The Real Moochers of America
We need to stop thinking of taxes as “payers” and “moochers” on the system. Ignoring the terrible demonization of people in need that it encourages, it just isn’t accurate.
Take a poor American that doesn’t pay any federal income taxes. They still pay property taxes, incorporated into their rent expenses. They still pay sales taxes when they shop. When they fuel their cars, they pay gas taxes. They still pay corporate taxes, to a degree, as corporate taxes result in higher consumer goods costs. They still pay into social security and medicare through the payroll tax. Hell, their electricity and water bills may also include fees for conservation offsets or to fund local governments.
Everyone pays taxes, even if their 1040 doesn’t result in any more tax payment.
Meanwhile, take a wealthy homeowner, benefitting from the mortgage interest deduction, a conservation easement deduction, and they also use the gambling write-off and write off their charitable deduction. Because they live in a wealthy exurban area, they benefit massively from the SALT deduction.
It’s time to start admitting that not paying taxes is the exact same thing as receiving Federal benefits. The outcome is the same. One has a massive stigma. The other does not. Homeowners who complain about those on welfare file public comments demanding that the mortgage interest deduction be kept. Regardless of public perception, undermining the progressiveness of a tax code is just as distortionary as a payment program. Who’s mooching more, a wealthy person who is only paying $10,000 in taxes when they should be paying $50,000, or a poor individual receiving $10,000 in welfare benefits after only withholding $3,000 for taxes? The short answer is that the wealthy person is.
America’s tax system is fundamentally progressive, with the rich paying a higher marginal rate than the poor. Deductions intended to build middle class wealth have instead expanded rent seeking behaviors for the upper middle and upper classes at the expense of everyone else, and have created tax windfalls that have accelerated inequality.
Deductions as a whole are distortionary in favor of the rich. But because deductions are harder for the general public to visualize, it’s easy to just focus on payment programs because checks in the mail from the government are easier to understand than a smaller tax burden.
Those deductions for the rich aren’t just regressive, but they incentivize rent seeking behaviors. The mortgage interest deduction encourages larger homes, reducing home supply and increasing prices. The SALT deduction subsidizes wealthier jurisdictions that tax themselves at rates less feasible in poorer jurisdictions.
Middle and upper class Americans have fooled themselves into thinking that programs that benefit them aren’t really welfare or subsidies, because there aren’t any checks in the mail, even as they receive thousands or tens of thousands of dollars of assistance. If you wanted to reform the public perception of America’s benefits system, you’d make homeowners wait in line at government offices for their checks, just like the poor do to sign up for TANF.
The sooner we all admit we benefit from government programs, the more healthy debate on policy will be.