Senator Jeff Sessions (R-AL) has created quite a stir with his estimates that every household below the poverty level receives an average of $168-a-day (or about $61,000-a-year) in government welfare.
Sessions’ calculations are extremely controversial and overstate the amount of government assistance for those in poverty. But for the sake of argument, let’s assume he’s right. How would $61,000 in direct government spending and refundable tax credits for the poor stack up against tax subsidies for the rich?
It isn’t even close. Indeed, my colleagues at the Tax Policy Center figure that in 2011 households making $1 million and up got that much in average tax benefits from just two deductions–for charitable gifts and state and local taxes. Add a fistful of other preferences–such as deductions for mortgage interest and exclusions such as the one for employer-sponsored health insurance– and top-bracket households got far more in tax benefits than the poor got in means-tested assistance.
These estimates exclude low tax rates on capital gains and dividends which are, arguably, very different from, say, subsidies for mortgage interest or employer-sponsored health insurance. If you include preferential rates on investment income, households making $1 million or more got an additional $119,000 in tax benefits, on average, in 2011.
Keep in mind that tax rates on ordinary income were relatively low in 2011. Now that the rate for high-income households has gone up significantly, their tax subsidies will be even more generous.
I readily admit that on one level, this is a fairly silly exercise. But there is an important point here: In much public discourse, direct government aid for the poor is easily dismissed by the pejorative “welfare.” Yet, spending-like subsidies administered through the revenue code provoke far less outrage. This is true even though many of these tax preferences are economically indistinguishable from direct spending and often add far more to the deficit.
Take housing, for instance. CBO figures that the lowest-income 20 percent of households get an average of about $1,100-a-year in means-tested rental housing assistance. TPC estimates that the lowest-income households got no benefit from tax deductions for mortgage interest and real estate taxes in 2011. But those in the top 20 percent, who make more than $100,000, got an average tax benefit of $2,900. Those in the top 1 percent, who make an average of $1.5 million, did even better. They got an average tax break of $5,700, more than five times the benefit the government provided low-income renters.
As with so much of the tax code, these homeowner tax benefits are upside down. On average, the more you make, the more you get. This seems an odd design in an era when fiscal restraint is all the rage. Yet politicians still recoil when tax expenditures—the vast bulk of which go to middle-class and high-income households—are described as subsidies.
In recent years, both Democrats and Republicans (including their recent presidential candidates) did talk about capping or limiting tax preferences for the highest income households. But so far, at least, that talk has come to nothing. It would be helpful if Sen. Sessions directed some of his outrage to the more than $1 trillion in tax expenditures that litter the revenue code—much of which go to those who need help the least.
By: Howard Gleckman, Tax Policy Center, February 26, 2013
What happens when the preferences of the economic base meet the preferences of the ideological base?
Mitt Romney was in Colorado yesterday, where some people aren’t too pleased with him. This week he came out in opposition to an extension of the wind-power production tax credit (PTC), which is set to expire at the end of the year. The tax credit helps make wind power competitive and is credited with enabling the creation of thousands of jobs in manufacturing and construction. This is almost certainly not going to be a huge issue in the campaign, but it does reveal some interesting things about where Romney is vis-a-vis the Republican Party. On one side, you have the parochial economic interests of many Republican members of Congress and some very well-heeled Republican economic constituency. On the other, you have the purely knee-jerk reaction of Tea Party types to anything hippies might like. Guess where Mitt comes down?
Yesterday, the Senate Finance Committee passed an extension of the credit with bipartisan support. The PTC has support from members of Congress from both parties who have wind projects in their states, and a number of prominent Republicans like Chuck Grassley have urged Romney to change his position. There are thousands of jobs at stake; as Phyllis Cuttino of the Pew Clean Energey Program writes, “This uncertainty has put off investors and led to boom-and-bust cycles in the industry: Wind installations have declined by 73 to 93 percent in years without a PTC. Because of the long timelines (wind projects can take nine to 16 months from groundbreaking to power generation), investors seeking new wind projects must look two to three years into the future to decide whether the costs and benefits warrant investment. As we’ve seen in the past, investors are wary of supporting new projects if the availability of the tax credit is uncertain.” That brings up a peculiar footnote to this issue: Some of the biggest beneficiaries of this tax break are banks like Goldman Sachs, which is investing heavily in clean energy and so has a substantial stake in the PTC being renewed.
