Subsidies - What Do You Think?

[Independent]

3. What I’d change: Spousal SS benefits for non-working spouses (50% of PIA) are overly generous & should be reduced; divorcee SS benefits should be limited to one ex-spouse;

I agree. But, I can't see stay-at-home spouses getting no SS benefits.

What I'd do: While people are married, split their earnings. If one earns $80k and the other $20k, then SS will use $50k for each of them for that year.

This eliminates lots of complex rules about years married before divorce, which of your exes is now alive or dead, etc.

I provides reasonable equity between single and married people.

 

[Independent]

2. I agree with the overarching policy to incentivize home ownership because I believe it benefits communities and families, which support a stable society.

I'll agree there is some benefit in terms of "stable" communities. I also think there are detriments in terms of a less mobile workforce and more NIMBY activity.

Our current tax deduction is remarkably inefficient in encouraging home ownership. Most of the money goes to high income people who would have bought houses without the deduction, the only difference is that they bought a bigger house with it.

I'd prefer eliminating all subsidies for home ownership.
If we must keep some, I'd move it out of the income tax and loan guarantees and into easy-to-see subsidies that clearly help first time, marginal buyers. Maybe a once-in-your-life interest free loan of $20,000.

 

[Independent]

3. What I’d change: I would revoke the tax-exempt status of all religious organizations, and force them to establish clearly separate entities to perform their charitable work, for which they would be treated the same as all other charitable organizations.

I agree.

I've used the tax deduction for religious contributions most of my life. But, I think it is bad public policy. Some people want to join a bowling league, others a church. Neither should get a tax deduction for the money they spend on membership.

The gov't should not be in the business of making rules for which organizations are "acceptably" religious.

 

[Independent]

I want the other people's kids to grow up to be good citizens and workers to pay into the SS fund for me to enjoy my retirement.

I do not want them running around vandalizing my property and my cars.

So, I will pay to educate them, as long as the money is reasonable and well-spent.

+1

I do not see public education as a subsidy to parents, but as an investment in the generation that will (hopefully) support me.

 

[pb4uski]

I want the other people's kids to grow up to be good citizens and workers to pay into the SS fund for me to enjoy my retirement.

I do not want them running around vandalizing my property and my cars.

So, I will pay to educate them, as long as the money is reasonable and well-spent.

+1 education is an investment in society, which is why people with an without children pay for it.

It is the "well-spent" part that is troublesome.... I don't think that we get the value and outsomes are commensurate with what we spend on education.

 

[Beststash]

For me it is quite simple. Subsides should go to people not corporations. As of today corporations do not vote (admittedly they do indirectly with money) and should not be the primary consideration of our legislative heroes.

 

[Independent]

Yes, just eliminate Corp income tax - that tax is just bundled into the price of products, and is a flat tax on rich/poor alike. It strikes me as so odd that many of the same people who promote a 'progressive' (mathematically) income tax also want to see increased taxes on corps, which is a flat tax on the very people they want to have progressive taxes on!

When I've searched on "incidence of corporate income tax", I find that most economists will say mostly shareholders, but also workers. I don't find them saying consumers. For example: https://economix.blogs.nytimes.com/2010/07/23/who-ultimately-pays-the-corporate-income-tax/

But, I agree we should change the tax law. If we simply eliminate the corporate income taxes, then corporations become unlimited tax shelters. I don't like that result.

OTOH, we could give corporations full deductability of dividends paid to US taxpayers. A corporation with only US taxpayers as shareholders could completely eliminate corporate level taxes by paying all its taxable earnings out as dividends. I like that result.

(Note that most corporations in the US do not pay the corporate income tax because they file as S-corps and pass all their income through to their shareholders, who include it on their personal tax returns. We could do that for C-corps, as well.)

 

[pb4uski]

Just remember, part of the reasoning for 0% or 15% tax qualified dividends is because those profits have already been taxed when they were earned by the corporation paying the dividend... the lower rate avoids or reduces double taxation.... so if the corporate income tax were eliminated the quid pro quo would likely be to eliminate the preferenced tax rate on qualified dividends.

