I was reading a Bloomberg
article last week titled “Those Pointless Upper-Middle-Class Entitlements.”
It is - to be fair - an opinion piece, so let’s take it with a grain of salt.
The article begins:
Let’s talk
about upper-middle-class entitlements, the subsidies that flow almost entirely
to those in the upper fifth or even tenth of the income distribution. You
know, the home mortgage interest deduction and the tax subsidies for 401(k)s,
IRAs and other retirement plans.
Then we have a spiffy graph:
I am confused with what is considered
a “tax break.”
The true “tax break” here is the
earned income credit. We know that this began as encouragement to transition one
from nonworking to working status, and we also know that it is the font of
massive tax fraud every year. The government just sends you a check, kind of
like the tooth fairy. An entire tax-storefront industry has existed for decades
just to churn-out EIC returns. Too often, their owners and practitioners are
not as … uhh, scrupulous … as we would want.
And this is a surprise how? Give
away free money to every red-headed Zoroastrian Pacific Islander and wait to be
surprised by how many red-headed Zoroastrian Pacific Islanders line up at your
door. Even those who are not red-headed,
Zoroastrian or Pacific Islander in any way.
Here is more:
Of course,
we wouldn’t want to take away all of those tax expenditures, would we? The earned
income tax credit and the Social Security exclusion, for example, are targeted
at people with pretty low incomes.
Doesn’t one need to have income before receiving an INCOME
TAX expenditure?
Then we have these bright shiny categories:
·
Defined contribution retirement plans
·
Defined benefit retirement plans
·
Traditional IRAs
·
Roth IRAs
Interesting. One would think that saving for retirement
would be a social good, if only to lessen the stress on social security.
We read:
Wealthy people who would save for retirement in any case respond
to subsidies by shifting assets into tax-sheltered accounts; the less wealthy
don’t respond much at all.
It makes some sense, but don’t you feel like you are being
conned? Step right up, folks; make enough money to save for retirement and you
do not need a tax break to save for retirement.
When did we all become wealthy? Did someone send out letters
to inform us?
Did you know that the majority of income tax breaks are claimed
by people with the majority of the income?
Think about that one for a second, folks.
This following is a pet peeve of mine:
· Deferral of active income of controlled foreign corporations
We have discussed this issue before. Years ago, when the
U.S. was predominant, it decided that U.S. corporations would pay tax on all
their earnings, whether earned in the U.S. or not.
There is a problem with that: the U.S. is almost a solo act
in taxing companies on their worldwide income. Almost everyone else taxes only
the profit earned in their country (the nerd term is “territoriality”).
Let’s be frank: if you were the CEO of an international
company, what would you do in response to this tax policy?
You would move the company – at least the headquarters - out
of the U.S., that’s what you would do. And companies have been moving: that is what "inversions" are.
So, the U.S. had no choice but to carve-out exceptions,
which is how we get to “deferral of active income of controlled foreign
corporations.” This is not a tax break. It is a fundamental flaw in U.S.
international taxation and the reason Congress is currently considering a territorial system.
By the way, how did these tax breaks come to be, Dudley?
Why do
these subsidies continue nonetheless? Mainly, it seems, because they’ve been
granted to a sizable, influential population who, it is feared, will fight any
effort to take them away.
Politicians giving away money. Gasp.
But mainly
it’s the millions of upper-middle-class Americans who, like me and my family,
are beneficiaries of tax subsidies for home mortgages, retirement accounts
and/or college savings.
To state another way: It is unfair that people with more
money can do more things with money than people with less money.
Profound.
What offends about this bella siracha is:
You train for a career.
You set an alarm clock daily, dress, fight traffic and do your job.
You get paid money.
You take some of this money and save for nefarious causes such as your kids’ college and your eventual retirement.
Yet you keeping your own money is the equivalent of
receiving a welfare check euphemistically described as an “earned income
credit.”
No, no it is not.
And the false equivalence is offensive.
I get the issue. I really do. The theory begins with all
income being taxable. When it is not, or when a deduction is allowed against income,
there is – arguably - a “tax break.” The criticism I have is equating
one-keeping-one’s-money (for example, a 401(k)) with flat-out welfare (the
earned income credit). Another example would be equating a deeply-flawed statutory
tax scheme (multinational corporations) with the state income tax deduction (where
approximately 30% of this tax break goes to two states: California and New
York).
And somebody please tell me what “wealthy” means anymore. It
has become one of the most abused words in the English language.