But when the issue came up, Mitt Romney’s spidey-sense, with which he tunes into every whim and grunt from Republican-base voters, began to tingle. Let’s dispense with the idea that anyone on either side has a principled position on these kind of tax credits that they hold to irrespective of the activity that the tax credit supports. In the case of liberals, there’s no hypocrisy involved: We’ll freely admit that there are some things government should support, and in a case like renewable energy, some of these industries need a boost in their early stages in order to become competitive. Part of government’s job is to create the conditions where the market can operate freely, efficiently, and justly. All of us (well, most of us) would agree that if we got all our energy from renewables and that energy was affordable, that would be better than our current situation, in which most of our energy comes from sources that have substantial environmental costs in both their extraction and their use. The question is what we’re willing to do in order to approach that better world, and liberals believe that some tax credits for renewables are a perfectly reasonable part of the price. We also assume that these tax credits are finite and that as the industry matures they can be phased out.
Conservatives, on the other hand, claim that they believe in the free market and that industries should rise or fall on their own merits without any help from government. But in practice, their opinions on particular cases show no adherence to this principle they allegedly hold. Instead, they favor tax credits for industries they like for one reason or another and oppose them for industries they don’t like. In the past few years, opinions on energy have become one more culture-war marker for conservatives, with people gleefully chanting “Drill baby drill!” at Republican rallies and leaders like Rush Limbaugh waging holy war against electric cars, for no particular reason other than liberals like renewable energy, and they hate liberals. So Mitt Romney is perfectly happy to maintain subsidies for the oil industry but opposes subsidies for the wind-power industry. There isn’t some fundamental principle about the relationship of industry and government at work here. He’s just channeling the opinions of his party, as always.
For a long time, it seemed that whenever there was a direct conflict between the preferences of the GOP’s economic base and its grassroots ideological base, preference went to the economic base. Those conflicts were rare—part of the great trick the economic base pulled was convincing the grassroots base that if Jesus returned tomorrow, he’d favor cutting the capital gains tax. I doubt Romney feels particularly strongly about this. But his default impulse, at least for the moment, is to do whatever he thinks the most extreme Tea Partier would prefer. As I said yesterday, it’s almost as though he doesn’t realize the primaries are over.
By: Paul Waldman, Contributing Editor, The American Prospect, August 3, 2012
Of all the arguments being waged over the Affordable Care Act — or, as the Obama campaign now likes to refer to it, “Obamacare” — the one dominating the Supreme Court this week is perhaps the most conceptually trivial.
The individual mandate requires consumers to purchase health insurance in order to eliminate the problem of free riders — people who don’t purchase insurance until they get sick or injured or those who never purchase insurance and end up passing on to the rest of us the costs of care they can’t afford. Detractors argue that the mandate unconstitutionally infringes on personal liberty by forcing Americans to purchase health insurance. But compare it to three ways of addressing the free- rider problem in health care that are clearly, indisputably, constitutional:
• Single payer: The federal government increases income taxes and, in return, guarantees everyone government-provided health-care insurance. There is no option to opt out of the taxes. This is how most of Medicare works, though the insurance kicks in only after you turn 65.
• Late-enrollment penalty: The single-payer approach only holds for “most of” Medicare because the Medicare Prescription Drug Benefit works a bit differently. For every month that you don’t enroll after becoming eligible at age 65, your premium rises by one percentage point.
• Tax credits: Under various health-care proposals — including the plan of Rep.Paul Ryan (R-Wis.) — the tax code is changed to give families a tax credit for purchasing private health insurance. Families that choose to go without insurance, or simply can’t afford it, would not receive the tax credit.
All of these plans share the same basic approach: They impose a financial penalty, either before or after the fact, on those who forgo health insurance. Single payer does it through taxes, Medicare Part D through premiums and Ryan’s plan through tax credits.
Now consider the individual mandate. Here’s how it works: Starting in 2016, those who don’t carry insurance will be annually assessed a fine of $695 or 2.5 percent of their income, whichever is higher.