 

[Independent]

Just remember, part of the reasoning for 0% or 15% tax qualified dividends is because those profits have already been taxed when they were earned by the corporation paying the dividend... the lower rate avoids or reduces double taxation.... so if the corporate income tax were eliminated the quid pro quo would likely be to eliminate the preferenced tax rate on qualified dividends.

Oops, I forgot to mention that.

Yes, definitely, the tax on capital gains and dividends should be the same as the tax on ordinary income.

 

[USGrant1962]

My bottom line is that all government "subsidies" are the result of political processes. My thoughts:

Middle Class Suburbia - Huston55, I'm not exactly following your logic. FHA loans, etc. are fully available to urbians. I think you are really talking about ownership versus rental.

Mortgage/home ownership - my issue here is that our landlords (a few of which are here) get a break because interest is a business expense for them. It seems to me that the mortgage deduction is simply equalizing with rental properties so borrowing money to purchase real estate is treated the same in both cases. Otherwise rentals would be subsidized and ownership discouraged. And owners don't get to "deduct" maintenance and repairs like rental properties do!

Children - I've always looked at school taxes two ways. One is that you are simply reimbursing society for your own education. Or you are contributing to educating the future taxpayer who will support you (and not be a vagrant/vandal/criminal).

Religion - I'm a believer in the First Amendment (and all the others too!) but agree that there are issues with how churches (especially megachurches) and contributions to them are handled in the tax code. I kind of like the discussion here about 503(c) charitable works being exempt. But I worry that our politicians would try to influence religion through the tax code.

Agriculture - I agree that political giveaways like farm subsidies/price supports should go (though say Federal crop insurance might be reasonable). I'm kind of surprised that they have held on this long, farm political power is a fraction of what it was. But then there is Iowa in the primaries...

Corporate - This one generates a ton of confusion. I'll start out with saying that IMO corporate income tax rate should be zero. As I've said before, corporations do not pay taxes. They only collect them from customers, owners or employees (there is no other source) and remit them to the government. It is much better to collect taxes directly from those people (aka voters, aka taxpayers). Hiding taxes from voters (corporate taxes, excise taxes, tariffs, VAT) is what politicians love to do.

As an aside, a lot of the confusion I see comes from people thinking corporate income tax is similar to personal income tax. It is not. For tax purposes corporate "income" is actually profit, or revenue minus expenses, while personal income is, for all practical purposes, just revenue from which you get some politically negotiated deductions. A lot of what are called subsidies are various arcane rules defining expenses, which are necessary when you are taxing revenue-expenses. If personal income taxes were like corporate income taxes you would only pay on your savings.

So in my world corporate income tax would be zero, dividends would be ordinary income, capital gains would be ordinary income indexed to inflation, paying employee health insurance would be neutral tax-wise to the corporation and employee (vice paying it as salary), the government would not be penalizing profitable companies / subsidizing money-losing companies, and about a million rules about business expenses (not "deductions" btw, that is a personal income tax term) would go away as would all the political payoffs surrounding them.

If we must tax the economic activity of corporations, I'm more in favor of a gross receipts tax. Corporate receipts/revenue is much less subject to financial and political shenanigans than income; it gets the government out of the winners/losers game that profit-based tax entails; and the actual rate could be very low - in my estimation maybe 1% to replace existing corporate income tax revenue. The whole "what is a legit business expense" and Schedule C wouldn't go away, you would still need to translate corporate income to the owners' personal tax returns. But it would be a start.

