The Aqueduct?

by John Holbo on July 11, 2011

Alex Tabbarok has written an odd post, whose reasoning, were it sound, would seem to license the following inference. Since, as Bastiat says, “Government is the great fiction through which everybody endeavors to live at the expense of everybody else,” John Cleese’s fatal mistake in this debate is to admit the existence of Roman aqueducts. (That really puts him on an ontological slippery slope to sanitation and education and all manner of entification.)

But seriously. I guess I can see arguing that tax credits aren’t, per se, social programs – but aren’t they social engineering, hmmm yes? (Wouldn’t it follow that they couldn’t be faulted for being the latter, if they can’t be credited with being the former?) But I find it hard to see how 529 plans could, strictly speaking, fail of bare existence. (If you think otherwise, I’ve got a Pentagon you might like to levitate.) Arguing that if something didn’t exist, the private sector could take up the slack is one thing. But arguing that because you could – oh, say, hire a private protection outfit – that therefore the police actually don’t exist … ?

Finally, I have a feeling that Tabarrok would not, if caught in another mood, express a preference for a tax code pockmarked with various and sundry breaks, giveaways and loopholes over one lacking these features, commonly regarded as unlovely by economists. But since Tabarrok’s stated position is now that such things are rightly regarded as precious islands of civil freedom, in a socialist sea of serfdom … oh I give up.

{ 139 comments }

1

ajay 07.11.11 at 4:09 pm

Minor point: aqueduct.

2

William Timberman 07.11.11 at 4:24 pm

The libertarian pretzel-benders strike again? (Me and my buddies’ll damned well chip in and build us our own effing aqueduct. The principles — and necessary amounts — of capital accumulation for public purposes be damned.)

3

StevenAttewell 07.11.11 at 4:27 pm

In the post linked, I found it very telling that savings would not be taxed in a laissez faire world, according to the author. Which would be a rather strong intervention against consumption and against investment.

4

John Holbo 07.11.11 at 4:27 pm

“Minor point: aqueduct.”

Good point. Corrected.

5

Sandwichman 07.11.11 at 4:30 pm

“As Bastiat said, ‘Government is the great fiction through which everybody endeavors to live at the expense of everybody else.’” But he forgot to add that laissez-faire is the reverse.

6

JP Stormcrow 07.11.11 at 4:37 pm

How much more tiresome could the petty ressentiment of the “successful” be? None, none more tiresome.

7

Matt_L 07.11.11 at 4:43 pm

“bloody Romans, what have they done for us lately?”

8

SusanC 07.11.11 at 4:46 pm

The argument Tabbarok’s making seems clear enough:

If you’re having an argument between people in favour of more taxes (to be spent in some socially useful manner) vs. people in favour of less taxes, then a case where it was beneficial to not tax something, or tax it less (e.g. a tax break) is not a point for the “more tax” side.

9

Barry 07.11.11 at 5:00 pm

“Finally, I have a feeling that Tabarrok would not, if caught in another mood, express a preference for a tax code pockmarked with various and sundry breaks, giveaways and loopholes over one lacking these features, commonly regarded as unlovely by economists. But since Tabarrok’s stated position is now that such things are rightly regarded as precious islands of civil freedom, in a socialist sea of serfdom … oh I give up.”

IOW, in a different and more perfect world, Alex would have different preferences, but in this imperfect world, he tends to line up with the right, when economics in question.

10

Joshua Holmes 07.11.11 at 5:02 pm

I don’t see the confusion. Rampall and Bartlett are lumping “tax break” with “government benefit”, and Tabarrok disagrees that they’re the same thing and decries that sort of thinking as hostile to liberty. You don’t have to be a libertarian to agree. The idea that everything the state allows is a “benefit” has no basis in classical liberal thinking, of which modern libertarians, liberals, and conservatives are all heirs. We disagree over the particulars and spheres – and that’s what should be going on here – but the basic idea should be shared among us all.

11

John Holbo 07.11.11 at 5:03 pm

SusanC,

I could understand someone saying that they weren’t ‘benefited’ if they felt that their taxes were spent in a wasteful manner on a social program, i.e. if they felt they could have gotten more benefit spending their money otherwise. But the question asked was whether people ‘used’ government programs. You still ‘use’ the DMV, even if you think it’s inefficient and wasteful. Tabarrok is arguing that it is correct to say that you don’t use a government program, if you feel that you aren’t benefited by it, even if you DO use it. That is clear enough, I suppose, but it doesn’t seem very sensible.

12

John Holbo 07.11.11 at 5:06 pm

My response to SusanC applies as well to Joshua’s comment.

13

Henri Vieuxtemps 07.11.11 at 5:08 pm

No, they were asked if they used a government social program. The word ‘social’ implies (to some of them) that you’re given something for nothing.

14

John Holbo 07.11.11 at 5:15 pm

“No, they were asked if they used a government social program. The word ‘social’ implies (to some of them) that you’re given something for nothing.”

Sorry, I didn’t mean to be misleading about that. Yes, they were asked if they used a government social program. I was just focusing on the use/benefit distinction, since Susan and Joshua seemed to think people were being asked whether they felt they were ‘benefited’.

15

John Holbo 07.11.11 at 5:19 pm

Also, I’m not sure whether thinking ‘social’ implies being given something for nothing is, in your eyes, a defensible position, Henri. To my mind, if they are thinking that, then that just confirms the point that Yglesias and Bartlett and others are making. Namely, they think they don’t use government social programs, but they do.

16

Mike from Ottawa 07.11.11 at 5:19 pm

What does it matter whether someone _felt_ they benefited from a program? The question isn’t whether they felt it but whether they benefited. If they’ve benefited, then their feelings they haven’t merely reflect their own ignorance or sense of entitlement.

17

Henri Vieuxtemps 07.11.11 at 5:29 pm

To me it’s mere semantics; what people think ‘government social program’ is, that’s what it is. The poll is meaningless.

But this reminds me: I was reading Michele Bachmann’s wikipedia entry earlier today, and it has a picture of a tea-party meeting with the sign that says: “cut spending, cut taxes, cut unearned entitlements”. I suspect that’s how they define ‘social’ – ‘unearned’.

18

Ray 07.11.11 at 5:46 pm

I don’t see much to disagree with in his argument.
If you drive on roads built with government money, or your education is subsidised by the government (a grant to you or to the school, whatever), then yeah, you are benefiting from that government program. In this defined situation, the existence of government is making things better for you.*
If the government would normally take $100 in taxes from your wages, but says, “oh, you’re paying a mortgage? then we’ll only take $50”, to describe this as a ‘benefit’ is bizarre. You are still losing $50 to the government. You are suffering less than your non-mortgage paying colleague, but you are not ‘benefiting’. You are still worse off than you would be if there were no government.*

* and all this assumes that you can isolate out ‘roads’, ‘schools’, ‘taxes’, and ‘tax breaks’ as if they were not related, but that’s implied by the question. The survey respondents were not asked if the very existence of the US government made them better or worse off. They weren’t asked if they benefited from the existence of the US army.

19

MPAVictoria 07.11.11 at 5:50 pm

Unearned entitlements = equals entitlements for anyone who is not them or a member of their immediate family.

20

dr_eats_babies 07.11.11 at 5:50 pm

Metaphysics should be added to econ prelims.

21

MPAVictoria 07.11.11 at 5:51 pm

“If the government would normally take $100 in taxes from your wages, but says, “oh, you’re paying a mortgage? then we’ll only take $50”, to describe this as a ‘benefit’ is bizarre.”
I don’t find that bizarre at all. You are still 50 dollars richer than your non-mortgage paying fellow citizen. Hence the benefit.

22

Ray 07.11.11 at 6:06 pm

But you’re $50 worse than the guy who doesn’t pay any taxes.

If two thieves are sentenced to prison but one of them gets time off for good behaviour, has he benefited from the judicial system? He’s better off than his partner in crime, but he’s not better off.

(which is not to say that I agree with the whole propertarian belief system, but even a stopped clock… [if that clock has some sort of digital display and only ever shows a time accurate to within a minute])

23

JM 07.11.11 at 6:11 pm

Well, that’s two minutes’ reading I’d like to have back. Americans frequently are in denial/willfully ignorant of receiving government benefits, thanks to 30 years of propaganda equating all government programs (that benefit ordinary people, anyway) with welfare, not to mention communism, socialism, and fascism all rolled into one. Even unemployment insurance = “welfare” recently because … well just because, that’s why. You could poll to measure the impact of this kind of weaponized ignorance on popular perceptions of trial lawyers and climate scientists. Welcome to the USA, a reasonable doubt for a reasonable fee.