Skeptics of government should clearly prefer the individual mandate to single payer. In fact, the individual mandate was developed by conservative economist Mark Pauly as an alternative to single payer. “We did it because we were concerned about the specter of single-payer insurance, which isn’t market-oriented, and we didn’t think was a good idea,” Pauly told me last year. In the 1990s, the individual mandate was also the Republican counterproposal to President Bill Clinton’s health-care bill, and in 2005, it was the centerpiece of Massachusetts Gov. Mitt Romney’s health-care reforms.
The Medicare Part D model doesn’t really work as an alternative to the individual mandate because it requires the federal government to set the cost of premiums. That’s possible with the over-65 set, because the government controls the market. To import that idea to the under-65 market, however, would require vastly more governmental intrusion into the health-care space.
The tax credit, meanwhile, is essentially indistinguishable from the mandate. Ryan’s plan offers a $2,300 refundable tax credit to individuals and a $5,700 credit to families who purchase private health insurance. Of course, tax credits aren’t free. In effect, what Ryan’s plan does is raise taxes and/or cut services by the cost of his credit and then rebate the difference to everyone who signs up for health insurance. It’s essentially a roundabout version of the individual mandate, which directly taxes people who don’t buy health insurance in the first place.
“It’s the same,” says William Gale, director of the Tax Policy Center. “The economics of saying you get a credit if you buy insurance and you don’t if you don’t are not different than the economics of saying you pay a penalty if you don’t buy insurance and you don’t if you do.”
Interestingly, Ryan’s plan imposes, if anything, a harsher penalty on those who don’t purchase health insurance. Ryan’s tax credit is far larger than the individual mandate’s penalty, and much easier to enforce. Under Ryan’s plan, if you don’t purchase insurance, you don’t get the credit. End of story. Conversely, the Affordable Care Act doesn’t include an actual enforcement mechanism for the individual mandate. If you refuse to pay it, the IRS can’t throw you in jail, dock your wages or really do anything at all.
This leads to one of the secrets of Obamacare: Perhaps the best deal in the bill is to pay the mandate penalty year after year and only purchase insurance once you get sick. To knowingly free ride, in other words. In that scenario, the mandate acts as an option for purchasing insurance at a low price when you need it. For that reason, when health-policy experts worry about the mandate, they don’t worry that it is too coercive. They worry that it isn’t coercive enough.
The mandate is considered more effective than tax credits because people seem more inclined to take action to avoid penalties than to receive benefits. That’s worked extremely well in Massachusetts, for instance, where there’s been almost no free-rider problem at all. So while it’s not different as a matter of economics, it’s a bit different as a matter of behavioral economics. In that way, the mandate does a little more to solve the free-rider problem with a little less action from the government.
Randy Barnett, a conservative law professor at Georgetown University, agrees that there’s some similarity between the two approaches. But he warns that that doesn’t make them legally equivalent. “Just because the government does have the power to do X, doesn’t mean they have the power to do Y, even if Y has the same effect as X,” he says. “There’s no constitutional principle like that.”
Although that’s true, it also leaves us in a peculiar spot. The constitutional argument over Obamacare is a dispute over a technicality. We agree that it’s constitutional for the government to intervene far more aggressively in the market. We agree that it’s constitutional for it to intervene in an almost identical, albeit slightly more roundabout, manner. We’re just not sure if the government needs to call the individual mandate a “tax” rather than “a penalty,” or perhaps structure it as a tax credit. As Pauly puts it, “This seems to me to be angelic pinhead density arguments about whether it’s a payment to do something or not to do something.”
Of course, this battle isn’t really about the constitutionality of the individual mandate. Members of the Republican Party didn’t express concerns that the individual mandate might be an unconstitutional assault on liberty when they devised the idea in the late 1980s, or when they wielded it against the Clinton White House in the 1990s, or when it was passed into law in Massachusetts in the mid-2000s. Indeed, Sen. Jim DeMint (S.C.), arguably the most conservative Republican in the Senate, touted Romney’s reforms as a model for the nation. Only after the mandate became the centerpiece of the Democrats’ health-care bill did its constitutionality suddenly become an issue.
The real fight is over whether the Affordable Care Act should exist at all. Republicans lost that battle in Congress, where they lacked a majority in 2010. Now they hope to win it in the Supreme Court, where they hold a one-vote advantage. The argument against the individual mandate is a pretext for overturning Obamacare. But it’s a pretext that could set a very peculiar precedent.
