
How the United States built a welfare state for the wealthy - Libertatea
https://www.washingtonpost.com/news/monkey-cage/wp/2016/02/12/how-the-united-states-built-a-welfare-state-for-the-wealthy/
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whack
Many people reading this would bristle at the idea that tax breaks can be
equated to welfare. The former reduces the tax bill that you need to give the
government, while the latter gives you free money/services that you never had
to pay for yourself. Depending on your perception, the 2 can seem wildly
different and to say they are equivalent would be a hard sell.

However, the article does touch on 2 very important ideas:

1) Redistribution of wealth is an innate part of government. The term has such
a bad connotation, but so many immensely popular government programs basically
come down to redistribution of wealth. An increase in welfare redistributes
wealth from the rich to the poor. The 401k tax subsidy redistributes wealth
from the middle-class to the rich. The mortgage-interest-deduction
redistributes wealth from renters to home-owners, and especially, multiple-
home-owners. People associated "redistribution of wealth" with robbing the
rich, but in reality, a huge number of tax deductions have the opposite effect
of redistributing money from those with less money, to those with more money.

2) Instead of boldly owning up to the above, politicians try to get around the
"redistribution" stigma by sticking in tax deductions/expenditures instead.
These tax expenditures seem more politically palatable, but in reality, have
the effect of distorting the market and picking coincidental winners and
losers. HSA plans? You just rewarded people with predictable medical
expenditures over those with unpredictable medical expenditures. Mortgage
interest deductions? You just rewarded people who prefer to invest in real-
estate, and not those who prefer to invest in stocks. What you end up with are
certain people, who undeservedly benefit greatly from these tax programs, and
others who are just as deserving, but don't get the benefits.

Using tax deductions to enforce "fairness" is simply not a good idea. Issues
of fairness should be managed at a macro scale, by adjusting the overall tax
rates, and through the public safety net. Tax deductions should be used as a
very specifically targeted tool, aimed at discouraging negative externalities,
and encouraging positive externalities. For everything else, we would be
better off scrapping them entirely, and adjusting the overall tax rates
downward instead.

~~~
iuioiuio777
1) Tax breaks do not distribute income. Not up, not down, not at all. Thus tax
breaks to not redistribute income either.

2) Agreed.

3) The line between fairness and positive/negative externalities is fuzzy.

~~~
brianwawok
> Tax breaks do not distribute income. Not up, not down, not at all. Thus tax
> breaks to not redistribute income either.

Okay so I am now dictator of the USA. I set the tax rate to 100%. But boys get
a 100% tax break. Girls pay the as listed 100% tax rate.

I am not redistributing wealth from girls to boys? Someone has to pay for the
government which helps everyone. In my case, girls pay 100% of it. Boys have
money to spend on food and toys at the end of the day, girls have nothing.

~~~
iuioiuio777
Excellent example :)

It's the interplay of tax and expenditure which redistributes income. So, to
use your example: If the government spent 100% of tax revenue on the girls,
then there is no redistribution.

And as we all know, in the real world US, virtually all Federal expenditure is
on social welfare, defense, and interest on the debt. Thus you could cut ~75%
of tax revenue before the effect you discuss comes into being.

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GolfyMcG
This takes such a short-sighted, illogical view of the underlying mechanics
that tax expenditures and tax breaks rely on.

In the case of SNAP, you are eligible for those benefits if you are below a
certain % of the federal poverty limit (FPL) based on your household size. If
you earn more than a certain amount, you no longer qualify because presumably
you should be able to pay for food on your own. This very directly says, "We
will give you something of monetary value, if you remain poor."

In the case of a tax break, like contributing to your HSA or IRA, you don't
have to pay taxes on that income (or at least not now). You can contribute up
to a certain amount each year but beyond that you no longer receive that
benefit. This very directly says, "We will give something of monetary value,
if you save money."

Both are using government funds to encourage behavior "We will give you
something of monetary value, if you [perform some behavior]." I would suggest
that the intended behavior is fundamentally different and is where the real
difference in these two lie.

Perhaps I'm jumping to conclusions based on the tone of the article, but the
author seems to indicate that both scenarios are equally problematic, when I
think there is a very logical difference. Both achieve a similar short-term
net output - $X in potential taxes not remaining in the government. The
difference is about whether the $X creates long-term value that exceeds that
value and she seems to gloss over that to drum up a controversial article.

Edit: I'm not suggesting that either breaks of expenses are inherently better
than the other. For example, an earned income credit, to me, seems to
encourage a behavior that would be in line with the motives behind a tax
break. I just think this is a very short-sighted analysis of both ideas and
serves only to create controversy.

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ThomPete
The same thing could in some way be said about Denmark a country who have free
healthcare, free education (including university), free roads, free almost
everything (but high taxes)

Denmark have more people hired in the public sector than China relatively to
their size and many of these people have long education and function as
managers and is part of the problematic New Public Management philosophy which
has spread throughout the western countries as their legislation and society
in general apparently becomes harder and harder to understand.

Now how can a country with free healthcare, free education etc. be a wellfare
state for the wealthy?

It can because those who are highly educated knows how the system works, can
speak the "language" and are able to be treated better than the rest. Heck you
don't even have to be wealthy to be treated better you just need to be higher
educated.

Of course the US is more extreme but still the underlying patterns are still
there. That the welfare system is built by those who need it the least. But
how to fix it, now thats a discussion in itself.

------
LargeCompanies
For those making Google and Facebook software developer salaries what are you
legally doing to keep more money in your pocket and away from the government?

When you make a middle class salary taxes taken feel like a fair share yet
when jump up into other tax brackets the view of fairness gets weaker.

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omonra
The guy is totally off. I happen to know this bit and therefore find
everything else rather specious.

All countries allow one to contribute tax-free to their pension OR contribute
with after-tax income but withdraw without paying tax. US happens to use the
former system. You are basically allowed to contribute a certain amount of
your income before paying tax - but will pay tax when you receive the pension.

The idea is that people have lower income during retirement and allowing them
to shift tax burden to retirement will induce them to save more.

I don't see anything favoring the rich about this system (only inasmuch as
people who make more money benefit more from paying less tax - which I have no
problem with).