The various rationales for creating various incentives (by committee!) disappears behind Tabbarock’s petulant government straw men who are telling us how to feel about it, which only goes to show that the internet can be just as stupid as AM radio sometimes. But the disconnect he manages to turn into yet another glibertarian hissy fit is a real and present-day political obstacle to having rational policy, and it leads to more weird incentives coming out of committees, which leads to more Stosselesque moustache twirling, etc. We do live at the expense of others, government or not. A democratically-constituted republic is supposed to help price in the costs and the negative externalities.

24

MPAVictoria 07.11.11 at 6:15 pm

“If two thieves are sentenced to prison but one of them gets time off for good behaviour, has he benefited from the judicial system? He’s better off than his partner in crime, but he’s not better off.”
Are taxes theft? If they are theft than you are right if they are not than I do not see how your argument makes any sense.

25

MyName 07.11.11 at 6:18 pm

“Tabarrok disagrees that they’re the same thing and decries that sort of thinking as hostile to liberty.”

But the problem with that view is that you’re not getting less tax in a vacuum, but because you’re a member of a certain class (e.g. “homeowners” or “people with children” or “people saving for college or retirement”). You don’t have to do any of these things, and in fact for people who are below a certain level of income, it wouldn’t normally be advantageous for them to do so. Setting aside money for college or retirement has less marginal return than paying down debt or investing directly for most people, which is one justification for why these programs exist.

26

Ray 07.11.11 at 6:25 pm

MPAVictoria – In my example I talked about two thieves going to prison. I didn’t say they were wrongly imprisoned, or that it was unjust that they be sent to prison. It doesn’t matter for the analogy.
What Tabarrok is complaining about is the assumption that paying $100 in taxes is the natural state of affairs, and if the government decides that you don’t have to pay so much you are better off. But why is it the natural state of affairs? The government is taking your money, but you should be happy because they’re taking less this time?

If the 529, interest deductions, and tax credits were taken off the list, that argument couldn’t be made. People who receive student loans, social security, Medicare etc really do benefit from a government program, and it takes wilful blindness for them to say otherwise.

27

bob mcmanus 07.11.11 at 6:26 pm

Mike Konczal on the decades-long conservative/libertarian movement to develop through “tax expenditures” “private-sector coalitions” to crowd out “public-sector coalitions.”

Eye-opening. The Tabbarok was gobbledygook this morning, so I’m not sure, but I think the Konczal is directly on-topic about the ideological language AT is using to talk about tax-breaks, and why he does it.

28

Donald A. Coffin 07.11.11 at 6:29 pm

MPAVictoria…
Pierre Proudhon, anarchist extradrdinaire, argued, that (private) “Property is theft” (in What Is Property?: An Inquiry Into the Principle of Right and of Government; http://www.amazon.com/What-Property-Inquiry-Principle-Government/dp/1146754213/ref=sr_1_2?ie=UTF8&qid=1310408801&sr=8-2 ), because private property cannot exist without government intervention, initially on the side of the powerful, to turn the commons into private property. But no one much reads Proudhon these days, mores the pity.

29

bob mcmanus 07.11.11 at 6:35 pm

The real point of the Konczal is that you have to understand on the basis of faith, that people like Tabbarok are just evil, because then when (I think) Milton Friedman in the 70s comes up with LEH and an idea about tax-free 401ks, which looks kinda neat, you just reflexively recoil in horror because of who it came from. They are not stupid or crazy, and they always mean you harm.

Oh, this goes to Obama and other neo-liberals and “public-private partnerships.” AKA, ACA.

30

MPAVictoria 07.11.11 at 6:42 pm

“What Tabarrok is complaining about is the assumption that paying $100 in taxes is the natural state of affairs, and if the government decides that you don’t have to pay so much you are better off. But why is it the natural state of affairs?”
Because civilization costs money

“The government is taking your money, but you should be happy because they’re taking less this time?”
Yes, you are getting a benefit by paying less than the proscribed rate of someone at your income level. The government is giving you a tax benefit to encourage you to buy a house or save for retirement.

31

MPAVictoria 07.11.11 at 6:43 pm

That looks interesting Donald. I am sorry to say I have very little experience with Anarchist literature.

32

JM 07.11.11 at 6:47 pm

Mike Konczal on the decades-long conservative/libertarian movement to develop through “tax expenditures” “private-sector coalitions” to crowd out “public-sector coalitions.”

Or, for that matter, any other middle-class economy of scale that complicates surplus extraction.

33

Henri Vieuxtemps 07.11.11 at 6:57 pm

Yes, you are getting a benefit by paying less than the proscribed rate of someone at your income level.

Income is one parameter that determines your tax obligation. The number of dependents is another one. Mortgage interest is another one. Being/not being blind is another one. There are many.

I don’t think your angle makes a lot of sense MPAVictoria; why income, and not, say, income per family member, or income minus mortgage interest?

34

MPAVictoria 07.11.11 at 7:04 pm

“The number of dependents is another one. Mortgage interest is another one. Being/not being blind is another one.”
These are all tax benefits. I fail to see the confusion.

35

Salient 07.11.11 at 7:08 pm

What Tabarrok is complaining about is the assumption that paying $100 in taxes is the natural state of affairs, and if the government decides that you don’t have to pay so much you are better off. But why is it the natural state of affairs? The government is taking your money, but you should be happy because they’re taking less this time?

Please elaborate, if you would. I’m familiar with two intuitively acceptable (but incompatible) interpretations of “natural state of affairs,” and neither of them align to this. Since I’m asking you to elaborate, I’ll do so myself:

1. The “natural” state of affairs is for a human being to own nothing and have no rights to any thing (specifically, no right of exclusion). Any concept of ownership is human-constructed, and requires a body of persons to maintain and reinforce it. In particular, it’s “natural” to pay no taxes only because in a purely natural world, you don’t own anything that could be taxed.

2. The “natural” state of affairs is for each human, from birth onward, to have equal rights to use of the accessible natural resources of the universe into which they are born. Taxation is one of many possible means for sustaining a mechanism to coordinate the appropriate distribution of available resources and optimize their use (for debatable definitions of appropriate and optimize). If you’re being taxed so intensively that you are actually retaining less than your natural right to the world’s bounty, then you have cause to complain on natural-state-of-affairs.

In the general everyday case, a government isn’t taking “your” money, it’s enforcing, by violence when necessary, your unnatural right to retain and control a disproportionate quantity of available resources and goods. As has been pointed out online at least once per second since the advent of the Internet, vanishingly few capitalists would maintain their wealth in a state of affairs sufficiently “natural” to preclude coordinated enforcement of property laws/rules/dictates, and frankly, all folks who disproportionately benefit from that enforcement owe everyone else a thorough justification for society’s deviation from a natural state of affairs.

36

Salient 07.11.11 at 7:12 pm

Because civilization costs money — Well, hell, this isn’t the first time I’ve typed out tedious paragraphs only to see MPAVictoria sum up in a sentence what I was trying to fumble toward, and it probably won’t be the last.

37

MPAVictoria 07.11.11 at 7:15 pm

Very kind of you to say Salient. Though, as I am sure you are aware, I stole the quote.

38

eddie 07.11.11 at 7:17 pm

In the comment thread over there, it was pointed out, in two examples, where tax deductions don’t actually benefit tax payers that qualify for them: House prices and education costs are higher because of the tax breaks. Is this true? Is it true for tax breaks in general?

Also, it is of course true what MPAVictoria says that “civilisation costs money”. Many libertarians are in denial about this (is this definitional?), but there are other, non-libs that would argue what aspects of govt. spending is necessary. Who decided? How much democratic input?

39

marcel 07.11.11 at 7:23 pm

I. Salient wrote:

1) 1. The “natural” state of affairs is for a human being to own nothing and have no rights to any thing (specifically, no right of exclusion).

2) The “natural” state of affairs is for each human, from birth onward, to have equal rights to use of the accessible natural resources of the universe into which they are born.

You left out a 3rd possiblity.

3) It is the “natural” state of affairs for the strong to take what they want, as long as they are able to, and for the rest to suffer what they must.

