Free stuff

Fiscal conservatism 606

I’ve read in several places this past week comments made by Jeb Bush that he won’t be a president who is going to be giving away “free stuff” in order to buy votes, in contrast to the Democratic presidential candidates who are trying to outbid each other as to how much free stuff they can promise their constituencies in order to buy their votes in the primary. (See http://economistsview.typepad.com/economistsview/2015/10/we-all-get-free...). The giveaways I’m sure will be even more dramatic in the general election.

President Obama has successfully started to transform America into a debtor nation that has spent and promised more than it earns, by giving free and subsidized “stuff” to poor people.

I agree, it is awful if someone is sick and can’t get care. But that was never the case in America, as there is an emergency room within an hour’s drive of anywhere and emergency rooms never turned people down for urgent care because of lack of insurance. And healthcare has never been a "right." And making people work so they can be self-sustaining is not a bad thing.

Still, having millions of people without insurance was a problem, so the solution was to make plans more affordable through subsidies and sky-high deductibles, with mandates for plan coverages that many people didn’t want, because the government knows what is best for us.

The latest news on this front is that many of the insurance coops created by Obamacare are going bankrupt, with taxpayers going to have to foot the bill for their losses. And with fewer companies in the future, you know rates will keep rising by double-digits. If nothing else, perhaps this will convince some independent voters of the inefficiencies of big-government solutions.

I don’t know why giving stuff away for free as a description of what the Democrats are doing is obviously so offensive to the left. Why can’t they just say they are trying to buy votes, just like they are giving benefits and legal cover to unions because unions support their party with money and workers in order to advance their political goals? Isn’t this obvious, or do we have to pretend that nobody knows what the game is?

But no, the media, led by the New York Times (http://bud-meyers.blogspot.com/2015/10/rich-get-more-free-stuff-from-gov...) and (http://topics.nytimes.com/top/reference/timestopics/subjects/i/income/in...), and (http://www.nytimes.com/2014/05/20/upshot/to-lift-the-poor-you-cant-avoid...), takes offense at this truthful description. The latest Democratic talking points picked up by the media is that tax-breaks for the rich are actually more costly to our economy than welfare benefits. This is pure nonsense.

They argue with a straight face that giving stuff for free to low-income people is the same as giving tax breaks to the rich. I feel a little ridiculous debunking this latest argument because it is so moronic, but since I’ve read it several times over the past few weeks, I guess I’ll have to hold my nose and proceed.

So here's my analogy. Yesterday, the government declared that everyone who made over $100,000 a year would have to pay a 90% tax on their income above $100,000. They calculated that this would raise a gazillion dollars because it would basically confiscate everyone’s earnings.

Today, the government cancelled those plans, thus saving taxpayers a gazillion dollars. In fact, Hillary Rodham Clinton declared that the cancelled tax increase results in savings to taxpayers that is 100x greater than any amount spent on welfare or any amount that could be spent on welfare, and therefore we can take those savings and increase our welfare spending ten-fold and still be saving taxpayers a gazillion dollars. Hell, we can fund free college, free pre-school, and free trips to Tahiti with all the money the rich are saving.

Agreeing not to tax people is not “saving them money.” It is instead a decision not to raise tax revenue. You cannot compare someone paying taxes with someone on government assistance and somehow equate the “reduction in taxes” with the “spending” in any meaningful way.

Now there is a more sophisticated argument and it's outline is that since rich people are society's producers, changing their behavior to benefit society helps everyone, rich and poor alike. If tax policies create an incentive to invest money, start new businesses, hire workers, etc., then those policies don't just help the wealthy.

Let’s take the mortgage interest-rate deduction as an example. The Dems would argue that this is a “tax break” for the rich because only the rich can own homes. (Let’s leave aside the issue that many working poor and middle-class taxpayers buy affordable homes because of this tax break and just assume that it is another “break” for the rich.)

If the tax code were to eliminate this deduction, then the behavior of the rich would change significantly. The wealthy would buy fewer homes without the tax break, because many would not want to take a large share of after-tax income to pay a mortgage with such a long-term benefit. So buyers would pay much less for houses, they’d buy them for cash (taking productive money out of the economy, rather than borrowing), they wouldn’t get home-equity lines of credit because they couldn’t deduct the interest cost, and fewer homes being purchased would mean less collateral spending (furniture, landscaping, etc.). So this change would hurt the overall economy which would probably affect the poor much more than the rich.

So in the interest of having a vibrant and working economy, you incentivize the producers to spend their money, to borrow, to invest in things like real estate, and to take risks. This creates wealth and is good for the economy. The alternative is stagnation. So it is better for society to give “tax breaks for the rich” because it incentivizes them to do certain economic activities which benefits everyone, not just the rich.

In other words, the “tax breaks” help our society, perhaps as much or more than it helps the individuals who use the tax breaks, because it changes behavior.

We also incentivize the poor to change their behavior. For example, we want welfare recipients to work. Requiring work saves billions of dollars because it changes behavior. You might have a policy that allows someone to work 10 or 20 hours per week and keep their income and benefits as a way of giving them experience and training to help them transition off welfare. So a work requirement might bring in a very small amount of cash to offset subsidies, but over time, the payout is much larger because of changes to behavior.

But the bottom line is that reducing an expense is not the same as giving someone a subsidy, even if the dollar amounts are identical. Taking tax money and giving it to people to subsidize their food, clothing, shelter, healthcare, college costs, Internet service, or an Obamaphone is giving stuff to people for free. Deciding to lower taxes is not comparable.

And if a voter considers these giveaways and it helps them decide to vote for the person who is giving them more free stuff, that is called bribery.

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