My car is doing just fine, thank you very much. It’s a Subaru Impreza, with close to 100k miles, plenty of hail damage, and a sun visor that won’t stay up. It’s a great car, and I have no desire whatsoever to trade it in for something nicer.
But let’s say I did. Let’s say I wanted to get a new Subaru Outback (I’m in Colorado, where Subaru is King). In doing my research, I find two places with the model I want, one listed for $20,000, the other for $15,000.
Since I prefer not to frivolously spend money, I’d check out the $15,000 car first. I head to the dealership, test out the car, and decide that it’s the machine for me. Then, when I sit down with the salesperson, I’m given an hour-long speech about how they’re doing me such a great favor for selling me a $20,000 car for $15,000. No matter what I do, he won’t shut up about it. I finally get so fed up with his self-deemed benevolence that I flip him the bird and run out without buying the car.
At the second dealership, I find the same car and go right for the sale. All the paperwork is written up, I sign the final document, and I hand over $20,000 (in cash, of course, since this is all made up). The salesperson smiles at me, and says, “You know what, you’ve been such a good customer, here’s $5,000 back.”
I smile back, jumping with joy as I grab the cash and head out to my new ride.
Benefit Or Advertised Price
Last Friday I found a Tax Policy Center article by Howard Gleckman discussing how all Americans get government assistance. He starts out mentioning a list of benefits with which I more or less agree, before moving on to tax policy and government subsidies.
While I agree with most articles coming out of the TPC, the argument presented here didn’t ring true. His contention, if you’re too lazy to click through, is that we should lump tax deductions and credits with other government expenditures to come up with a big pool of government benefit.
On some parts of his analysis, I agree. Most deductions do help wealthier people more (though some of that is just simple math). And the EITC and other refundable credits are a government expenditure, so grouping that in the government benefit category makes sense.
But all deductions? Or at least all itemized deductions. Are those ALL government benefits?
What is considered a “government benefit” when it comes to so called tax expenditures? If the government allows you to keep more of what you earned on your own, is that a benefit?
Whether or not these deductions and nonrefundable credits are government benefits is an important question, since it fundamentally frames the way our two political parties currently lean. Yet this article, and so much of the political debate, makes an assumption and runs with it like they stole it, never addressing the concerns of the other side.
Let’s say your effective tax rate is 15%. Does that mean 15% of every dollar you earn actually belongs to the government, or does it mean that it belongs to you, and you give it to the government in exchange for being a upright citizen of the country?
It seems like a trivial difference, but it’s not. If the former is true, that a percentage of your income belongs to the government (or, in the extreme, it all belongs to the government and they just let you keep a portion), then any “tax expenditure,” including any carved out deduction or nonrefundable credits, would be benefits from the government.
This viewpoint is consistent with a typical view of tithing in the Judeo-Christian world to which much of Western Civilization owes its heritage, though it’s traditionally applied to churches rather than governments. That it’s been moved to apply to governments strikes me as. . .odd. Especially since it’s typically done by the less religious.
The latter argument, that it’s all our money and that we agree to pay in, implies that we’re just paying the advertised price. We’re not given a gift, we’re not given a benefit, we’re just paying exactly the agreed upon price. Any manipulation to that price is done behind scenes, and while it will affect us, it affects us in the way a store changes its sale price, that we can accept or reject based on where we shop (or live).
Part of the confusion likely comes from the various definitions of “benefit.” One definition is just something that is advantageous or good. Another is a payment.
Can a deduction be advantageous and good without being a benefit? Yes, if you mean payment definition benefit. So a deduction could be a good thing without being a benefit. A deduction is not a payment, so it doesn’t match that definition. Whether or not the deduction is a good thing is a story for another time.
My Money Vs Your Money
Let’s go back to the car example for a minute. In both cases, I’d ultimately pay $15k, but how I got to that price is totally different. In the case with the $15k advertised price, I agreed to $15k before I even walked in the door. I got pissed at the salesperson because he insisted that he was doing me this great favor, even though it was that low advertised price that got me there. With my money, I was agreeing to pay $15k, so his talk of a higher price rang hollow (and self righteous).
At the second dealership, I agreed to pay $20k before I walked in the door. That the salesperson gave me back $5k is a benefit from her to me. It was then her money that she was under no obligation to hand back.
With taxes, if I’m handing the government my money, I am paying the advertised price. Any deduction the government set up is a sale of sorts, an agreement they made behind the scenes with no consideration of my particular dollar. If they wax eloquent about how they’re doing me some great favor for getting me that deduction, I’d think they’re an ass (and I don’t mean the symbol for the Democratic party).
If they take my money and give it back, though. Well, they may still be an ass, but it’s also a benefit. It’s their money, given to me.
Ultimately, the debate is jumping straight over whose money it is and attacking other based on their opinion of the first. Which is too bad, because I think deciding whose money taxes belong to is an interesting debate. If you couldn’t tell from my argument above, I’m in the camp that its our money and we’re paying an advertised price, no matter how illogical the deduction may be that the government set up (and some times it is very, very stupid).
If someone wants to make the opposite argument, I’d be glad to hear it. I think there are even some valid points to consider. But until I’m convinced, and until more of the country is convinced, any contention that all deductions are a government benefit will be met with a head scratch and a blank stare.