the growing kudzu of a poverty bureaucracy in government and its mirror apparatus in consulting land...
...Two tax lawyers at Boston University have recently shown that the distributive effects of this measure lean, as usual, toward high finance...
...Thus, subsidies seek the highest common denominator in the process which enables percentage depletion to seep into every mineral scarce enough to have any economic value...
...Highest Common Denominator...
...There are all kinds of credit subsidies, such as the $179 million Rural Electrification program, which has been putting up telephone poles out in the country since the Depression...
...Secretary Connally’s reticence with the figures may be futile, however, because economists Joseph Pechman and Benjamin Okner have produced reliable estimates from the large sample of tax returns at the Brookings Institution...
...The Food Transfusion As he scrutinizes the Proxmire report, the average man’s mind may dwell on all the reminders of subsidies that he encounters in his day...
...He requires neither medals nor draft notices to make military sacrifices for his countryneeding only a small subsidy, a rich man’s Purple Heart, which the pilots might prefer to call an advance against hazardous duty pay...
...He sees money being taken from most people and given to the oilmen and to ball and sagger clay, from single people and childless couples to the parents of school children, from jobholders to the Job Development Credit, from the poor to rich farmers, from the payroll tax to Medicare, and from everyone to the capital gain...
...Health, like adequate housing, is a national goal, and any distortions of the private medical market should be aimed at providing care to those people who otherwise would not have it...
...If a subsidy is a public bribe and a campaign contribution is essentially a private one, cleaned up, the mutual transaction makes sense only because the special interest groups get back more than they put in...
...With dry lips, he may reflect on some of the smaller maritime subsidies, such as the free medical care the federal government has given all merchant seamen since President John Adams pushed the program through Congress in 1798...
...Subsidies, in other words, are the lifeblood, tainted to be sure, of our electoral system, and this is precisely the reason why it is so hard to eliminate them...
...About $500 million of the net subsidy comes from Washington, the rest from state and local governments...
...Every subsidized group has a favorite “public interest” rationale for its Treasury income...
...But the payments are grossly inefficient because they fail to concentrate benefits on those people who would not own a home if their subsidy were a bit smaller and on those who would own a home if their subsidy were a bit larger...
...Most public finance textbooks in the United States either do not even list the word ‘subsidy’ in their indexes or give only a page or two of reference...

Vol. 4 • March 1972 • No. 1


 
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