Social structures of savana baboons, chimpanzees and gorillas come to mind. These don’t define what is natural for humans, but they provide some suggestions. One of the benefits of civilization is to put nature behind us because, as has been said, it is red in tooth and claw, and life in a state of nature is short, nasty and british brutish.

II. Why a duck?

40

Henri Vieuxtemps 07.11.11 at 7:41 pm

Really, “civilization costs money” is clever?

41

mw 07.11.11 at 7:42 pm

If the question that had been asked was, say, “Do you benefit in any way from government policies that favor particular groups of people?” then all those people answering ‘no’ would, indeed, be deluded.

But to make no distinction at all between tax-deductions and tax-credits of various types, on the one hand, and government social safety net transfer programs on the other? That is to suggest that the only reason anyone retains any private resources at all is government forbearance–forbearance which is the equivalent of a ‘social program’ (and for which one should show proper appreciation).

You might say–Ah, but only special tax deductions should be considered ‘government social programs’. But that won’t do either, since nearly all taxes are ‘special’ in the sense of differential application to some groups vs others.

But setting aside the semantics, there is the presumption by Rampell et al that those answering ‘no’ are hypocrites, dummies, or both which doesn’t follow. The home mortgage interest deduction, for example, is lousy policy and should be phased out. But while it remains, I’m no more likely not to take it than to send in extra voluntary contributions to the IRS.

42

MPAVictoria 07.11.11 at 7:44 pm

“Really, “civilization costs money” is clever?”
Probably not. It does however have the advantage of being true.

43

bianca steele 07.11.11 at 7:51 pm

How depressing, and yes “odd” is the right word. But what does he mean by “civil society”?

I wonder whether the underlying complaint is the use of the word “beneficiaries,” which to a libertarian of that stripe might have the same ring as “supplicant.”

44

Ray 07.11.11 at 7:51 pm

see my first comment
all this assumes that you can isolate out ‘roads’, ‘schools’, ‘taxes’, and ‘tax breaks’ as if they were not related, but that’s implied by the question. The survey respondents were not asked if the very existence of the US government made them better or worse off. They weren’t asked if they benefited from the existence of the US army.

If you take the line that “you benefit rom govt, govt costs money, therefore you benefit from paying money” thn the whole survey is meaningless. “Do you bnefit from government programs?” resolves to “Do you live in this country (or any other country which could be plausibly said to benefit from the existence of the US govt)?” and “Do you think the world is better off for the existence of govt?” Tax breaks, public schools, Medicare – all beside the point, just govt yes or no.

The survvey only makes sense if you uderstand it as referring to specific government actions – and not ‘invading Iraq’, or ‘signing NAFTA’, but providing services to individual citizens. And on that reading of the question, someone who gets a grant to go to college is clearly benefiting from a government programme. Someone who doesn’t get that grant could be said to be benefiting from the existence of a society in which some people get grants to go to college, but that’s a pointless reading of the survey. If Bob pays $50 instead of $100 in tax, that is only a benefit if you think Bob owes that $100 to the govt and he is being let off.

45

Ray 07.11.11 at 7:58 pm

sorry for the crappy keyboard…

46

mpowell 07.11.11 at 8:07 pm

Well, this is just another example of why it is painful to attempt to have useful conversations with libertarians. From Tabbarok’s perspective the government is just taking wealth from people and he is blind to what happens to it afterwards. His first response would probably be to say that it is destroyed. Next, he would say that it is redistributed. But you would probably never be able to get him to acknowledge the most obvious of facts, that the distribution of property rights that we observe is a highly unnatural state (not to mention the incredibly high level of average wealth we enjoy) and must be enforced by government action, which your taxes partly pay for.

There is probably a chance to have a debate about whether these people are really benefiting from a government program or not when they get these tax breaks. The argument I would like to make is that having a government which taxes and spends large amounts of money has substantial benefits for virtually all of the citizens of a country (except perhaps those serving long prison sentences rightfully or not). Many people do not really believe this and I would like to persuade them otherwise. Whether they are getting a ‘benefit’ or not from their tax deductions is a semantic point. The problem is that I don’t see how I would construct the argument that this is a good example of how the government spending money is helping them out. I dunno, does anyone disagree? Do you see the problem with trying to use policy like this to explain how government programs spending money can be helping everyone?

47

Patrick 07.11.11 at 8:10 pm

The libertarian position in this thread is trite. If we all agree to contribute to the operation of the government, but we make a special rule that says that certain people don’t have to contribute as much as they otherwise would because of some characteristic about them, then they have “benefited” from that special rule under any meaningful definition of the word “benefited.”

Money is fungible, and if libertarianism requires pretending that this isn’t so, then libertarianism is stupid beyond words. This isn’t an “open to debate or reasonable difference of opinion” matter. That’s how it is.

48

Jonathan H. Adler 07.11.11 at 8:29 pm

I had to read this pot a few times because it was hard for me to believe it was the product of an honest failure to understand the point Tabarrok was trying to make (as opposed to disagreeing with the post and its normative implications).

Tabarrok’s point is very simple: Letting someone keep their own program is not a government “benefit,” and therefore taking advantage of a tax credit or deduction is not “benefitting” from a government social program. It’s a basic point premised on a classical liberal/libertarian baseline. A government program is something the government creates that would not exist absent government, and a “benefit” is likewise a departure from this baseline. Therefore lower taxation, even if selective, is a not a “benefit” bestowed by government.

The “fiction” is that government is providing a benefit to people by letting them keep more of their own money — not whether money is actually taken and spent on things, perhaps including aqueducts, and not (as Tabarrok makes clear) whether there are those who benefit from such expenditures. There is also nothing at all in Tabarrok’s post which is inconsistent with a belief that our tax code would be better were it not “pockmarked with various and sundry breaks, giveaways and loopholes over one lacking these features.”

JHA

49

StevenAttewell 07.11.11 at 8:50 pm

If the word “benefit” is semantically difficult for some people to accept, how ’bout this word: privilege? From the Latin, privilegium “law applying to one person.”

A tax credit is absolutely a form of privilege – historically, medieval kings would give freedom from taxes as a privilege to favored nobles or chartered towns or abbeys. It’s a law that applies to you, but not to your mortgage-less peer.

50

Ben A/baa 07.11.11 at 8:51 pm

This all started out as a attempted ‘gotcha’ by Mettler. Now many people have tried to make this a ‘get your government hands off my Medicare’ moment showcasing American ignorance. But it isn’t. It’s just a misuse of language. In common use, not many Americans would consider tax structure a ‘government social program.’

Thus, the first level response to Mettler (and others) should be: why are you trying to make Americans look ignorant by pretending tax structure is commonly considered a ‘social program?’ No one uses ‘social program’ in this way.

Tabarrok’s response is really a second-level response, attempting to make a principled distinction between tax structure and transfer programs. It’s pretty obvious that this distinction can be made with reason. I personally deeply dislike most of the gimmicks in our tax structure, and tend to lump these along with subsidies and some regulations as ‘things that cost money and often distort behavior in unproductive ways.’ But it’s not like it’s incomprehensible to distinguish a tax credit for health insurance from a direct transfer payment.

51

bobbyp 07.11.11 at 8:52 pm

The “fiction” is that government is providing a benefit to people by letting them keep more of their own money

You mean that stuff the government creates out of thin air? In that case, it strikes me that it might just be ‘theirs’ to begin with.

52

StevenAttewell 07.11.11 at 8:52 pm

Adler – that doesn’t make sense.

If the mortgage deduction, to take one example, wasn’t there, the relative cost of home-ownership would be much higher than it is. Functionally, the deduction is no different from handing you money to pay your mortgage.

Surely a subsidy is a benefit?

53

Sandwichman 07.11.11 at 8:55 pm

eddie asked: “In the comment thread over there, it was pointed out, in two examples, where tax deductions don’t actually benefit tax payers that qualify for them: House prices and education costs are higher because of the tax breaks. Is this true? Is it true for tax breaks in general?”

Yes, house prices and education costs are higher because of tax breaks (as well as health care costs and financial asset prices) because of the incidence of taxation. However, that change in price levels affects the market as a whole, not just the recipients of tax breaks, so the recipients still retain a marginal benefit, albeit not the entire nominal savings. Where this effect gets interesting is in terms of expectations and a ratcheting effect. The last two bubbles — dot.com and housing — were asset inflation bubbles, which might suggest to the attentive observer that we are stuck in a regime of tax-incentive-fueled asset inflation.

