Tag Archives: tax expenditures

Yet Another Proposal To Raise My Own Taxes

By James Kwak

In chapter 7 of White House Burning, we proposed to eliminate or scale back a number of tax breaks that I benefit from directly, including the employer health care exclusion, the deduction for charitable contributions, and, most importantly, tax preferences for investment income. We did not, however, go after tax breaks for retirement savings, on the grounds that Americans already don’t save enough for retirement.

Well, in my latest Atlantic column, I’m going after that one, too. I changed my mind in part for the usual reason—the dollar value of tax expenditures is heavily skewed toward the rich. But the other reason is that the evidence indicates that this particular subsidy doesn’t even do what it’s supposed to do: increase retirement savings. Instead, we should take at least some of the money we currently waste on tax preferences for 401(k)s and IRAs and use to shore up Social Security, the one part of the retirement “system” that actually works for ordinary Americans.

Of course, this isn’t going to happen anytime soon. President Obama proposed capping tax-advantaged retirement accounts at $3.4 million, which is a step in the right direction. ($150,000 would be a better limit, since most people reach retirement with far less in their 401(k) accounts.)* But even that was attacked by the asset management industry as theft from the elderly.

* Yes, I know about the issue of small business owners who only set up accounts for their employees because they want to benefit from them themselves. It’s a red herring. First, if an employer doesn’t have a 401(k), employees can contribute $5,000 to an IRA—and $5,000 is a lot more than most middle-income, small business employees are currently contributing. Second, the right solution would be to default everyone into a retirement savings account instead of relying on employers to decide whether or not to set up 401(k) plans.

Invisible Handouts and Anti-Government Conservatives

By James Kwak

Ezra Klein wrote a column for Bloomberg discussing research by political scientist Suzanne Mettler and some of her collaborators. Mettler studies what she calls the “submerged state”—the growing tendency of government programs to provide benefits in ways that mask the fact that they come from the government—and its implications for perceptions of government and ultimately for democracy.

There are several important lessons to draw from Mettler’s work. The most obvious, which was highlighted by Bruce Bartlett a year ago (and that I wrote about here), is that Americans are hypocrites: many people benefit from government programs, ranging from the mortgage interest deduction to Medicare, yet deny receiving help from any “government social programs.”*

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What Government Aid?

By James Kwak

Earlier this year I wrote about a paper by Suzanne Mettler that included a survey showing that a large proportion of beneficiaries of government programs insist that they have never been beneficiaries of any “government social programs”—60 percent for the mortgage interest deduction and 44 percent for Social Security retirement benefits, for example. This provides ample evidence that “keep your government hands off my Medicare” is not a fringe opinion.

Recently, I read Mettler’s book, and there’s more to the story. One of her arguments is that hiding government programs in the tax code undermines the democratic system because it obscures the role that government plays in society. There were two quantitative examples I thought were particularly revealing.

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Tax Loopholes and the French Revolution

By James Kwak

Today’s Atlantic column is about one of my favorite topics: the French Revolution. Actually, it’s mainly about tax expenditures and how traditional Republicans should want to eliminate them. Unfortunately, there are no traditional Republicans left, and Grover Norquist’s anti-tax pledge makes clear that you can’t eliminate tax expenditures unless you use all the revenue to lower tax rates below where George W. Bush put them.