March 28, 2008

not 'how much', but 'for whom'

I read the title of this article and thought, exactly! Which is always satisfying. Title in question: "Parties Differ on Whom Economic Aid Should Help."

The Republican Party has pretty clearly abandoned its efforts at non-intervention in the economy: instead, its policies are trying to support 'markets' - which often means, big players in markets - instead of individuals. These supports are often framed as 'loans' or 'tax cuts' but are no less direct aid to a specific segment of the population than welfare is. A well-known example is the home mortgage interest tax deduction, which lets home-owners reduce their tax payment because of the money paid in interest on a mortgage. This is a fairly extensive subsidy, worth quite a bit of money, but because it is framed as a tax exemption (rather than a transfer payment) and because it mostly affects relatively well-off people (since you only get it if you itemize your tax deductions, which few low-income people do) who own homes (and is more valuable the higher your income), it's not framed as government assistance in the same way that Section 8 housing vouchers are.

The credit-crisis aid is a similar situation: Democrats frame their argument in terms of assisting individuals who bought homes; Republicans have defended huge loans to Wall Street - which is a big subsidy to banks and firms that might otherwise go bankrupt or be unable to secure credit. At the consumer spending and recession level, the Bush tax rebates are similar to the home mortgage interest tax deduction: assistance for people who pay taxes on income, not for the unemployed or very poor, and becoming more valuable (to a point) as income increases. Democratic proposals, by contrast, mostly focused on higher transfer payments.

The Republicans like to claim that they're not providing government assistance - that they're working for small government - when they reduce taxes. The truth is, it's still assistance, whether by giving people money directly or reducing the amount of money they have to give you. But there are three things about tax-based assistance that are very different from transfer payments:

  • Assistance provided as a tax break systematically advantages wealthier people, who get a greater reduction in their taxes (and, because of the tax rate goes up as income goes up, often a greater percentage, not just absolute, reduction).
  • Because family wealth confers significant advantages on children and young adults (see the problematic but very interesting The Hidden Cost of Being African-American), even a tax/benefit code that does not systematically advantage the wealthy will perpetuate and perhaps increase inequality just by allowing families to pass on advantage. Neutral is not neutral.
  • Tax breaks are not stigmatizing or difficult to receive. You just do your taxes. No showing up at the office or waiting in line or having a different way to pay for things from the other people at the store or needing to find a Section 8 - friendly landlord.

Assistance is assistance. It's just who you help. If you're Bush or McCain, you focus on banks and people who pay a lot in taxes. If you're Clinton or Obama, you focus on people who make less. The money still gets handed out.

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