54

Henry 07.11.11 at 8:56 pm

Jonathan – are you suggesting then that there is some fundamental and natural difference between (a) the government deciding to give me a $5,000 grant to help pay for my child care, and (b) the government deciding to give me a $5,000 tax break to help pay for my child care? (forgetting temporarily that most tax breaks are likely to help rich people more than poor people). I’ll point out that this is a distinction that e.g. Tyler Cowen fails to make when he describes tax breaks for charitable giving as a subsidy for the arts and for religion.

55

bob mcmanus 07.11.11 at 8:59 pm

54:are you suggesting then that there is some fundamental and natural difference between (a) the government deciding to give me a $5,000 grant to help pay for my childcare, and (b) the government deciding to give me a $5,000 tax break to help pay for my child care?

I’ll say there is a fundamental and critically important difference between the two and liberals or progressives should support a) and fight b) as hard as they possibly can.

Follow the link at 27.

56

Walt 07.11.11 at 9:01 pm

It’s a completely successful gotcha — the way people think of a government social program is totally incoherent. You could structure a government social program that was exactly identical to the home mortgage deduction, and yet people would count it as a government social program, and not a tax break.

57

JM 07.11.11 at 9:05 pm

This all started out as a attempted ‘gotcha’ by Mettler. Now many people have tried to make this a ‘get your government hands off my Medicare’ moment showcasing American ignorance. But it isn’t. It’s just a misuse of language. In common use, not many Americans would consider tax structure a ‘government social program.’

So, you didn’t read the list? In common use, not many Americans would consider the GI Bill, et al., as a “tax structure.”

58

Holden Pattern 07.11.11 at 9:14 pm

The various social programs we’ve embedded in the tax code are in the tax code precisely because it allows the anti-government elements of our polity to claim that they’re NOT social programs, as we see from the people in this thread who argue (with a straight face, apparently) that using the income tax code to create something-that-isn’t-a-subsidy-because-it’s-in-the-tax-code for certain people is completely different from writing checks to those people.

IIRC, The mortgage interest deduction is just about the last holdover from when we used to allow all sorts of personal debt interest to be deducted (just as businesses can deduct interest as a business expense). It’s a massive market distortion (the single largest I can think of), and privileges a home purchase relative to all other forms of personal expenditure, because we as a nation believe that home ownership is a social good which should be subsidized. It is absolutely a social program.

59

StevenAttewell 07.11.11 at 9:34 pm

bobmcmanus – good point, but both are in the category of public subsidies, albeit progressive and regressive varieties.

60

john c. halasz 07.11.11 at 9:41 pm

Steve Atwell @ 49:

I believe something of the same thing applies to the notion of “liberties”, which inflects the whole particularistic Anglo-Saxon conception of “liberties” as “rights”, as it has devolved since the Middle Ages in the common law tradition. “Liberties” were initially special grants, exemptions from the general oppression.

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john c. halasz 07.11.11 at 9:50 pm

@52:

The mortgage deduction amounts to a pass-through to the lenders insofar as it bids up prices and allows for larger collateralized loans at whatever prevailing interest rate. This mainly effects house prices for the upper-middle class, since lower classes pay much less % in income tax and thus it bids up relevant prices far less, whereas for the really rich, a mortgage isn’t really needed, and just amounts to a differential business/investment decision.

So, no, it’s not really a “benefit”, since lower house prices/loan-principal would compensate for higher interest payments. It’s only a benefit, insofar as higher collateral prices allow for still more borrowing, based on perceived net worth.

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William Timberman 07.11.11 at 10:03 pm

Could Tabbarok be thinking that a tax exemption merely gives his money back to him, whereas a social program gives it to someone else — someone who has no right to it? Peering as best I can through the libertarian fog, I can’t see what else it is that’s got him so exercised.

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Russell L. Carter 07.11.11 at 10:12 pm

“Tabarrok’s point is very simple: Letting someone keep their own program is not a government “benefit,” and therefore taking advantage of a tax credit or deduction is not “benefitting” from a government social program. “

This claim is completely incoherent when immersed in the real world, as opposed to the libertarian fantasy world. In the real world there are unsubsidized renters. As Holden Patten notes, the mortgage deduction is an explicit government social engineering program to encourage owner occupied housing. There is no other honest way to view it. (Well I suppose you could say that it is mainly a stealth regressive tax on poorer people, who tend to rent and don’t have much in the way of income to deduct from).

One could spend some time here mining the sudden disappearance of the concept of “incentives” by libertarians.

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eddie 07.11.11 at 11:06 pm

Of course. Even using a phrase like “Letting someone keep their own program” is the sort of mangling of the reality that’s typically libertarian. It seems to imply that, absent government, the program would still be there.

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Henri Vieuxtemps 07.11.11 at 11:31 pm

You could structure a government social program that was exactly identical to the home mortgage deduction, and yet people would count it as a government social program, and not a tax break.

The mortgage deduction is not what you guys think it is; have any of you ever paid taxes in the US? It’s nothing like a tax credit. One can choose the standard deduction, or itemized deductions. If you choose itemized deductions, then you can include your mortgage interest there. This is how your “taxable income” is calculated. You might end up paying slightly less with itemized deductions/mortgage deduction, or the same, – or more than with the standard deduction, in which case you’ll choose the standard deduction.

So, in fact, you can’t structure a government social program that is exactly identical to the home mortgage deduction. It’s not a fixed amount, not a fixed percentage, it may or may not reduce your tax obligations, it’s simply a way calculate your income.

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Dausuul 07.11.11 at 11:36 pm

“If Bob pays $50 instead of $100 in tax, that is only a benefit if you think Bob owes that $100 to the govt and he is being let off.”

Yes. And since Bob does, in fact, owe that $100 to the government in exchange for services rendered and ongoing–the same way he owes rent to his landlord and car payments to his auto lender–he is, in fact, being let off. Next question?

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Sandwichman 07.11.11 at 11:38 pm

“Letting someone keep their own program”… I suspect that was a typo for “letting someone keep their own MONEY.” But of course it was only ever “their own” on the presumption of a property regime, which it is the paramount purpose of the government in a capitalist state to uphold. The libertarians do the Christians one better. Not only is there an immaculate conception (of property) but there is no Virgin and no Father. Just an invisible hand job.

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Steve LaBonne 07.11.11 at 11:49 pm

Henri, I pay US taxes, and take the mortgage interest deduction, every year, and your comment is nonsense. OF COURSE it’s a way of reducing your taxes- IF you’re affluent enough to have a sizable mortgage, which makes it not only a tax break but a very regressive one. It is quite explicitly a subsidy for home ownership among those of moderate and higher incomes, and thus a classic case of a tax expenditure. Watch who squawks if you propose to do away with it and all will become clear.

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Russell L. Carter 07.12.11 at 12:02 am

Henri, let me construct for you the government social program that is exactly identical to the current mortgage deduction.

At tax time, calculate your taxes via the standard deduction, and either pay or wait for your refund deposit.

At the end of the year, using the identical calculation as performed for the existing mortgage tax deduction, calculate your owner-occupied housing benefit. Of course if you are a renter, or the sum of your loan payments multiplied by your *net* income tax rate is less than the standard deduction, it would be pointless do so, because you are already a loser.

If the benefit is positive, you are a winner! Inform the government via the handy standard form, and await your socialism check, rewarding you for adapting your behavior in the direction the government wants.

Otherwise do nothing.

See the point?

70

Russell L. Carter 07.12.11 at 12:04 am

erk…

sum of your loan payments –> sum of your interest payments

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Henri Vieuxtemps 07.12.11 at 12:07 am

@67, it is a part of itemized deductions, so it is a subsidy in the same sense as deducting your dental bills (aka subsidizing bad teeth) and your state tax bill (aka subsidizing living in Vermont) is a subsidy. It’s just something in the tax code.

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Steve LaBonne 07.12.11 at 12:25 am

Henri, those are of course also subsidies. How is that not obvious? (“Subsidy” != “evil” of by the way, though I don’t like the mortgage interest deduction because it’s particularly regressive and because it’s a factor in encouraging housing bubbles.)

“Something in the tax code” that gives you a tax break targeted to some particular activity is by definition a tax expenditure. Though if you want to call it a pineapple, I suppose it’s still a partially free country.

