Thursday, October 8, 2015

Rich get more "Free Stuff" from Gov't than Poor

[* This post is Via Mark Thoma's blog: We all get free stuff from the government (slightly edited). Originally posted by Bryce Covert on October 8, 2015.]

When politicians talk about “free stuff” (aka "government handouts"), they usually don't mention all the free stuff that rich people get.

George W. Bush's kid brother (the Republican presidential candidate running as Jeb!) was sounding like a Mitt Romney rerun recently. He told a mostly white audience that he could attract black voters because his campaign isn’t one of division and "get in line and we’ll take care of you with free stuff."

Jeb's remark came just three years after Mitt Romney was lampooned for later describing his own message in a speech to the NAACP as one where the listeners shouldn’t expect “free stuff.”

In each context, it was clear what kind of government stuff they meant. They meant welfare programs — cash benefits from Temporary Assistance for Needy Families (TANF), food stamps (SNAP), housing subsidies and other direct spending programs that help the poor — that are often and unfairly associated with black Americans.

But the shorthand of “free stuff” also takes an incredibly narrow and misleading view of government benefits. There’s a whole treasure trove of government handouts that aren’t dispensed through spending, but rather through the tax code. That doesn’t make them any less “free” than a rent voucher or an Electronic Benefit Transfer card.

The government loses about $900 billion in revenue every year on just the 10 largest tax expenditures, which includes credits like the earned-income tax credit and Child Tax Credit, as well as deductions and exclusions that help mainly middle-class people reduce how much they owe each year around tax time.

It also includes special tax rates, such as the lower tax rate on money made through investments, such as stocks (capital gains), instead of a salary (regular wages). Tax credits mainly help the poor, but the remainder helps the very well off ...

According to the Congressional Budget Office, more than half of the benefits of these expenditures go to the richest 20 percent of American households.

So while low-income Americans are more likely to get health insurance through Medicaid, well-off Americans are the ones who reap the benefit of health insurance tax breaks. Poor families might be able to get "Section 8" apartment vouchers (or spots in public housing), but the mortgage interest deduction overwhelmingly helps people who make more than $100,000 a year buy their homes.

What the government loses to these type of tax expenditures dwarfs spending on welfare programs. Each year, the government spends about $17 billion on assistance to needy families and more than $70 billion on food stamps — compared with more than $900 billion that flows out through loopholes in the tax code [with special tax breaks for the rich]. It expends nearly three times as much on tax subsidies for homeowners as it does for rental assistance for the poor.

These facts are obscured for most people. While those who get government benefits through spending programs are often aware — and/or too frequently ashamed of that fact — those who get them through the tax system usually don’t realize they’ve received a "government handout". In a 2008 poll, 57 percent of people said they had never availed themselves of a government program, yet 94 percent of those same people had in fact benefited from at least one — mostly through the so-called “submerged state” — the huge, but often invisible, network of money spent through the tax code.

Jeb Bush is almost certainly aware of the "freebies" available through the tax code. According to one analysis of his federal income tax returns, he himself has saved at least $241,000 since 1981 through the mortgage interest deduction. Yet, just days before, he vowed not to promise voters more free stuff when he put out a tax plan that would give out a whole lot more of it.

Proposed changes [in most of the GOP's tax plans], such as lowering the top income tax rate, ending the estate tax paid by the wealthiest 0.2 percent and even further reducing the rate for investment income (the biggest benefit) would be handed to those who are already counted in the richest 1 percent of America.

This was exactly what happened during Mr. Romney’s presidential campaign. After promising one group no free stuff, his tax plan would have meant a big tax break for millionaires and billionaires — with an increase in tax burden for everyone else.

Mitt Romney and The 47% — "There are 47 percent of the people who will vote for the president no matter what. All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement, and the government should give it to them."

Bush and Romney’s rhetoric about government programs (aka "handouts" or "freebies") are nothing new. Ronald Reagan conjured the boogeyman of the welfare queen out of a trumped up story about a woman who supposedly lived large off benefits without putting in a day’s work. In the 1970s, Ronald Reagan villainized a Chicago woman for bilking the government; but her other sins also included kidnappings and murders.

Reagan's myth was so toxic that it helped pave the way for welfare "reform" in the mid-1990s by Bill Clinton, which all but demolished cash welfare. Yet Reagan also proposed and passed huge tax cuts which mostly lowered the burden on the wealthiest Americans — and did little for everyone else. The top income rate dropped from 70 percent to 28 over the course of his presidency — and has never gotten back up anywhere near that level since. (Hillary's husband later lowered the tax rate on capital gains from 28% to 20% — and Jeb Bush's older brother lowered this tax rate again to 15% — so both "moderate" Democrats and "moderate" Republicans have catered to the very rich.)

Every four years, [Republican] politicians stigmatize “free stuff” like food stamps and welfare while courting votes — and gloss over tax breaks. But the problem goes beyond disingenuous [GOP] politicians. Statements like these erode support for government. The more “visible” benefits someone has used — like food stamps — the more likely he/she is to feel that the government has helped him personally. But if most Americans falsely think they don’t get free government stuff, then they won’t want to offer it to the people they think get it instead ("the 47%).

That’s how we ended up with a system where we invest about as much on social expenditures as other developed countries, yet are far less effective at reducing poverty or income inequality. We turn a blind eye to giving out more and more tax breaks --- but at the same time, balk at actually spending enough to adequately help the most vulnerable among us.

[* Bryce Covert is the economic policy editor at ThinkProgress and a contributor at The Nation. His original and unedited post is at the New York Times.)

My Related Post: The Poor Pay More In Taxes


  1. * Look no further than the billionaire owners of sports teams, who get government-subsidized stadiums built for them.

  2. Stephen Hawking Says We Should Really Be Scared Of Capitalism, Not Robots:

    Machines won't bring about the economic robot apocalypse -- but greedy humans will, according to physicist Stephen Hawking.

    "If machines produce everything we need, the outcome will depend on how things are distributed."