From Catherine Rampell. One sample question:
Which income group receives more than half of federal housing subsidies?
A) Households with incomes below $30,000
B) Households with incomes between $30,000 and $100,000
C) Households with incomes above $100,000
Overall, what I think the answers point to is that the government’s role in income distribution is not purely technocratic. Political considerations are important.
I find an interesting tension in the quiz questions. It correctly points out that Medicare recipients get more back from Medicare than they point in (and people get back more in Medicare and Social Security combined than they put in), which is a not very well understood point (it is somewhat explained by the people who die before they draw benefits at all, and somewhat explains the dire financial state of the programs.) However, it also tries to claim that people who pay only payroll taxes are paying net federal taxes.
If Medicare and Social Security recipients, on average, are getting a good deal from the government (and both are an even better deal for the low income– *assuming they live that long* which is an important caveat), then it’s not quite correct to think of payroll taxes as real federal taxes, rather than incomplete offsets for a forced savings / premium program.
What is the difference between a tax and an “offset”? Either way, you are giving money to the government to fund its services that it gives back to you.
Most taxes are considered for the general welfare. You might happen to get more out of them as a whole than you put in, but that’s generally supposed to be an aggregate and because of public benefits.
People don’t always tend to consider government tolls and fees for services as “taxes” in exactly the same way, where the fee is closely related to and paid at the time of obtaining a benefit. If you buy a ticket on Amtrak or mail something at the Post Office, you don’t call it a “tax.”
Similarly people view Social Security and Medicare explicitly as forced savings / insurance programs paid for by premiums. If you view it that way, it’s worth pointing out that people get back more than they pay in savings or premiums, but under that viewpoint the initial payments aren’t precisely taxes.
I scanned the article quickly for what they are considering housing subsidies, and it looks like all the subsidies for high income households are in the form of interest tax deductions, which I don’t have any problems with, and don’t consider a subsidy to begin with.
How do you not consider them a subsidy? They’re favorable tax treatment for a certain type of consumption (which occasionally has investment aspects) and a certain kind of debt (since other consumer debt is not deductible, with the exception of student loan debt up to a certain amount, something else that you presumably don’t see as a subsidy), which among other things raises the price of the subsidized product.
You are correct, I take it back
I think what bugs me, causing the comment, is combining different forms of subsidies. Not paying X is not the same as receiving X, which I guess is more of a moral concern than an economic one.
I feel your pain.
The tax incentive is supposedly there because pushing people into home ownership creates positive externalities.
Also, you are only subsidized for loans.
I feel nudged rather than helped.
You can argue whether the deductions are subsidies or not, but you have to treat them consistently.
The cited source shows the mortgage interest deduction as a subsidy to homeowners, but doesn’t show deductions for mortgages on residential rental properties as a subsidy to renters. Either they are both subsidies or neither are, if you are trying to compare whether the gov’t favors homeownership over renting.
Similarly, the source counts the capital gain exception as a subsidy to homeownership, but doesn’t seem to account for the fact that homeowners do not get to write off capital losses associated with their home.
Likewise, I don’t see anything accounting for 1031 exchanges for residential rental properties, which while not as beneficial as the capital gains exception for homeowners, most of the time will work out to be the same thing, as few relatively few people downsize their homes (and therefore subsequent home purchases look exactly like a 1031 exchange).
The only significant federal tax advantage for homeownership that I’m aware of is really just a tax advantage for ownership over renting/leasing period, no matter what you’re talking about, and that’s the fact that we don’t tax imputed income.
Then at the state and local level, I think ad valorem taxes are often assessed at a different rate based on whether it’s an owner occupied primary residence or whether it’s a rental or second home.
Both of these are big deals that put the thumb on the scales in favor of ownership, but neither comes anywhere near to the numbers being thrown out in the cited materials.
“The cited source shows the mortgage interest deduction as a subsidy to homeowners, but doesn’t show deductions for mortgages on residential rental properties as a subsidy to renters. Either they are both subsidies or neither are, if you are trying to compare whether the gov’t favors homeownership over renting.”
What’s the incidence of the residential rental property deduction, though? Are the gain captured by the renters, or by the owners of rental property? My impression is that the rental property market is not terribly competitive (high barriers to entry, difficult to scale up production and so reap the fruit of lower prices). But in this case, the gains from the deduction accrue predominantly to the owners of rental property, not to the renters.
Should we include payroll taxes when we talk about federal taxes? What counts as a subsidy? What is a tax loophole as opposed to just part of the tax code, and does the phrase “tax expenditure” make sense? Does it make sense to think of programs people pay into as federal spending or forced savings/insurance? Most of these quiz answers come down to matters of language that reasonable people can disagree on. I’d expect that from CBPP (or any other ideological think tank), but I’m disappointed that it wound up in a Post column that’s supposed to be more straight economics.
“Straight economics” has been relegated to the same posture as “straight” in sexual preferences and activities.
It still exists but is not is interesting in its media promulgations (or understanding).
The exotic, the different, and the obscure all earned more ink (and bytes).
In line with the above discussions of “subsidies:”
Consider that we are discussing the taxation of “income.”
There is a famous line from Surrey & Warren’s text: “is it income; whose income is it; is it taxable income?” Thus began my education in taxation by Mortimer M. Caplin, one of America’s great teachers and practitioners.
Income is derived from revenues, which raises the questions of how win-win received and in what form.
“Whose income is it,” has become a social logical issue as is demonstrated by the question of whether a “deduction” is a “subsidy.” In the strict definitional sense, there is no act of subsidization in *not* taking a portion of one’s income or property by taxation.
Often, the claim is made that the subsidization occurs in the receipt of services or protections from government that are supplied from the taxes imposed on others, which is not offset by a proportionate or comparable tax on the recipient of those services or protections. If this be so, the entire system of taxation is a system of subsidizations.
The allowance of personal exemptions and dependent exemptions, the provisions for savings extractions, deductions for particular forms of expenses generally give consideration to the fact that the ownership of the income carries with it the right to its disposal and use. Deductions recognize that right, effectively allowing an individual to keep or direct the particular use of income that belongs to the individual. However, there is a social philosophy that maintains that incomes are generated in a social context in which the individual is a participant and not and “owner.” From this view income derives from society and any disproportionate share of it would constitute a subsidy.
As to the deductions of mortgage interest payments, is the recipient of those payments tax on that income? Is there a real social loss of participation in that particular bit of income? None of this is stated as an argument of tax policy, but simply to clarify an understanding of subsidization and the nature of claims for its occurrence.
More difficult to conjecture, is the concept of an “Net Imputed Rental Income” as a form of income, which is more likely derived from a concept of an expense not incurred. “Is it income?” Can it be said to derive from revenues; or is it identified as revenues that others *do not* receive by reason of ownership and allowing use of the property? This concept falls in the realm of the bogus.
In the theories presented, Property Taxes and the deductions for them are somewhat less consequential. Nevertheless, those taxes represent a share of claim of ownership by another governmental authority. That claim will either be met as a claim on income (as is state income tax) or a taking of property. On this point we are reduced to matters of tax policy
we do have a demonstration of where we have come in social philosophy to regard allowing individuals to keep or direct portions of the results of their efforts as they see best, as subsidization. What next?