~~~
maxerickson
I think the framing is not productive, but the underlying point, that tax
breaks should be on the table when discussing the tax system, is a reasonable
one.

The broadest discussions of tax policy usually talk about the highest tax
bracket a person pays taxes in, they don't often move on to talking about
effective tax rates.

~~~
omonra
I agree on the larger point you made.

However - a lot of the 'tax breaks' are not really 'breaks'. They are tools
created to avoid double-taxation.

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jkot
> _In 2015, the federal government spent over $1 trillion via tax breaks and
> the majority of that money went to social welfare programs._

> _Q: So because I have an employer-sponsored 401K and health care plan, take
> the home mortgage interest deduction on my tax return, and save money for my
> kids’ college education in 529 accounts... Yes, you are a welfare queen_

Just wow. I would expect this sort of stuff from Marxist professor, not from
Washington Post.

~~~
maxerickson
It's a question and answer with _Syracuse University political scientist Chris
Faricy_ , so I guess it isn't just from the Washington Post. Or rather, their
publishing the QA probably is not a political statement on their part. Who
knows, he could actually be a Marxist.

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iuioiuio777
Love the framing in this article.

Letting someone keep an extra portion of their own income, but only if used
for savings or healthcare, is referred to as "tax expenditure". This person -
again we're only talking about them being allowed to keep a slightly larger
fraction of his/her own income - is a "welfare queen".

Audacious!

~~~
ThomPete
Your premise is that it's their income to begin with which is based on the
assumption that the entire value of whatever they get is 100% based on their
own work.

Thats not how salaries works. There are a lot of factors involved in a salary
not just your own work. For instance the protection of your property rights,
the borders, against criminals and so on.

We can discuss how much we should pay in taxes, but this false premise that
your income is a one to one reflection of your work is simply false.

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dawnbreez
I still don't understand my own taxes, let alone how tax breaks work.

I suspect a lot of us secretly have no idea why we get a check when we file
our taxes. Can we get a few articles about how it already works, please?

~~~
ap3
You get a check back because you overpaid your taxes for the year.

Like getting change back at the store because you used a coupon.

~~~
dawnbreez
The most useful comment on this page!

Anyway, my own opinion on taxes is that it's all extremely complicated and
perhaps a flat percentage would work better.

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MCRed
Stealing less money is not "welfare". The need to twist words like this is
Owrellian-- and revealing.

~~~
Certhas
Taxation is not stealing, democratically legitimized laws are not oppression.
You are the one using Orwellian twisting of words.

------
bobby_9x
"In 2015, the average household in the top 1 percent received pensions
subsidies worth over $13,000 while the average benefit for a middle-class
family was only $1,000."

The reason is that the top 1% made and contributed probably 10 or 20 or 30
times more than any middle-class family.

In addition to this, they all pay employees, which contribute even more tax
money to the system (which is never discussed in articles like this).

This article paints the false narrative that the 1% aren't paying their 'fair
share'. In fact, they pay the majority of federal taxes every year and
corporate taxes are some of the highest in the world...and you want them to
pay more?!

The majority of stories I see about companies paying $0 in taxes, etc are
nearly all reporters purposely preying on the ignorance of the average person
that has no idea how corporate taxes work.

For instance, I got back thousands of dollars last year and if you took it out
of context, you might think that I paid no taxes that year. However, it's only
because corporations have to pay estimated quarterly taxes, and if your sales
are down and you don't make as much, you get the extra money back (that you
over-estimated based on current sales).

So we could change the system, where the government takes way more, in an
effort to be 'fair'. But the problem is it won't be the same. The government
doesn't create anything.

The 1% will leave the country well before this happened, and the middle class
will be be the next one in line.

~~~
lawtguy
> In addition to this, they all pay employees, which contribute even more tax
> money to the system (which is never discussed in articles like this).

Generally, the taxes other people pay on your expenditures doesn't count
towards your taxes. I can't claim the taxes Walmart pays on the money I spent
on groceries. Similarly, business owners can't claim the taxes their employees
pay on their salaries.

If you are suggesting that we tax rich people less so they can spend more
money, this is supply side economics ([https://en.wikipedia.org/wiki/Supply-
side_economics](https://en.wikipedia.org/wiki/Supply-side_economics)). The US
been experimenting with this for the last 30+ years and it largely doesn't
result in more taxes paid or better GDP growth.

