Wednesday, April 23, 2014

Tax credits are unfair to poor people

How come nobody ever talks about this?

I'm referring to the common practice of structuring government subsidies in the form of tax credits, meaning amounts that you get to deduct directly from your tax bill (as opposed to tax deductions, which are subtracted from your taxable income). For example, the $7,500 tax credit on electric vehicle purchases.

For a rich person who pays more than $7,500 in income tax, this benefit is worth the full $7,500. In fact, it's worth a good deal more than that because in order to take home $7,500, a person in the top Federal bracket would have to earn about $12,400—even more in states and cities that add their own income tax.

So, for a rich person, that new electric car is quite affordable. But for a poor person, not so much. If you don't pay income taxes, the tax credit is worth precisely zero, and you'll pay full price for that new Leaf.

So why should the government subsidize electric cars for rich people, but not for poor people? In this perverse world, the people who need the subsidy don't get it, and the people who don't need it, get it. It seems to me that a much fairer policy would be for the government to send a $7,500 check to the purchaser, which would be added to their taxable income. This would make the subsidy less valuable for the rich than for the poor, and increase revenue to the Treasury.

I'm not sure if it's still in force, but there once was a program that gave tax credits to people who invested in affordable housing projects. This is a lot more defensible because (a) poor people aren't likely to make these kinds of investments anyway, and (b) the effect of the tax credit is to raise the effective rate of return on the investment, making it more likely that the rich would choose to invest their money in something socially beneficial. I get that. I don't get the electric car thing.

Yet another example of tilting the playing field in favor of the wealthy.

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Monday, April 21, 2014

The Fundamental Theorem of American Politics

Here's the sad truth, folks: our politicians don't really give a damn what you think (unless you happen to be a billionaire who's out slumming in the blogosphere).

How do I know this? Here's how: A recent paper (pdf) by Martin Gilens and Benjamin Page at Princeton. 

They analyzed polling data and policy outcomes over the last 30+ years, and found that when the policy preferences of average citizens were different from those of the elites and of organized interest groups, guess who wins?

Maybe this explains why large majorities of the public want a higher minimum wage and background checks for gun purchases, but we still don't have them.

In any event, thinking about this has led me to a breathtaking insight, which I have immodestly christened The Fundamental Theorem of American Politics. Here it is:

To be successful, a politician must serve the interests of the elites while convincingly appearing to care about the interests of the common people. 

OK, maybe you already basically thought this, but looking at it in black & white helps explain a lot. For instance, Mitt Romney failed simply because he wasn't convincing in his attempts to claim he cared about non-rich people. Had he been a better actor (see: Ronald Reagan), he'd probably be sitting in the White House today.

And I don't say this just to dump on politicians; actually, it's quite a skill to be able to simulate caring about popular issues while actually doing nothing concrete to support them, and in many cases doing the opposite.

But it might help if we held their feet to the fire more often.

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