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Sandwichman 07.12.11 at 12:52 am

“It’s just something in the tax code.” Like an uphill bicycle race?

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Holden Pattern 07.12.11 at 1:00 am

I recently transitioned from renter to a mortgageholder. Oddly, renter-me had less money left over at the end of the year on a per-dollar basis than mortgage-me. Why, it’s almost like some magic fairy didn’t like renter-me, but *did* like mortgage-me, as if by a wave of the magic fairy’s wand, it was suddenly financially beneficial for me to have a mortgage than a rental payment.

I can’t imagine what the mechanism was by which I received such a benefit, or why I would receive it — it’s all just opaque magic to me. Certainly, I could not have known about that in advance, and it could not have been an express preference of my government which made it better to be mortgage-me than renter-me. Because if it was such a preference, the only way that could be expressed in my interactions with my government is through nice big checks labeled “MORTGAGE WELFARE” and everyone would have been talking about the MORTGAGE WELFARE PROGRAM and MORTGAGE WELFARE CHEATS and MORTGAGE WELFARE QUEENS and UNEARNED MORTGAGE ENTITLEMENTS. There’s no other way to do such a thing, or to enact such a “social program”.

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mw 07.12.11 at 1:16 am

Watch who squawks if you propose to do away with it and all will become clear.

I think you might be surprised who squawked. The loudest would be residents of ‘blue state’ coastal metro areas with expensive housing. Those same people, BTW, would also squawk the most if there were a move to eliminate the federal tax deduction for local property taxes and state income taxes. Again, the largest beneficiaries of these deductions ‘government social programs’ are residents of states with high tax rates and and property values (like NY and CA). In fact, if Republicans were politically astute, they probably should be pushing for ending both the mortgage and state and local tax deductions–making CA and NY residents feel the full effects of their high state and local taxes (and quite likely undermining support for the blue-state model generally).

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IM 07.12.11 at 1:18 am

But rich people in blue states vote republican.

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Steve LaBonne 07.12.11 at 1:21 am

The loudest would be residents of ‘blue state’ coastal metro areas with expensive housing. Those same people, BTW, would also squawk the most if there were a move to eliminate the federal tax deduction for local property taxes and state income taxes.

Why would either of those surprise me? They’re getting subsidized, just as I said. Though, by the way, those states are also net contributors of Federal tax dollars, while the red states with lower property values are the welfare queens. So to that extent this subsidy is a bit more defensible than the mortgage interest deduction. Still, I would support eliminating it because the benefits are not going to the people in the blue states who really need them.

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Henri Vieuxtemps 07.12.11 at 1:28 am

Those are not subsidies, they are deductions, designed to determine your disposable income; subject to the AMT.

If you spent a good chunk of your gross income on, say, doctors last year – or on mortgage interest – you’ll pay less. I don’t see how this is regressive, it seems okay. Progressivity is achieved by marginal rates, not by eliminating deductions. In any case, the rich don’t pay much income taxes, they pay long-term capital gains; flat 15% rate.

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john b 07.12.11 at 1:30 am

The problem here is that libertoonians – who, perhaps relevantly, seem to be a group in which lawyers are overrepresented – are obsessed with legal structure.

Anyone sensible knows that “if Dave does a certain thing, the government knocks $5k of his taxes” and “if Dave does a certain thing, the government gives him $5k” are exactly the same thing (with the exception of people who don’t pay $5k in taxes in the first place – Bob’s regressiveness point above is entirely fair). The entire profession of accountancy is based on pointing out this equivalence, as is most of the profession of economics.

Corporate law, on the other hand, is based on creating elaborate fictions that have very little to do with economic substance. As is libertarianism.

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Steve LaBonne 07.12.11 at 1:32 am

A deduction conditioned on a particular activity, like taking out a mortgage, is a subsidy of that activity. It boggles the mind that this even has to be pointed out. Even the excellent snark of Holden Pattern didn’t get through to you?

Again, calling it a subsidy is a neutral description, not an insult. It can be a good ting to subsidize socially desirable activities, though one must always be careful of unintended consequences.

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Sebastian 07.12.11 at 1:35 am

“In the comment thread over there, it was pointed out, in two examples, where tax deductions don’t actually benefit tax payers that qualify for them: House prices and education costs are higher because of the tax breaks. Is this true? Is it true for tax breaks in general”

The education example is especially damning. There is no way the cost of college education could have increased so much year after year if the government weren’t subsidizing loans. Most of this subsidy is captured by the university not the student. Since the subsidy is in the form of a loan the student gets screwed from both ends–higher prices than she would normally have to pay combined with one of the only loans in the US that aren’t dischargeable in bankruptcy.

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Russell L. Carter 07.12.11 at 1:40 am

I’ll add my +1 to Steve’s comment about being not being surprised, because mw’s comment appears to be mainly projection. Speaking for myself, I don’t like regressive tax subsidies, in general. I don’t care why some group who may or may not agree with my political principles is getting them. It’s all WELFARE for rich people to me.

So, for instance, “it’s just something in the tax code” which results in hedge fund managers making millions that are taxed at a 15% rate is WELFARE for rich people, too. Schumer and by extension a chunk of the Democratic Party really are taking advantage of the general lack of financial sophistication in the population as demonstrated by some of the comments (especially Henri), above.

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john b 07.12.11 at 1:41 am

“Most of this subsidy is captured by the university not the student.”

Surely most universities in the US are either nonprofit institutions or state institutions, which in both cases reinvest income from student fees in their educational activities? In which case, definitionally not.

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Salient 07.12.11 at 1:52 am

Really, “civilization costs money” is clever?

Quite a lot of bullshit has the precariously endearing quality of being clever.

85

Sandwichman 07.12.11 at 2:18 am

“Surely most universities in the US are either nonprofit institutions or state institutions, which in both cases…” (presumably means they are guided by altruism and empathy not principal/agent conflicts?). Hahahahahahhahahahahaha.

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Henri Vieuxtemps 07.12.11 at 2:25 am

A deduction conditioned on a particular activity, like taking out a mortgage, is a subsidy of that activity. It boggles the mind that this even has to be pointed out.

Again, a deduction is way to determine your disposable income. That’s why it’s called ‘deduction’; it removes the amount of mandatory spending from your gross income. It may or may not influence your behavior, that is completely beside the point. A lot of things are “conditioned on a particular activity”; very few of them are subsidies of that activity.

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Henri Vieuxtemps 07.12.11 at 2:37 am

If your gross income is $200K, but you have to take $150K worth of medications to survive, would the government, by allowing you to deduct $150K from your income, subsidize your existence or simply be fair in taxing you?

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Sebastian 07.12.11 at 2:45 am

“Surely most universities in the US are either nonprofit institutions or state institutions, which in both cases reinvest income from student fees in their educational activities?”

The one doesn’t follow the other. Just because they are investing in *something* doesn’t mean that they are definitionally investing in maintaining or lowering fees. They clearly are not, you can simply look at the fees.

89

Myles 07.12.11 at 2:55 am

Surely most universities in the US are either nonprofit institutions or state institutions, which in both cases reinvest income from student fees in their educational activities? In which case, definitionally not.

Given that the pricing model of universities in the U.S. is massive amounts of undergraduate fees subsidizing graduate education (which is usually given free of charge), I think you might have to modify that formulation a bit. (The system and method of cross-subsidy is utterly insane, by the way.)

90

jhe 07.12.11 at 3:18 am

The mortgage INTEREST tax deduction subsidizes borrowing. Lenders actually squawk more than states if you threaten this deduction.

Back in the day when there were more tax brackets, it was also more likely to drop you to a lower tax bracket which meant that simply by borrowing more you might significantly reduce your tax bill. if your family income is hovering near $250k, you should be very aware of this.
As you pay down your mortgage, you interest payments decline. So, if you want to maintain that level of deduction, you can cash out or buy a bigger house. This further incentivizes another interested party, real estate brokers. If they were not already sufficiently invested in a system that favors buying over renting, one that favors churn over staying puts it over the top. The major winners (I think, without doing the math) are actually bankers and real estate brokers – notorious as drum majors in the march of socialism.

Back on the topic… When I first saw the list of programs from which people had benefited, I had an intuition that there was a difference between the tax breaks and the direct subsidies, but when I read Mr. Tabbarok’s post in MR, I changed my position. This happens to me about 70% of the time when I read and MR post I read, rising to 90% if we limit it to posts not written by Mr. Cohen. I think we need to recognize MR and Mr. Tabborok for the national treasures that they are.

