It’s Time to End “wealthfare”

In 1996, making good on a shrewd political promise, President Clinton ended “welfare as we know it”. In 2017, battered by election losses, the Democratic Party should double down on a far bigger reform: ending “wealthfare” as we know it.

The mission couldn’t begin at a worse time, or a better time. The triumphant GOP, trifecta in hand, is off in its usual direction. The party is giddy at the prospect of handing another huge tax cut to the rich, including the elimination of an estate tax that affects less than one-third of one percent of all Americans.

If the idea of making the rich richer sticks in your craw, you’re not alone. Americans of all political stripes have had it up to here with a rigged system, and nothing says rigged louder than “wealthfare”.

“Welfare as we know it” met its end because Everybody Just Knew the money went to people who didn’t deserve it. “Wealthfare” has reached its apotheosis because Everybody Just Knows the money goes to people who do deserve it. They’re all supposed masters of the universe, hardworking, hard-driving job creators; the rest of us, awestruck, can only properly show our gratitude by showering them with more money. We do this in myriad ways, most blatantly with tax expenditures.

The Tax Policy Center defines tax expenditures (a.k.a. tax breaks) as “the estimated revenue losses from special exclusions, exemptions, deductions, credits, deferrals, and preferential tax rates in federal income tax law.” For fiscal 2018, the Office of Management and Budget estimates those losses at more than $1.5 trillion, slightly more than the amount paid in individual income taxes in 2015. Putting it another way, the Treasury will lose more revenue in fiscal 2018 from tax breaks than it took in from personal income taxes in 2015.

All Americans love tax breaks and benefit at least minimally (e.g., anybody who files a tax return is entitled to an exemption and a standard deduction). Small potatoes aside, “wealthfare” flows overwhelmingly to the top.

According to a TPC analysis, the top 1 percent of the income hierarchy receive 32 percent of all benefits from itemized deductions; even more, the same 1 percent receive over 62 percent of the benefits from preferential rates on capital gains, dividends and related preferences.

Lower rates on capital income than labor income are the biggest single driver of income inequality. Modest moves by President Obama to raise capital gains taxes for those making upwards of $200,000 were enough by themselves to reduce such inequality for the first time in years. Now, of course, a GOP-controlled Congress could well do away with Obama’s actions (all in the supremely ironic, “alternative fact” name of tax reform).

These few paragraphs barely scratched the surface of “wealthfare”. Here are two books that dig far deeper, without ever mentioning the word:

Dean Baker, Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer; James Kwak, Economism: Bad Economics and the Rise of Inequality.

Baker’s book speaks to “an enormous upward redistribution of income in the United States in the last four decades… [This] was not the result of globalization and the natural workings of the market. Rather it was the result of conscious policies that were designed to put downward pressure on the wages of ordinary workers while protecting and enhancing the incomes of those at the top.”

Kwak writes that bright-eyed collegians, hungry for answers, too often take as gospel the elegant graphs and theorems of Economics 101. They become easy prey for a central belief of supply-side economics: the virtue of “reducing the tax burden for the very wealthy.” That’s no problem at all, given “the particular zeal politicians have for reducing or eliminating taxes on investment income–money you earn by sitting around and watching your assets grow.”

Taken together, the books make a compelling case for pulling back from individual-centered “wealthfare” and putting the money instead toward the common good (infrastructure, for instance).

Now let’s meet Sheryl J. Grana, a professor at the University of Minnesota and a fierce “wealthfare” critic. You’ll first see her name at the end of the following comments thread to a recent Truthout article.

Gerald: Re estate taxes, the phrase “death taxes” has unfortunately turned the majority of Americans against them; this has been a huge framing victory for the right, especially of course for the rich…

Josh: Framing of the “death tax” is akin to the framing of welfare. If only equivalent statistics of “wealthfare” could be exposed. About 10 years ago, my freshman sociology professor drilled into the class that “wealthfare” costs 7 times that of welfare. I can only imagine that the difference has increased.

Gerald: Love the term “wealthfare,” kudos to your sociology professor. I’ve heard “welfare for the rich” before, but not “wealthfare”: much catchier.

Josh: A professor each and every incoming freshmen, let alone upperclassman, would duly benefit from, Dr. Sheryl J. Grana relentlessly seizes your attention with subject matter, perspective, and the skills of a seasoned orator…

Thanks, professor. If it weren’t for you this article would never have been written.

Gerald E. Scorse helped pass a bill that tightens the rules for reporting capital gains. He can be reached at: scorse@gmail.com. Read other articles by Gerald.