Economics & Finance

One of the things that has bothered me, since at least the first presidential debate of this campaign, is Obama’s outright Orwellian use of the term “tax cut”. The Wall Street Journal now debunks the illusion:

It’s a clever pitch, because it lets him pose as a middle-class tax cutter while disguising that he’s also proposing one of the largest tax increases ever on the other 5%. But how does he conjure this miracle, especially since more than a third of all Americans already pay no income taxes at all? There are several sleights of hand, but the most creative is to redefine the meaning of “tax cut.”

For the Obama Democrats, a tax cut is no longer letting you keep more of what you earn. In their lexicon, a tax cut includes tens of billions of dollars in government handouts that are disguised by the phrase “tax credit.” Mr. Obama is proposing to create or expand no fewer than seven such credits for individuals:

• A $500 tax credit ($1,000 a couple) to “make work pay” that phases out at income of $75,000 for individuals and $150,000 per couple.
• A $4,000 tax credit for college tuition.
• A 10% mortgage interest tax credit (on top of the existing mortgage interest deduction and other housing subsidies).
• A “savings” tax credit of 50% up to $1,000.
• An expansion of the earned-income tax credit that would allow single workers to receive as much as $555 a year, up from $175 now, and give these workers up to $1,110 if they are paying child support.
• A child care credit of 50% up to $6,000 of expenses a year.
• A “clean car” tax credit of up to $7,000 on the purchase of certain vehicles.

Here’s the political catch. All but the clean car credit would be “refundable,” which is Washington-speak for the fact that you can receive these checks even if you have no income-tax liability. In other words, they are an income transfer — a federal check — from taxpayers to nontaxpayers. Once upon a time we called this “welfare,” or in George McGovern’s 1972 campaign a “Demogrant.” Mr. Obama’s genius is to call it a tax cut.

The word “socialist” has, since the fall of Union of Soviet Socialist Republics, lost its force as a political charge. People don’t feel threatened by “socialism” the way they did by “fascism”. That is simply too sanguine.

I don’t doubt that most voters will read through that list of what counts as “tax credits” and say to themselves, “I fit in there, I’m a good person, and by golly, in this economy, I can use all the help I can get.” But ask yourselves, “Where is this money coming from?”

I myself have been the recipient of unemployment benefits, and though I enjoyed not having to work for a while and getting money nonetheless, I always felt guilty about it. Not enough to get a job until the money flow ran dry; and that is the point. When there is “free” money, people become lazy. Further, the money Obama is promising to “95% of tax payers” is not “free”; it is gotten by increasing taxes on “the wealthy”.

Put in other words, this is nothing more than a blatant attempt to use government forcefully to redistribute wealth. It might not seem forceful right now because it does not happen at the tip of a gun, but rest assured that that is exactly what it is: coerced charity.

One reason why “socialism” has never gotten the same bad rap that “fascism” had is that people feel warm when they think about the purported intentions of socialists, which is to better the lives of the everyman. How callous must one seem who argues against providing for the everyman!

But that assumes that government is the only instrument by which we can take care of the less fortunate. To be sure, government often has incomparable scale, such that it can theoretically purchase for less due to greater bulk (but those who have supplied government contracts know that this is more the exception than the norm), and provide the logistical support to boot (although that didn’t seem to work real well during Katrina). Nevertheless, government, particularly a distant federal government of a nation that covers a third of a continent and a third of a billion people, has a tendency to lose touch. Further, to inure itself against lawsuits and charges of unfairness (in essence, to cover its own ass), it requires much more bureaucracy and red tape that eventually begins to undermine the gains from its scale. With such remove, is it any wonder that government often ends up helping opportunists and rejecting those in real need of help?

Contrast this with private charities. A private charity may not have the same scale as government (except perhaps for the Roman Catholic Church). However, private charities tend to be more involved in the lives of those getting their help; this is particularly true of religious charities, because of the motivation to win converts, whether through direct proselytization or through serving as values models. Further, private charities must always work to raise money, and a primary form of persuasive argument is demonstrating the good work that they have done.

Government, on the other hand, need never raise money, as it can levy taxes directly (with the implied support of “lawful use of force”), or indirectly by siphoning funds from a general account. In addition, all that is necessary in order for government to commit itself to such action is enough votes in the legislature, or the action of the executive, all of which requires, essentially, a simple majority of votes of the voting public–and yet, once 50%+1 of votes are cast in favor of action, government suddenly has access to the funds raised from 100% of the taxpaying public, not all of whom are eligible voters.

Charity is best which comes from the heart, and worthless which is imposed by government with the implied threat of violent force. In modern America, a compromise has been found by providing loopholes in the tax code that provide incentive to the rich to give. Although resultant giving may be less altruistic, nevertheless it gives “the rich” a choice, so that in some sense that charity still can be said to come from heart.

When Obama promises to pay for these “refundable tax credits”, he increases the number of those who end up paying no taxes, he rewards others who have no income, he stratifies income bands (thus reducing income and social mobility), and he does it all by punishing those who best have means to leave this country and its tax burdens. Look beyond the stated intentions, and you will see that such socialist economics will do nothing but impoverish this country. Can we really afford that in this economy? Is it any answer to claim that because Obama did not cause this state of the economy, he is therefore the antidote?

I think not.

(Cross-posted from Between Worlds)