The following is an excerpt from OpinionJournal.com’s “Best of the Web” written by the editor, James Taranto.
News of the Tautological
“Survivalist/Conspiracy Theorist Says His Views Have Made Him a Target”–headline, Philadelphia Daily News
Though It’s Easier Just to Avoid Older Adults
“Eating Fish Associated With Lower Risk of Dying Among Older Adults”–headline, Harvard School of Public Health press release, April 1
‘Spending’: Letting You Keep Your Own Money
“The Real Spending Problem,” according to a New York Times editorial with that title, is that the government is letting you keep too much money:
Each year, the government doles out tax breaks worth $1.1 trillion. . . . Tax breaks work like spending. Giving a deduction for certain activities, like homeownership or retirement savings, is the same as writing a government check to subsidize those activities. Functionally, they mimic entitlements. Like Medicare, Medicaid and Social Security, they are available, year in and year out, in full, to all who qualify.
This is nonsense. Consider the tax deduction on home-mortgage interest (not homeownership per se). If it worked like Social Security, the government would simply pay part of your mortgage each month or send you a check to offset the cost. Instead, you get to deduct the interest from your income before paying taxes. If you have little or no income–say you’re retired and living off savings, or you have a big capital loss one year–you get no benefit.
There are good economic and individual-freedom arguments against these sorts of tax deductions and credits, but not because they constitute “spending.” A better way of looking at them is that they are the equivalent of a tax on not engaging in certain behavior. Seen through this lens, the mortgage-interest deduction is a tax on renters, and for that matter on homeowners who are debt-free.
Anyway, the Times editorialists don’t seem to have the courage of their convictions. They don’t actually call for abolishment of the popular mortgage-interest deduction or even complain about the one for charitable contributions. They identify only three tax exclusions that “are indefensible and should be ended”: the taxation of private-equity “carried interest” at the lower capital-gains rate, “nine-figure I.R.A.’s,” and ” ‘like kind’ exchanges,” which allow the avoidance of capital gains taxes if the proceeds from a sale are used to purchase similar assets.
The grand total of these is at least . . . $4.4 billion a year, a whopping 0.4% of the $1.1 trillion the Times claims the government “spends” on “tax breaks.” We base that on the figures the editorial gives for carried interest ($13.4 billion a decade) and like-kind exchanges ($3 billion a year).
As for the individual retirement accounts, the Times claims “no one knows how much tax is avoided this way.” It seems the complaint is that the assets in certain people’s accounts appreciate too quickly: “Remember Mitt Romney’s $100 million I.R.A[.]? Private equity partners apparently build up vast tax-deferred accounts by claiming that the equity interests transferred to such accounts from, say, their firms’ buyout targets are not worth much.”
The editorial doesn’t suggest how to remedy this purported problem. Presumably if the taxpayers in question are lying about the value of their assets, they can be charged with fraud. But if not, what would the Times recommend? A tax on retirement funds that appreciate too quickly?
Besides, earnings on IRAs aren’t tax-free, they’re tax-deferred. When you retire and begin drawing them down, you pay taxes on the withdrawals (and the money is taxed as ordinary income, not at the lower capital-gains rate). If you die with money still in your retirement account, your heirs are subject to the death tax. To the Times editorialists, it’s “spending” not only when the government lets you keep more of your own money, but even when you keep it only temporarily.
For more “Best of the Web” click here and look for the “Best of the Web Today” link in the middle column below “Today’s Columnists.