If the mandate falls, future politicians, who will still need to fix the health-care system and address the free-rider problem, will be left with the option of either moving toward a single-payer system or offering incredibly large, expensive tax credits in order to persuade people to do things they don’t otherwise want to do. That is to say, in the name of liberty, Republicans and their allies on the Supreme Court will have guaranteed a future with much more government intrusion in the health-care marketplace.
By: Ezra Klein, The Washington Post, March 31, 2012
Rick Santorum regularly knocks the stimulus bill that the Democratic Congress passed, and President Obama signed into law, back in early 2009. The American Recovery and Reinvestment Act “cost American jobs,” he told CNN last July. But that didn’t stop Santorum from claiming a tax credit for home efficiency funded through the stimulus plan that year.
According to his 2009 tax form, which was released last week, Santorum claimed a $3,151 expenditure on new exterior windows and skylights, one of the “qualified energy efficiency improvements” for homes that was granted a tax credit through the stimulus bill. The stimulus bill revived a tax credit that had expired at the end of 2007 and increased the amount of money homeowners could claim. This allowed the Santorum family to knock $945 off their taxes.
The purpose of the tax credit was to help homeowners save money by using less energy, while at the some time generating fewer emissions. But the efficient choices can often cost more upfront—hence the desire to create a tax credit to incentivize that kind of expensive upgrade. The measure was also intended to benefit the manufacturing and construction industries by creating more opportunities for them to make and install the windows and other efficient products.
Santorum has made attacking the Obama administration’s energy and environmental policies a prime plank in his platform, implying just last week that the president is some kind of dirt-worshiping hippie aligned with “radical environmentalists.” He’s also used his position on the subject as a way to distance himself from rival Mitt Romney, who has at times shown sympathy for protecting the environment.
Conservative Legal Luminaries Concede: The Individual Mandate Is No Unique Threat To Freedom, After All
As summarized one month ago in a post here on Jonathan Chait’s blog, conservatives reacted with fury to an article I wrote for Slate in which I pointed out that two major components of House Budget Committee Chair Paul Ryan’s Roadmap for America’s Future closely resemble the much-demonized “individual mandate” in the Affordable Care Act. In particular, I noted that the ACA provision requiring health insurance has precisely the same kind of impact on individual purchasing decisions as Ryan’s roadmap, and is, if anything, less coercive than the Roadmap proposal to provide a tax credit to individuals who purchase health insurance, as a replacement for the current exclusion from income of employer-sponsored health insurance. The ACA imposes a tax penalty on individuals who choose not to purchase health insurance. The Ryan Roadmap, on the other hand, provides a tax credit to individuals who choose to purchase health insurance—a technical distinction, I suggested, without an economic or other real-world difference.
National Review, the Weekly Standard, and Hot Air raised various objections to this point, which was seconded by Ezra Klein in the Washington Post and by Jonathan in TNR. But recent oral arguments before federal appeals courts hearing legal challenges to the ACA should quiet such protests once and for all. In these arguments, two of the most celebrated members of the Right’s legal elite acknowledged that there is no daylight between the ACA mandate-plus-penalty and a Ryan-type tax credit universally conceded to be constitutional.
The first instance of this occurred on June 1, when Sixth Circuit Judge Jeffrey Sutton, sitting on a three-judge panel in Cincinnati in a case brought by the conservative advocacy group Thomas More Law Center, floated the hypothetical idea of a tax credit alternative to the ACA approach. The Law Center’s attorney, Robert Muise, acknowledged that “you could provide a credit for health insurance, there’s no prohibition on that.” To which Judge Sutton responded:
You think it would be just as coercive to say to people, everybody pays the same additional tax, it’s a health care tax, everybody pays it and the only people that don’t pay it, i.e. get a credit, are those with insurance, you think that would be as coercive?
Muise contended that a tax credit was different because it encouraged activity—namely the purchase of health insurance—whereas the ACA provision penalized a “failure to act.” But Sutton didn’t buy it:
If that’s your view, then just pay the penalty, pay the penalty, don’t get insurance, don’t be forced to do anything, in that sense, if you think they’re equivalent, in that sense, no one is forced to do anything, because the economic incentives are the same in both settings, you can’t say the law requires you to buy it, the law just penalizes you if you don’t.