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Holden Pattern 07.12.11 at 3:27 am

If your gross income is $200K, but you have to take $150K worth of medications to survive, would the government, by allowing you to deduct $150K from your income, subsidize your existence or simply be fair in taxing you?

Fun facts: I don’t get deductions for food. I don’t get deductions for water. If I rent, I don’t get deductions for shelter. And yet, I also need those things to survive.

Also, too, please explain how your counterfactual is related to the question of tax deductions for mortgage interest vs. other kinds of consumer interest vs. rental payments, which pretty clearly shows that a very specific activity carried out by a favored group is being pretty heavily subsidized.

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StevenAttewell 07.12.11 at 3:59 am

Henri, you’re smart enough to realize what you’re saying is ridiculous.

In your example, if I make $200,000 and I spend $60,000 in rent a year, I have to pay taxes on that $60,000 even though it’s something one needs to survive.

If I make the same amount of money, and I spend $60,000 in mortgage payments a year, I save $14,000 a year in taxes.

Same amount of housing expenditure, different outcome in year-end income.

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Henri Vieuxtemps 07.12.11 at 4:16 am

@89, well, I have no interest whatsoever in defending intricacies of the tax code; it is, of course, extremely corrupt. Just trying to explain what a ‘deduction’ is. Or, rather, what it isn’t. It’s not a subsidy, nor is it, of course, a ‘social program’.

Also, if you think that you and Steve LaBonne belong to a “favored group”, you’re in for an unpleasant surprise, I’m afraid. And if you believe that this is nothing but a favor to some business sector, then yes, good question: what about other kinds of consumer interest and rental payments; wouldn’t deducting those also benefit some businesses?

Same amount of housing expenditure, different outcome in year-end income.

Not the same amount, you can only deduct the interest. When you own, you usually spend much more than interest. Also, arguably, it’s much easier to control your rent expenditure (move to a cheaper apartment) than your mortgage. You may have to declare bankruptcy to get rid of the mortgage.

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Holden Pattern 07.12.11 at 4:38 am

Henri, your relentless dedication to pedantic “dictionary definition” form over actual substance and your assumption that everyone is more ignorant than you makes you a paradigmatic spokesman for Libertarianism. You, like almost every libertarian I’ve ever encountered, are willing to waste more time being pedantic and repetitive than I am pointing out your pedantism, which I guess counts as a “win” in your world.

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john c. halasz 07.12.11 at 5:15 am

The idea that Henri V. is a libertarian is a proposition that I’d be willing to bet against at very, very short odds. But that’s just the problem with some of these threads, especially when they concern the differences between liberals and libertarians. They tend to turn on the narcissism of small differences and a large amount of pedantry, while missing or neglecting the larger picture.

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Henri Vieuxtemps 07.12.11 at 5:16 am

No, it is, in fact, the actual substance: you deduct your major mandatory expenses from your gross income, and this is how you arrive at your ‘taxable income’. All there is to it.

I guess you’ve been told a few times too many that the mortgage interest deduction is nothing but a subsidy (or is it a social program?), and now you can’t let it go. That’s fine, understandable. No harm in it, carry on.

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Emma in Sydney 07.12.11 at 5:34 am

Henri, it might be clearer to perceive as a subsidy when you consider that in other countries, such as Australia, mortgage interest on your own home is not considered a mandatory expense and is not deductible. Mortgage interest on a home you own and rent out to others is deductible here, as it is considered a business expense. Thereby subsidising real estate investment, but not home ownership. Different governments, subsidising different groups.

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John Holbo 07.12.11 at 5:47 am

What’s wrong with saying that, in one sense, the mortgage deduction is a social program and, in another sense, it is not. It’s a social program in that it is part of a government-designed and engineered and enforced program for incentivizing certain social behavior. It’s a systematic, institutional nudge. It just happens to have low administrative overhead, as such programs go. It’s not a social program for pretty much the same reason: low overhead. No administration, apart from the initial act of setting the rules, and the apparatus for tax collection that would exist in any case.

I don’t have a problem with the questionnaire treating such things as social programs. That seems reasonable. I don’t really think people who answered ‘no’ to the question, even though they take tax deductions, are unreasonable either. The point being made by means of the questionnaire still stands, broadly, and Tabarrok’s complaint is still totally off base. would you agree with that much, Henri?

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Henri Vieuxtemps 07.12.11 at 5:48 am

Oh, all right: it is a subsidy and a social program. And it’s a terrible social program, the one that we all must hate. I was confused, said things that were not correct, but I’m okay now. Thank you, my friends.

Cheers.

100

b9n10nt 07.12.11 at 6:50 am

My take on H.V. that we’ve all been waiting for:

My paraphrase of Henri: A tax incentive affects our society’s demand for a good, a subsidy affects our society’s provision of a good. To the degree that capitalist institutions are more than mere reflections of consumer demand, a subsidy is more than a tax incentive.

My response: yes very good. For purposes of studying the US from a (more reliable) sociological perspective, the distinction between tax expenditure and subsidy is real. At least if we study the home mortgage interest tax deduction in isolation. But then again, sociologists shouldn’t study any one policy in isolation.

The point stands that discreet political interests benefit from tax expenditures much as they may from subsidies. Furthermore, when seen as but one policy among many that benefits single family home ownership, the home mortgage interest tax deduction is certainly part of a general subsidy for a class of citizens to settle the suburbs.

Alex Tabarrok’s accusation that US liberals have a serf-mindset when considering tax expenditures is novel, if rather eccentric. Maybe he’ll look at a paper I’ve written on the influence of 18th c Rhenish guilds on the contemporary libertarian’s grasp of municipal bond legislation.

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MPAVictoria 07.12.11 at 11:53 am

“Oh, all right: it is a subsidy and a social program. And it’s a terrible social program, the one that we all must hate. I was confused, said things that were not correct, but I’m okay now. Thank you, my friends.”

My Sarcasm Detector is reading off the charts!!!

Seriously I do not understand how you are not getting this. If I give you 500 dollars or if I give you a tax benefit equal to 500 dollars both amount to the same thing. You being 500 dollars richer.

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Fall in queue 07.12.11 at 12:42 pm

Is there really a serious question here?

Suppose Fred and Bob use the same barber, who charges them $30 for a haircut. Then one day the barber offers them the following special deals. Fred gets a straight discount: a haircut for $20. Bob still pays the full $30, but then on his way out the barber gives him $10 back — or perhaps a voucher, worth $10, for the local grocery store, where Bob gets his groceries anyway. Would anyone seriously claim that the two deals are different in any important respect?

So substitute the government for the barber. Fred and Bob, through their taxes, purchase public services (roads, courts, public education, police, or whatever). If Fred gets a deduction, he gets the same services at a discount; as a result he has more money to spend on other goods and services. If Bob gets a cash payment (or an in-kind benefit), then he too has more money to spend on other goods and services. Just as before, they get effectively the same deal. If one of them got a subsidy, the other did too.

This does not seem to be a deep or difficult point. It only requires the assumption that taxes are the price you pay for public services.

Note, by the way, that if there were no taxes and so no government, then you’d simply have to buy (some of) the same services in a private market. Perhaps you’d be able to get the same or better services at the same or better price; perhaps not. To answer these questions you’d have to evaluate some pretty wild counterfactuals. The point is, it is just dishonest to contrast paying taxes to “everything else equal, but you get to keep all your earnings”; what you have to contrast it to is buying comparable services in a private market, in a world very much unlike our own.

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StevenAttewell 07.12.11 at 1:37 pm

Come on, Henri. This is basic math:

Same amount of housing expenditure, different outcome in year-end income.

Not the same amount, you can only deduct the interest. When you own, you usually spend much more than interest. Also, arguably, it’s much easier to control your rent expenditure (move to a cheaper apartment) than your mortgage. You may have to declare bankruptcy to get rid of the mortgage.

The example I gave was where mortgage payments = rent at $200k income, which equals out to a $900,000 home on a 30 yr mortgage (to get to $60k a year in payments), and at standard payments, the interest works out to $14k a year that you get to write off on your taxes that the renter doesn’t.