Oh, and I want my ACA subsidy next year

 

[Mr._Graybeard]

I looked at it again, and I think the $172B (from a French study that I can’t read) is incorrect; I think perhaps they’ve mistakenly listed the total for the 5-yr Ag bill or included non-Ag subsidies. Every other reference quantifies US annual Ag subsidies as ~$20B/yr, which is why I listed $20B. See the new link below with a good chart. Pls feel free to double check this so we get an accurate representation of what our Govt spends each year on Ag subsidies.

https://www.mercatus.org/publication/updated-history-farm-bill-spending

You are correct. I thought the 2005 number looked a little suspicious because of its age, but it appears that farm subsidies have been pretty consistently in the $20s of billions annually. The French number is obviously wrong.

 

[Independent]

Mortgage/home ownership - my issue here is that our landlords (a few of which are here) get a break because interest is a business expense for them. It seems to me that the mortgage deduction is simply equalizing with rental properties so borrowing money to purchase real estate is treated the same in both cases. Otherwise rentals would be subsidized and ownership discouraged. And owners don't get to "deduct" maintenance and repairs like rental properties do!

This always confuses me, but my current opinion is that rent is taxable income to the landlord but not a tax deduction for the renter.
Here's a longer story:

Suppose that mortgage interest and property taxes are no longer tax deductible. My brother and I own similar houses. We decide to take advantage of the tax benefits available to landlords. We each move into the other's house, and start paying/collecting rent.

Now I have some new deductions on my FIT. I can again deduct mortgage interest and RE tax. I can also deduct maintenance and repairs. Am I better off? No. The rent my brother pays me is new taxable income. If I collect just enough rent to cover my expenses, I'm even. If I collect more, I pay higher taxes than I did as an owner-occupier. Note that the rent I am paying my brother is not tax deductible to me.

 

[joeea]

Subsidies - What Do You Think?

I think a thread about Subsidies is a great way to generate a ton of Us versus Them talk. A wonderful way to say "I like my subsidies" but "I hate their subsidies". A terrific way to pretend that "I earned my subsidies" but "Those lazy other folks' subsidies are a drain on society".

I don't understand how this is an "actionable" thread. Perhaps I'm missing something.

 

[USGrant1962]

I don't understand how this is an "actionable" thread. Perhaps I'm missing something.

This isn't bogleheads, AFAIK there is no requirement for an actionable thread here. We're just talkin...

 

[RobbieB]

As I said before I do not care about subsidies. I have enjoyed some and I've paid some for others. If I cared about subsidies I'd be doing grass roots politics, door to door and writing letters to congressmen.

What is this wagyu subsidy you speak of? I know not of it and only buy American wagyu from SRF -

 

[GTFan]

For some reason that I can't explain, the only one that really bothers me is Medicaid planning where people structure their finances so that taxpayers pay for their long-term care while subsantial assets get transferred to their children rather than having those assets used to pay for their long term care.

The one that really bothers me is the massive subsidy given to teams to buld stadiums because na na na my city is better than yours. Especially when they do it in secret (i.e. don't let taxpayers vote on it) and numerous studies have shown they are a net negative. We have three recent stadium deals here in the ATL that are in that class.

You could add to that list any number of 'economic' incentives for developers and corps to build stuff/guarantee jobs where states and munis are constantly competing to see who can waste the most money. Amazon's HQ2 choice is a prime example.

 

[joeea]

This isn't bogleheads, AFAIK there is no requirement for an actionable thread here. We're just talkin...

Thanks. I do get the rules confused.

 

[Huston55]

I don't understand how this is an "actionable" thread. Perhaps I'm missing something.

Thanks. I do get the rules confused.

Joe Buddy!

Now that you’ve unconfused the rules...

The idea I had as the OP (perhaps a misguided one?) is that we’d post about particular subsidies, and discuss the four elements in the OP, with the hope that we’d learn something from one another (many brains doing research is better than one brain). Like most things in life, we get out what we put in. I was hoping that more of us than not would state a position and support it.

Standing by to be enlightened.

 

[RobbieB]

I keep telling you I have no problems with any subsidies. They help the people our government wants to help. I like our government just the way it is.

Now what's up with the wagyu? I haven't googled any USA beef subsidies, but you brought it up so what's the deal with the wagyu?

