March 7, 2004

Corporate welfare for you and me

By: AFF Editors

Ronald Reagan made famous the image of the “welfare queen.” An honest assessment of our tax code and corporate laws makes it clear that the worst welfare queens are CEOs and corporations. But you too, even without buying a huge farm like Ted Turner, or running an energy firm like Enron, can benefit from corporate welfare.

In fact, you are probably already the second-hand beneficiary of corporate welfare if you own a home, are saving for retirement, or went to college. Here’s how it works:

The government taxes an absurd amount of your money. From my income on any freelance piece I write, D.C. and Uncle Sam get half, and I get the other half. If you’ve seen my shoes, you know I’m not rich, but they still take all my money.

If I still have some left over after my Armani suits, my tab at the Hawk and Dove and the nearly 50% I give to President George W. Bush and Mayor Anthony Williams, I may want to save some. But if those savings make any money, the government taxes it again. This awful taxation is an attack on my wealth. Accordingly, I scramble for shelter.

This is where Congress steps in and provides ways for me to avoid this oppressive taxation, which they created. Individual Retirement Accounts (IRAs) and 401(k)s, are two kinds of accounts you can set up, contribute a limited amount to, and make sure the money only gets taxed once.

Here’s the catch: the government sets the guidelines of what sort of investments you can designate as IRAs or 401(k)s. If you want to save for retirement by investing in your neighbor’s cattle, or pouring venture capital into the local startup Irish Pub, you’ll be double taxed.

As long as you’re willing to send the money to publicly traded companies the SEC has approved (such as Enron) and have it managed by financial institutions the feds have decided they like, then you can put a portion in an IRA or 401(k) and escape Washington’s double taxation.

Now for a metaphor. The schoolyard bully says he’ll beat the tar out of you if you don’t give him your lunch money. However, one day he approaches you and makes a deal: “If you spend that money at my buddy’s lemonade stand, then I won’t pound you or take your money.”

As long as you behave the way the government wants you to, it won’t take half of your money. Washington uses the tax code to modify behavior.

Someone in Washington decided the world is better if people own their own homes rather than rent. I agree with them on this. I also have opinions on milk and women’s clothes, but I don’t think the tax code should favor whole over skim or skirts over pants.

But if you own a home, you get big tax breaks that renters don’t get–as long as you borrow to buy the home. So the home-mortgage-interest deduction isn’t itself driving money into the hands of mortgage lenders and real estate agents. No, the high tax code is driving the money scrambling for any safe haven.

Student loans are even a better example of corporate welfare because the business going to the lenders is not just being pressured there to avoid oppressive taxes, but some money is actually transferred directly from taxpayers to lenders.

Many student loans are subsidized. That means that while you are in college and for the first six months afterwards, the taxpayers are paying your interest for you. If you wanted to borrow money to start up a small business out of high school, good luck getting subsidized loans then.

No, Washington has decided everyone should go to college, and so they have artificially driven down the price of college by making taxpayers foot part of the bill for the loans.

You may agree that saving for retirement in publicly traded corporations is best. You may favor college and home-ownership over their alternatives. But if you are a conservative or a libertarian, you shouldn’t want Uncle Sam using the IRS to tell you how to live.

I take advantage of these corporate welfare scams, happily being the conduit between the taxpayers and the corporate beneficiaries, because I get my cut. If they removed these shelters, Washington could generate the same revenue with lower rates. Believers in the free market don’t want Washington picking winners and losers; that’s the job of the invisible hand.

And some of Washington’s chosen’s winners are not so savory. Washington gives special treatment to those who loan to minority- and women-owned business. This means the bar would be higher for me to get a loan. Washington taxes a couple more once they get married than if they live together out of wedlock.

Finally, the more complicated the tax code, the more beneficial it is to those with the time, resources or inclination to seek out exceptions–thus punishing those too busy working to read the IRS code, and rewarding legal savvy over hard work and value-generating ingenuity.

The Bush Administration often says that government cannot create prosperity and wealth, it can only create the conditions for it. Well, for the banks and publicly traded companies, the conditions could hardly be better.

Tim Carney is a reporter for the Evans-Novak Political Report.

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