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Let’s Get Real About Wasteful Public Welfare Programs

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By now all of us know that Mitt Romney is responsible for emphasizing the 1% and the “takers.” Of course, Romney wasn’t the only one. Bill O’Reilly, in one of his tirades, emphasized that the real problem with America are the welfare queens and the food stamp junkies. In the debate about poverty and the 1%, no one deals with the problem more uniquely than Nick Kristof. He reminds us that critics have argued that “government assistance saps initiative and is unaffordable.” After researching the issue, Kristof concedes that “the critics have a point” and finds “five public welfare programs that are wasteful and turning us into a nation of ‘takers.’”

1. Welfare subsidies for private planes. The United States offers three kinds of subsidies to tycoons with private jets: accelerated tax write-offs, avoidance of personal taxes on the benefit by claiming that private aircraft are for security, and use of air traffic control paid for by chumps flying commercial.

As the leftists in the George W. Bush administration put it when they tried unsuccessfully to end this last boondoggle: “The family of four taking a budget vacation is subsidizing the C.E.O.’s flying on a corporate jet.”

It’s not just the planes, Google and the Pentagon inked a deal in 2007 that let the firm purchase fuel for its entire fleet—seven jets and two helicopters—at a discounted price from the US government. The deal was finally ended late last year after the government discovered the firm may have been using the fuel for non-government flights. Still, our government also subsidizes trains and autos.

Why complain just about food stamps? Won’t these tycoons, also, become addicted to the entitlement culture?

2. Welfare subsidies for yachts. The mortgage-interest deduction was meant to encourage a home-owning middle class. But it has been extended to provide subsidies for beach homes and even yachts.

The second-home mortgage deduction, which also benefits owners of cabins and recreational vehicles, is the boating industry’s biggest tax break and applies to vessels ranging from tiny sailboats to multimillion-dollar yachts.

To get the subsidy, the IRS requires at least a temporary toilet and camp stove.  The only other qualifying requirement is that taxpayers spend at least 14 nights a year in their second home if they also sometimes rent it out to others.

But surprise, money was slashed last year from the public housing program for America’s neediest. I suppose we could house the homeless in these publicly supported yachts?

3. Welfare subsidies for hedge funds and private equity. The single most outrageous tax loophole in America is for “carried interest,” allowing people with the highest earnings to pay paltry taxes. They can magically reclassify their earned income as capital gains, because that carries a lower tax rate (a maximum of 23.8 percent this year, compared with a maximum of 39.6 percent for earned income).

Let’s just tax capital gains at earned income rates, as we did under President Ronald Reagan, that notorious scourge of capitalism.

Everybody and his brother, including Warren Buffett, thinks that the “carried interest” should be changed—except, of course, most hedge fund managers. My silence means that I don’t know what to think. I have a rule that says an opinion without facts is not worth a cup of coffee. Furthermore, I’m unconvinced that Buffett’s background (or any other financial manager) enables him to see very far beyond the financial implications of legislation. I’ll leave that to the legislators who, thus far, haven’t worked out an acceptable compromise. Beyond this, I’ll shut up.

4. Welfare subsidies for America’s biggest banks. The too-big-to-fail banks in the US borrow money cheaply because of an implicit government promise to rescue them. Bloomberg View calculated last year that this amounts to a taxpayer subsidy of $83 billion to our 10 biggest banks annually.

President Obama has proposed a bank tax to curb this subsidy, and this year a top Republican lawmaker, Dave Camp, endorsed the idea as well. Big banks are lobbying like crazy to keep their subsidy.

Historically, legislatures have had the guts to break up big monopolies. That’s a piece of the problem, but right now business is in control. And since a surprising number of federal legislators and Supreme Court members are multimillionaires, I have little hope for change of the banking system. But it’s my suspicion that eventually the public will demand that. Cutting the subsidy will play havoc with the banks—a good thing for all concerned except the bankers.

5. Large welfare subsidies for American corporations from cities, counties and states. A bit more than a year ago, Louise Story of The New York Times tallied more than $80 billion a year in subsidies to companies, mostly as incentives to operate locally. (Conflict alert: The New York Times Company is among those that have received millions of dollars from city and state authorities.)

On this issue, Kristof deserves the last word. You see where I’m going. We talk about the unsustainability of government benefit programs and the deleterious effects these can have on human behavior, and these are real issues. Well-meaning programs for supporting single moms can create perverse incentives not to marry, or aid meant for a needy child may be misused to buy drugs. Let’s acknowledge that helping people is a complex, uncertain and imperfect struggle. . . . we have a one-sided discussion demanding cuts only in public assistance to the poor, while ignoring public assistance to the rich. And a one-sided discussion leads to a one-sided and myopic policy.

Kudos to Kristof. You’ll want to check out his entire column. He understands the issues well enough to take a stand. So. . . .?

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