 

[Huston55]

Except for the Wagyu Beef.

ETA: BTW Robbie, we’re close enough that we could meet in The City & you could ‘treat’ me to some of that great Wagyu beef. I know a great place: Taste on Ellis. Just let me know when you’re ready.

Now what's up with the wagyu? I haven't googled any USA beef subsidies, but you brought it up so what's the deal with the wagyu?

Unfortunately, ‘Taste on Ellis’ is closed. BUT, you can still [-]subsidize[/-] treat me at 5A5 Steak House.

 

[joeea]

Standing by to be enlightened.

I understood what you wrote.

I'm still seeing "Amuse me by arguing about the subsidies you like and the ones you dislike. Go."

Have fun.

 

[USGrant1962]

This always confuses me, but my current opinion is that rent is taxable income to the landlord but not a tax deduction for the renter.
Here's a longer story:

Suppose that mortgage interest and property taxes are no longer tax deductible. My brother and I own similar houses. We decide to take advantage of the tax benefits available to landlords. We each move into the other's house, and start paying/collecting rent.

Now I have some new deductions on my FIT. I can again deduct mortgage interest and RE tax. I can also deduct maintenance and repairs. Am I better off? No. The rent my brother pays me is new taxable income. If I collect just enough rent to cover my expenses, I'm even. If I collect more, I pay higher taxes than I did as an owner-occupier. Note that the rent I am paying my brother is not tax deductible to me.

It confuses me too, but market-based rent does not know if the landlord has a mortgage or not. The market sets the same rent for a landlord that is 100% equity as one that is 100% leverage. Just like the market-based price for a specific house does not know if the buyer has a mortgage or cash (other than the generic cheap money chasing real estate as we saw in the bubble).

However, in both cases the buyer of real estate may borrow money and the borrowed money reduces his/her income tax obligation. The subsidy is for the purchase of real estate by a landlord or homeowner.

 

[Independent]

It confuses me too, but market-based rent does not know if the landlord has a mortgage or not. The market sets the same rent for a landlord that is 100% equity as one that is 100% leverage. Just like the market-based price for a specific house does not know if the buyer has a mortgage or cash (other than the generic cheap money chasing real estate as we saw in the bubble).

However, in both cases the buyer of real estate may borrow money and the borrowed money reduces his/her income tax obligation. The subsidy is for the purchase of real estate by a landlord or homeowner.

I agree with the comment that, in the short term, the market price doesn't reflect how the purchase was funded.

But, I think that's a different issue than whether our tax laws encourage people to rent vs. buy, or buy vs. rent. When I do the math, it seems our current rules preference owning over renting.

Getting rid of the targeted deductions (and guaranteed loans) would make the system more neutral.

 

[ERD50]

...
Yes, definitely, the tax on capital gains and dividends should be the same as the tax on ordinary income.

That doesn't work either, unless you take into account inflation.

Ordinary income is taxed in the year it is earned, so inflation is not really an issue (technically, an average of 6 months inflation could be applied, but that is small enough, and common to most, so we can ignore that).

But if someone bought $10,000 worth of stock 30 years ago, and sold it today for $11,000, they owe tax on $1,000, even though they actually lost money to inflation. And someone who had the same gain on a stock bought 2 years ago, would also pay tax on the $1,000 gain. Clearly, those gains are not the same, and should not be treated the same as each other, or as $1,000 ordinary income in the year it was earned.

-ERD50

 

[Independent]

I think a thread about Subsidies is a great way to generate a ton of Us versus Them talk. A wonderful way to say "I like my subsidies" but "I hate their subsidies". A terrific way to pretend that "I earned my subsidies" but "Those lazy other folks' subsidies are a drain on society".

I can see a general tendency that way. I think our posters try to be a little bit better than that.

I've said that I'd get rid of the tax deduction for religious contributions, even though I've used it. I'd also get rid of the deductions for home ownership that I've used. And, I'd get rid of the before tax treatment of employer health insurance premiums, which I've used. etc.