Owners gain several features that renters don’t: their asset can appreciate, they can rent out to increase the return on their asset, they have access to FHA mortgage insurance/loans/refinance, access to Frannie Mae/Freddie Mac, etc. Renters only have Section 8 – and that’s pretty strongly means-tested.

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StevenAttewell 07.12.11 at 1:38 pm

* whoops, blockquote fail.

105

StevenAttewell 07.12.11 at 1:42 pm

Also, I’d point out that tax incentives also affect supply of a good. If producers know that their customers are being subsidized, as people have pointed out, they can charge more due to increased demand and lower price sensitivity, they can be more confident of repayment due to government guarantees, etc. This incentivizes expanding supply to meet all conceivable demand – and, as we’ve seen, creating demand by over-extension of credit to boot.

106

Henri Vieuxtemps 07.12.11 at 1:48 pm

Look. You’re taxed based on your ‘taxable income’. ‘Taxable income’ is supposed to represent your income with your personal circumstances factored in, so that the tax burden is distributed fairly. Reasonable people can disagree over the formula for ‘taxable income’. You guys/gals obviously do disagree with the way the US tax code defines it, but IMO this disagreement doesn’t translate into a “tax benefit” or “tax punishment”, other than in a purely rhetorical sense. And that’s all she wrote, that’s all I got.

Here: http://en.wikipedia.org/wiki/Taxable_income

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MPAVictoria 07.12.11 at 2:16 pm

“personal circumstances factored “

And certain personal circumstances are given benefits.

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bianca steele 07.12.11 at 7:09 pm

In Massachusetts you can deduct rental income. That’s why the state is affectionately known as “Taxachusetts.”

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bianca steele 07.12.11 at 7:09 pm

rather you can deduct rent on income taxes

110

JP Stormcrow 07.12.11 at 7:25 pm

In Massachusetts you can deduct rental income.

Those taxeaters!

That’s why the state is affectionately known as “Taxachusetts.”

Quite rightly so–will no one think of the increased burden on normal people.

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Henri Vieuxtemps 07.13.11 at 7:32 am

BTW, @90

Back in the day when there were more tax brackets, it was also more likely to drop you to a lower tax bracket which meant that simply by borrowing more you might significantly reduce your tax bill. if your family income is hovering near $250k, you should be very aware of this.

I know there are people who think like this. I remember a few years ago I was trying to explain to a colleague, extremely bright software engineer, this whole thing about the rates being marginal, and that absolutely nothing dramatic happens when you cross into a higher rate bracket; but he refused to believe. This itself is an interesting phenomenon.

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eddie 07.13.11 at 9:04 am

Henri V @ 87:
“If your gross income is $200K, but you have to take $150K worth of medications to survive, would the government, by allowing you to deduct $150K from your income, subsidize your existence or simply be fair in taxing you?”

No. That’s be the tax-payer subsidising big pharma. What you‘d be getting is $15k (‘worth’ as you so wrongly put it) of medications, charged at $150k because the taxpayer is picking up the tab.
Sheesh. Haven’t you heard of medicare/medicaid?

113

Henri Vieuxtemps 07.13.11 at 9:12 am

In my hypothetical you medications consist of a pound of white truffles/week.

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Ed 07.13.11 at 9:55 am

Seems to me the whole thing is knocked out at the end of Tabarrok’s third par.

“(NB I am *not* taking a position here on the best tax structure.)”

Er, actually you are, mate.

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Barry 07.13.11 at 1:59 pm

Ed, standard ‘positive economics’ – state that one is not urging a position, not being normative. Then construct an argument asserting that a certain policy is ‘optimal’ (dependent, of course, on the arguer’s assumptions and optimality criteria). Then switch, and point out that the policy being discussed is ‘optimal’, so why do you oppose optimality?

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Ed 07.13.11 at 7:56 pm

Good point.

I guess what’s noteworthy here is the artlessness of it.

It’s like your four year-old coming to you and saying: “NB I did *not* eat all the cookies in the cookie jar.”

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parse 07.13.11 at 11:20 pm

In New York, you have to pay sales tax on food in a restaurant, but not food purchased at a grocery store. Does that mean when you cook your food at home you are participating in a government social program and receiving a subsidy?

I think it’s really hard to say whether paying less tax than you might have if you had behaved differently is a subsidy.

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Steve LaBonne 07.14.11 at 12:13 am

parse- Why yes, pretty much by definition if you exempt one category of purchases from a sales tax that applies to most other purchases, you’re subsidizing that category. In this case you’re making it a bit easier for the less affluent to afford food at the grocery store. Which once again shows that subsidy != evil, despite the curious propensity of some people to take offense at the word.

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parse 07.14.11 at 12:53 am

It seems counterintuitive to say you subsidize the purchase of raw food by adding a surcharge to prepared food.

And what about the case where New York first did not have a sales tax on clothing purchases of less than $100 and then did have the sales tax on those purchases. Was the state previously subsidizing those purchases, and then simply removing the subsidy by instituting the tax?

If the definition of subsidize is (per Merriam Webster) “to aid or promote a private enterprise with public money,” I would understand both the arguments for and against the proposition that taxing restaurant meals was subsidizing the purchase of groceries, and I’m not sure which argument would be better.

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Steve LaBonne 07.14.11 at 1:01 am

It seems counterintuitive to say you subsidize the purchase of raw food by adding a surcharge to prepared food.

That’s because that’s a ridiculous way of putting it. Raw food is being exempted from a tax that applies to most purchases. A special exemption for one type of item from a broad-based tax is a tax subsidy for the exempted item. Again, this isn’t rocket science.

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Henri Vieuxtemps 07.14.11 at 7:00 am

Which once again shows that subsidy != evil, despite the curious propensity of some people to take offense at the word.

This is the second time you said it, but who here stated or implied anything of the sort? The objection is not to the word ‘subsidy’, but to sophistic reasoning. And do you really believe that ‘subsidy’ has more negative connotations than ‘tax’?

A tax is a tax, a subsidy is a subsidy. Sometimes a tax break (especially a tax credit, not so much a deduction) is, in effect, a form of subsidy, but in most cases it isn’t.

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Ed 07.14.11 at 7:41 am

So, to clarify your position, Henri, when is a tax break a subsidy, and when isn’t it?

(It would be great if you could provide both a definition, and a couple of examples. Thanks.)

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Henri Vieuxtemps 07.14.11 at 8:04 am

I don’t have a definition, but the electric vehicle tax credit is, clearly, a form of subsidy.

It’s just common sense; some elements in the tax code are meant to equalize the hardship faced by taxpayers with different personal circumstances (dependents, illnesses, high local/state taxes, and yes, high interest payments, why not), and some are meant to provide incentives.

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Ed 07.14.11 at 9:21 am

Thanks for that.

I am not sure the distinction you are trying to make really holds water, though. As any economist will tell you, if you reward people for doing something, you create an incentive to do it. That applies to having children, buying a home, or sending your children to college just as much as it does to buying an electric car.

You might argue that the intentions behind the measures are different, but from the taxpayer’s point of view the intention is irrelevant. I could dress up some justification for the tax credit for an electric car that says “we should equalize the hardship faced by motorists so people who drive higher-cost electric cars are not penalized for it.”. But that doesn’t change the nature of the incentive.

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Ed 07.14.11 at 9:31 am

Sorry, I see this point has been made repeatedly up-thread. Not much point flogging this particular horse any longer.

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Henri Vieuxtemps 07.14.11 at 9:53 am

You might argue that the intentions behind the measures are different, but from the taxpayer’s point of view the intention is irrelevant.

In this particular discussion the intention is not irrelevant, the intention is the point of it. It’s either a social program/subsidy, or it’s a way to equalize the hardship. The latter being pretty much the opposite of a ‘social program’.

Your suggested justification for the tax credit for an electric car is not convincing. ‘Electric’ is the giveaway here.

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Henri Vieuxtemps 07.14.11 at 10:00 am

…not to mention that it’s a direct credit, as opposed to a deduction. They actually give you cash for buying an electric car, regardless of what your overall situation is.

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Steve LaBonne 07.14.11 at 1:11 pm

…not to mention that it’s a direct credit, as opposed to a deduction. They actually give you cash for buying an electric car, regardless of what your overall situation is.

They actually give me cash when my income tax deductions reduce my tax liability below my withholding.