Judge Sutton is not the first person to observe that the ACA’s allegedly freedom-destroying mandate is operationally indistinguishable from commonplace tax incentive provisions. But, apart from having actual decisional authority on the matter, Sutton enters this space with formidable ideological and professional credentials. One of the first batch of appeals court nominees picked by President George W. Bush, Sutton, though only 42 years old, earned his front rank position as the energizer bunny of the Rehnquist Court’s late 1990’s drive to shrink Congress’ domestic regulatory authority in the name of “federalism.” As a lawyer, Sutton argued and won, usually by bitterly contested 5-4 margins, a raft of decisions striking or narrowing provisions of the Age Discrimination in Employment Act, the Americans with Disabilities Act, the Violence Against Women Act, the Clean Water Act, and regulations implementing the 1964 Civil Rights Act, among others. He famously once told Legal Times, “I really believe in this federalism stuff.” Sutton’s professional standing was unquestioned; appointed by the Supreme Court in 2001 to represent a prison inmate, Sutton won a unanimous decision and unusually explicit praise from its author, Justice Ruth Ginsburg, for “his able representation.”
Of course, Sutton’s verbal acknowledgement that the ACA individual mandate is not uniquely coercive, emphatic though it appeared, is no guarantee that he will not strike down a law that Republican orthodoxy demonizes as a drastic expansion of federal power. Nevertheless, his on-the-record statement leaves the case against the ACA mandate resting at best on a hypertechnical foundation lacking in substance.
The second acknowledgement of the ACA mandate’s kinship with uncontroversial tax incentives occurred a week later in Atlanta, at the June 8 argument before a panel of the Eleventh Circuit Court of Appeals in the case against ACA brought by 26 Republican state attorneys general and governors. During the argument, the Republicans’ counsel, Paul Clement, attempted to sound a reasonable note. He said, “There’s lots of different ways that Congress could incentivize people to get to the exact same result. They could have passed a new tax and called it a tax, and then they could have given people a tax credit for paying for qualifying insurance.”
Again, Clement’s observation was not original. But in addition to being the Republican opponents’ lawyer, Clement also served—with universally acknowledged distinction—as George W. Bush’s Solicitor General. Recently, he made headlines by resigning his 7 figure-per-year partnership in the Atlanta-based firm, King & Spalding, when the firm precipitously withdrew from representing his client, the House of Representatives, to defend the federal Defense of Marriage Act, aka DOMA.
The significance of Clement’s functional equivalence concession was not lost on Eleventh Circuit Judge Stanley Marcus. Marcus, originally named a district judge by President Ronald Reagan and subsequently to his current appellate position by President Bill Clinton, drew a logical implication subtly different from Judge Sutton’s observation that the ACA mandate is not uniquely coercive, but one that is potentially even more troublesome for the ACA opponents’ case. “Isn’t that just another way,” he asked rhetorically:
“[O]f saying they [Congress] could have done what they did better? More efficaciously, more directly, and they regulated perhaps inefficaciously, maybe even foolishly, but if it’s rational, doesn’t my job stop at the water’s edge? Isn’t it for the legislative branch to make those kinds of calculations and determinations?”
No constitutional lawyer could mistake where Judge Marcus was heading. How is it possible, he was saying, for courts to dictate which of two methods Congress must choose to implement its constitutionally enumerated powers, when both methods generate “the exact same result?” Judicial micro-managing on such a granular level, Marcus knows, violates the fundamental, black-letter standard established nearly two centuries ago by Chief Justice John Marshall. In his iconic 1819 decision, McCulloch v. Maryland, Marshall broadly interpreted the constitutional grant of authority to Congress “to make all laws which shall be necessary and proper for carrying into execution” its enumerated powers: “Let the end be legitimate,” he wrote in words memorized by first-year law students, “let it be within the scope of the constitution, all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”
To be sure, no one who listened to this Eleventh Circuit argument could predict the panels’ outcome any more confidently than could those who heard the previous week’s Sixth Circuit argument. But these unequivocal statements, by two of conservativism’s most eminent legal luminaries, that the ACA individual mandate is not a unique threat to Americans’ liberty after all, surely drain much of the juice from opponents’ legal case, and, ultimately, from their political case as well.
By: Simon Lazarus, Public Policy Counsel to the National Senior Citizens Law Center, Guest Post, The New Republic, June 17, 2011