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.

Let's use government's new surveillance powers to end tax cheating

According to the IRS, in 2001 tax cheats failed to pay $353 billion in income taxes they owed. That's a huge number—almost $1,200 per man, woman and child—and I doubt it's gotten smaller during Bush II's reign.

You don't really see anybody up in arms about it, though, do you? According to David Cay Johnston's terrific 2003 book, Perfectly Legal: The Covert Campaign to Rig Our Tax System To Benefit the Super Rich - and Cheat Everybody Else, there's a bipartisan "gentleman's agreement" in Congress to not push too hard on tax enforcement. Any bets on who owes the bulk of that $353 billion? Somehow I doubt it's destitute waitresses failing to report a couple of hundred bucks in tips.

But I digress. Obviously, the government could really use that $353 bil, and I know how to get it…

Now that King Bush has seized all these spiffy new surveillance powers for the government, he's in possession of the perfect tools to end tax cheating! (I can see the headlines now: "President declares War"!) What better way to catch cheaters than to monitor everyone's financial transactions in real time? Why, if they'd prosecute a few high-profile cheaters and really put the screws to them, everybody else would be scared straight pronto! (Oh, and those who had done nothing wrong would of course have nothing to fear.)

Just think what a blow it would be in the campaign to restore respect for the rule of law. And it should be easy to get the telephone/internet companies to go along, eh?

Heck, Bush could even give the rich another tax cut and still come out ahead. Brilliant!

Raise my taxes, please!

I just sent this to my Congressman:

It seems that the idea of cutting off funds for the Iraq war is radioactive in the halls of Congress. Even though it could be done in such a way as to not endanger any troops, Congress thinks that the public thinks that it would result in thousands of broke and abandoned GIs trying to hitchhike their way back to America.

Fine. There's another way Congress can use monetary policy to effectively shut down this misadventure. All you would have to do is enact a tax increase to pay the full cost of the war. If we, as a nation, believe the war is worth fighting, then we ought to be willing to pay for it.

The advantages are many:

First, there would be no question of not supporting the troops. Instead of supporting them and charging it to our credit card, we would be supporting them in reality. In fact, troop morale might increase if the soldiers knew they weren't the only ones sacrificing.

Republicans would be put in an awkward position. How can they say "We support the troops but we want our children to pay the bill"? People who support the war but aren't willing to pay more taxes would be in a real bind.

Democrats would be immunized against the "tax and spend" charge. The spending is already taking place, thanks to Bush and the Republicans. Democrats just want to do the responsible thing and pay for it. The Conventional Wisdom says you don't raise taxes when the economy is weak, but since the Republicans have been crowing about how great it's doing, they can't object to it on that basis. (The Conventional Wisdom also says you don't cut taxes during a war, but there you go.)

Of course, Bush would never sign such a bill, but he would look bad vetoing it. The debate on the bill would generate headlines about how much the war is costing and how badly it will hurt our economy. Faced with the prospect of a tax increase, even some people who now support the war might have second thoughts.

I would suggest that the proposed tax take the form of a levy on imported oil, which would have a nice symmetry: we're taxing our use of the fuels that we're fighting to protect our access to. It's just one small way that we could begin to see the true cost of our oil addiction.

All in all, it could be a winner for Dems, could help end the war, and is, simply, the right thing to do.