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Ed 07.14.11 at 5:50 pm

Serious question: is there an entry-level public economics textbook we could recommend to Henri to clear some of this stuff up? When I was a boy, in the UK, it was Kay and King, ‘The British Tax System’, but I am sure the world has moved on since then. (Kay and King, eh: whatever happened to them?)

And Henri, surely “equalizing the hardship”, eg between the sick and the well, or the employed and the unemployed, is exactly what most social programs aim to do.

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Henri Vieuxtemps 07.14.11 at 6:29 pm

Fine, then for you itemized deductions is a social program. Like I said at the beginning, ‘social program’ means different things to different people. You’re clearly in the minority, but don’t let it discourage you. You have the right to your opinion.

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MPAVictoria 07.14.11 at 7:30 pm

Henri you have completely failed to explain the difference between a direct cash payment from the government and a tax deduction. Yet you act like you have…
It is…
confusing.

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Ed 07.14.11 at 7:47 pm

Henri @130: that is a good point about me being in a minority in my definition of a “social program”. It was, of course, exactly John’s point in his original post. (A quick totting-up suggests I am in agreement with the majority of commenters here, though.)

The problem is that the distinction between “social program” and “not a social program” that you and most Americans want to use amounts to nothing more than saying “boo!” and “hooray!” Or, more precisely, saying: “I don’t benefit from this measure” and “I do benefit from this measure.”

Economically, the distinction is meaningless.

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Henri Vieuxtemps 07.14.11 at 8:03 pm

I benefit from many things, including nice weather. Very few of them are (far as I can see it) social programs.

The problem is that the distinction between “social program” and “not a social program” that you and most Americans want to use amounts to nothing more than saying “boo!” and “hooray!”

But of course it’s not I who want to use the distinction, but those who designed that poll to play their ridiculous gotcha games.

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John Holbo 07.16.11 at 1:30 pm

“play their ridiculous gotcha games.”

OK, that’s a bit of a pivot in a new direction, Henri (although you have been dropping hints for some time that you would like to head in this direction.) What’s ridiculous about it? It seems that it is potentially significant that so many respondents give these sorts of responses. Let’s grant that a few of the items are debatable . (Is there any reason why the survey should not include debatable items?) Many of the others are not. So, to repeat, what’s ridiculous about it?

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Andrew F. 07.16.11 at 2:16 pm

I’m inclined to agree with both of Henri’s points, if I understand them correctly.

Suppose government decides to tax all fruit, but to tax oranges at an especially high rate (assume fruit cannot be substituted for). Is it subsidizing the purchase of all other fruit? Suppose instead that the government decides to simply tax oranges at a lower rate. Is it subsidizing the purchase of oranges?

The trick to the language game is the default state of affairs. Begin with government taxes all income, and mortgage deductions can look like subsidies. Begin with government taxes no income, and then itemizes what income to tax and how much, and subsidies seems inappropriate.

That’s Tabarrok’s basic point, and Henri’s basic point, which is sound.

As to Henri’s second point, that the poll is difficult to interpret due to the vagueness of “social program,” I think that’s sound. “Social program” is a highly politicized term in our lexicon, and while the polling data indicates something about how we use that term, it doesn’t reveal much about how Americans think about government generally.

“Government social program” does not equal “government action or law from which one derives an economic benefit.”

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Henri Vieuxtemps 07.16.11 at 2:50 pm

Well, you could simply ask: ‘which of the following government programs are, in your opinion, “social programs”?’ That would be an honest and informative poll. If you wanted to dig deeper, then for those who don’t see certain programs as ‘social programs’ you could even suggest some explanations, for example: ‘I had paid payroll taxes for 45 years, and now I’m simply getting my money back’, or, simply, ‘I earned it’, or something like that. This way you would have learned something about the prevailing attitudes.

Instead, they concocted a set of questions, clearly with the purpose to mock the respondents. Now, what’s the use of that? I suspect Ed above already knows that he’s much smarted than most, he doesn’t need another confirmation.

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Bruce Wilder 07.16.11 at 6:03 pm

Yes, underneath merely nominal ignorance and abuse of the lexicon, we find . . . substantive ignorance and abuse of the concepts.

If economists like Tabarrok were not shameless hacks, those, who took Econ 101 would learn an analysis of “incentive”, which featured risk and insurance, and strategic behavior. Neither textbook nor lecturer would model a bounty payment, call it a subsidy, launch into a libertarian homily, and call that crude sketch, an analysis of incentives. We’d have a shared vocabulary, with which to build a diversity of interested views within a consensus reality. But, alas, we live a world in which rhetorical frameworks exist, which manufacture slogans about government “giving you back your own money” and pompous ignoramuses talk abstractly of “transfer payments”.
Econ 101, in the actual world, is a conceptual apparatus, built up at its core, without risk and uncertainty, while the institutional features of the actual economy are entirely about risk and uncertainty. The distribution of income is driven by the distribution of risk and insurance (wealth); and the system of production and control is, likewise, driven by the incentives of conditional and incomplete contracts, in which strategic response to risk is all.
In our actual world, folks like Tabarrok are well-paid to churn out propaganda, designed to obscure the institutional design of the economy. Shocking, I know, but people are not going to agree about the ultimate goals of collective action, and, therefore, it is not in their interest to share a lexicon or a consensus reality, let alone, the wealth.
Polls may indicate, who is winning the propaganda wars.

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ehj2 07.16.11 at 10:13 pm

I’m a member of a social species, thus a social being. There is a lot of specialized knowledge that drives a myriad of necessary but focused activities, so I can’t survive outside a collective. I can build a network but I don’t know how to make dirty water clean. I can rebuild a carburetor (if parts are available) but I can’t make a ball bearing or refine brass or hone stainless steel. I live in a collective social structure called the U.S. that organizes the collective behavior of millions of social beings toward ends that have some hope of contributing to the whole.

It’s silly to suggest I don’t benefit if youngsters are educated; I benefit hugely if people can easily go to college (probably even if that education is free, given their likely demand for a more responsible media and future contributions to the collective). I benefit if the air is clean without even having to learn that means no asbestos, no radium, no mercury, etc. I benefit if there are enough inspectors to insure my food is clean, my clothes aren’t made with poison fibers, my trash is managed in sound ways.

Civilization costs money may sound trite. But there are 7 billion of us now, and that requires a lot of organization, incentives, and centrally managed investments in property protection and roads and libraries and clean water.

There are so many of us now, so interconnected, that one virus (absent diligence and vigilance) could take out billions of us in a few weeks. How long does a city survive (and we mostly live in cities now) if the water stops and the electricity and the trash collection? And the people who bring food to the markets?

Maybe we’ll reach a point where everyone wears a tracker and can be billed individually for every service used, every road taken, every bridge crossed, taxed for every food tested, and billed for every piece of research that didn’t pan out but might have … yet I doubt it because my life is benefited in uncountable ways by the contributions of uncountable people doing uncountable things.

Look at any moment in history and I live in paradise right now. Kings would give their first born sons to have what I have. So yeah, tax me whatever you want.

I used to have more psychic income than I have now from living in the U.S. We were proud of our infrastructure, our schools, our educated populace, our creativity, our innovations. For a moment we walked on the Moon and could talk about it to other people intelligently. Now I rarely meet a person who knows how their cell phone works, or what a transistor is, let alone a watt, and they all buy them every month.

Now, richer than ever, we argue we can’t afford schools or roads or clean water or libraries or even mountain tops.

It’s ridiculous to consider capitalism in a land that has financialized everything an invisible hand. Nothing is more visible right now that the debris of the last capitalist crisis.

If you were aloft in a balloon when the crisis occurred, looking down at the Earth you couldn’t tell anything happened. Every building and farm and factory and road and pond and stream remained intact. Something imaginary went away. Something not quite real vanished.

When the “not real” goes away, you should reconsider what it really is.

An engineer would say you’re just as wealthy in any real world and measurable terms as you were a moment ago. Any anthropologist from an alien culture watching this would be utterly mystified. It’s like watching lemmings take themselves all over a cliff running from cloud in the sky.

If you suddenly had to fight a war with zombies you have exactly as many resources as you had the day before the crisis.

But now, thinking you’re poor, you’re going to gut your roads, close your libraries, forget about your food and air and water, and stop educating yourselves.

Incomprehensively, it didn’t even require the zombies to defeat you.

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Cahal 07.17.11 at 3:23 pm

How about ‘corporations are the great fiction through which everybody seeks to be absolved of responsibility for their actions’?

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