President Richard Nixon famously said “I am not a crook.” Everyday Americans say – not so famously – “I am not a moocher.” Thom referred me to a blog at the NY Times which recounts the many ways in which most of us mooch off the government in one form or another and yet think we are not beneficiaries of a federal program.
Today President Obama released his budget for fiscal year 2012, which starts in September of this year. Republicans pooh-poohed the President’s lack of effort to offer any serious reductions in federal government spending. Some Democrats criticized proposed cuts or freezes in spending. Neither Republicans or Democrats want to talk about the 800 lb gorillas in the room – entitlement programs and defense spending, which take up about 70% of federal spending. Republican politicians have vowed to cut spending but will find that most of their constituents get some kind of favor from a government program. When Republicans begin to offer cuts to specific programs they may find themselves in a hive of angry hornets – their constituents.
Not all government programs hand out money directly to the beneficiaries of those programs. Some programs are indirect transfers of money through tax credits and deductions. Tax breaks for a minority of taxpayers are another form of spending by the government for that favored minority.
A review of an IRS analysis of tax returns from 1990 – 2008 gives us a peek into the many government programs that offer tax advantages and how many of us claim these breaks. When the bipartisan debt commission recently advocated for eliminating special tax favors like the mortgage interest deduction in exchange for lower tax rates, politicians on both sides of the aisle cowered. In 2008, 34% of returns itemized deductions rather than take the standard deduction. 80% of itemizers take the home mortgage interest deduction so this one deduction becomes a reason for itemizing. Only a minority of taxpayers claim the deduction but it has become a sacred cow like Social Security and Medicare.
Low income seniors are treated favorably under the tax code. 17% of taxpayers received Social Security benefits in 2008 but only 60% paid any tax on that income. Seniors vote. What politician will touch that one?
17% of taxpayers claim the unearned tax credit, a subsidy program for low income families with children. 18% of taxpayers claim the child care tax credit. 14% of taxpayers claim a student loan interest deduction, an educational expense credit or a tuition and fees credit.
In one form or another most of us suck on the federal government’s teat. Taxpayers claiming any farm income was only 1.3% of tax returns yet talk of abolishing farm subsidies is met by cries of anguish and anger from beleagured small farmers. Most of these subsidies go to large multinational agricultural companies who raise the alarm when any mention is made of reducing or abolishing these programs. Oil companies cry out if their tax allowances might be given over to solar and other renewable energy industries.
The majority of us enjoy tax breaks on any health insurance premiums – the portion paid by us and the portion paid by the employer. We don’t get a tax break for life, home or auto insurance – just health insurance. This tax benefit is another sacred cow. No wants to give up their “gim-mes” from the federal government.
Imagine a world where individuals and corporations pay a flat percentage tax on income; where there is no favoritism given to home buyers or oil companies. It’s a horrible thought, isn’t it?
Innocent Investor 