Tax Expenditures

March 16, 2011
Posted by Jay Livingston

“To spend is to tax.” Milton Friedman’s dictum means that spending and taxing eventually have to be in balance. No free lunch. If the government spends money on something, eventually the government has to pay for it, and the government gets its money from taxes.* This is the basis of Republicans shouting about deficits and trying to outdo one another on cutting spending.

At the individual level, people feel that government spending is like robbery. Because the government has to tax in order to spend, the government is taking money out of your pocket and spending it on someone else (the military, Medicare, etc.).

There are two ways to increase deficits – spending more or taxing less. So not to tax is also like spending. If the government leaves more money in my pocket by taxing me less, it has to make it up by taxing you more. Taxing me less has the same effect as spending more. They both take money out of your pocket. That’s why tax breaks are “tax expenditures.”

Which costs more – tax expenditures or spending?


The chart is from Senate Budget Committee testimony by Robert Greenstein of the Center on Budget and Policy Priorities.

The tax breaks cost us more than even our biggest of big-ticket items.

No surprise, tax breaks work mostly to the benefit of the wealthy. The mortgage deduction on a couple of million dollar homes (yes, second homes also get the tax break) costs the government more than the deduction on a $150,000 home (or the $0 deduction on a rental). The lower tax rate on money made in the stock market benefits people who own a lot of stock. Guess who that is.

(Click on the chart for a larger view.)

In the graph, the tax expenditure bar stands way above Medicare and Social Security. And those bars are 100 times larger than Head Start. So if you’re wondering who is taking money out of your pocket, drive through the nice neighborhoods and look at the big houses. Maybe even stop, knock on a door or two, and ask to see their Schedules A and D.

*The government can also borrow, but debts must be repaid. The government can print money, but the subsequent inflation is also a tax since it decreases the value of the money in your pocket.

Politics and Negative Results

March 15, 2011
Posted by Jay Livingston

Social scientists often end their reports and articles with suggestions for further research. Politicians, not so much. They want action. (Didn't Weber say something about this?)

There’s a government program for kids that is very popular among the low-income parents, but a recent large-scale government study shows that it produces no lasting educational benefits. What to do? If you’re a conservative, you get rid of it – all in the name of cutting costs of course. The program is Head Start, and funding for it is under heavy attack from the right.* (NYT story here).

Charter schools have a similar profile.. Low-income parents want them, but the broadest research shows that on average, compared with public schools, charters do no better and probably worse. Yet conservatives can’t fund enough of them.

Liberals may be almost as inconsistent, backing Head Start while opposing charters. I say “almost” because Head Start does produce some benefits. As the Times article reported,

Research on the program has shown that children who complete it do better socially and academically than children not enrolled in the program, and that they tend to have lower high school dropout rates. But the initial test score benefits tend to fade out by first grade.

So the “doesn’t work” mantra being repeated on the right is not quite accurate.

In both cases, what seems like a reasonable idea hasn’t worked out in practice. True, some charter schools and some Head Start programs do produce positive results. The trouble is that there’s no evidence of consistent, broad success. You’d think, especially if you are a social scientist, that the next step would be further research to figure out what the effective ones are doing that the ineffective ones are not (and vice versa). Maybe such research does exist, but if so, it’s not getting much press.

Instead, politicians to take a baby-with-the-bathwater approach. If a program fits with your ideology, fund it, no questions asked. If not, get rid of it.


* The first post on this blog (including an apt joke borrowed from Kieran Healy) was about the scant attention given to negative findings . I had not realized then that when the findings are in the interests of those with easy access to the media, the noise level can rise considerably.

Weakly Standards

March 11, 2011
Posted by Jay Livingston

File this under “Things that people at the Weekly Standard are delighted about.” It’s from last Sunday’s Weekend Edition with Lynn Neary on (dare I say it?) NPR.

NEARY: And your son did in fact get into a school that he was happy about.

Mr. FERGUSON: Yes, absolutely. Our first meeting with his college counselor at high school involved him telling the counselor what kind of school he wanted, and my son being my son said, look, I want to go to a school where I can go to a football game, take off my shirt, paint my chest in the school colors and major in beer. And you should have seen the look on that college - this was the guy who was going to write him his recommendation. I was just delighted that my son was like that.

But as it turns out, that’s where he went. He hasn’t painted his chest yet, but pretty close I think. And he's definitely majoring in beer.

(Soundbite of laughter)

NEARY: Andrew Ferguson is a senior editor at the Weekly Standard. His new book is Crazy U: One Dad's Crash Course in Getting His Kid into College.

Assimilation and Rejection

March 11, 2011
Posted by Jay Livingston

On July 31, 1997, a six-man Emergency Services Unit (ESU) [of the NYPD] raided the apartment of two Middle Eastern terrorists who were in possession of bombs that they planned to detonate in the New York subway that morning.

So begins Seven Shots, An NYPD Raid on a Terrorist Cell and its Aftermath by my colleague Jennifer Hunt and recently published by U. of Chicago Press.

The police had been tipped off by a Pakistani immigrant, Mohammed Chindluri. Had he not said anything, it’s very likely that scores of New Yorkers, hundreds perhaps, would have been killed during the morning rush hour.

Why did Chindluri inform on the men who had been his roommates? It seems only natural. You know that someone is planning to bomb a subway station, you go to the police.

That was in 1997. But here is what I worry about now. I imagine a Mohammed Chindluri today. He has seen and heard the demonstrations in New York saying that his religion does not have a right to construct a house of worship on Park Place in lower Manhattan. He has heard that a New York congressman is holding hearings to show how Muslims are a terrorist threat to the US. Will this Mohammed Chindluri feel the same human impulse to save Americans whose lives are in danger? Or might he think, “They have drawn a line and put me on the other side; I owe them nothing”?

I wish I knew of some good research on what happens to people who find themselves vilified because they share some characteristic (ethnicity, religion) with a few people who are a real danger. My concern is not just academic. The people who are stirring up the fear and hatred against Muslims may be making themselves feel virtuous (patriots defending their country), but they may also be raising the actual risk of terrorism. But those unintended consequences will not be borne by the demonstrators. Most of the people riding the Muslims-are-terrorists bandwagon don’t take the subway. They live in places that are unlikely to be targets. No, the risks will be borne by those of us who live in cities and use public transportation. Thanks, guys.

Of course, Rep. King’s hearings could persuade American Muslims to be even more vigilant and to root out and inform on all possible terrorist recruits. But maybe not.

Suppose that Rep. King held hearings on other groups who rank far above Muslims on the FBI’s list of terrorist threats: militia/patriot groups, freemen/sovereign citizen, extreme anti-tax, and extreme anti-immigrant. How about Christian Identity?

Congress to Hold Hearings on Terrorist Threat Posed by Christian Identity

How would Christians react, especially those who knew people in the movement and perhaps even had some sympathy for some of their ideas? Would they assimilate to mainstream views, turning on (and turning in) their Christian Identity friends? Or might they reject the accusers? Might they even have a new respect for their movement acquaintances (“Maybe that stuff about the government being out to get us wasn't so nutty after all”)?

UPDATE: 9 a.m.: The Democracy in America blog at The Economist made a similar point yesterday about right-wing parties here and in the Netherlands. (I think the blogger is Will Wilkinson, but I can’t find a by-line on the page.) Calling Tea Partiers racists or comparing the Dutch PVV to Nazis (a comparison that Wilkinson (?) says is “not a wholly absurd rhetorical exercise”) serves only to rally the troops. Solidarity thrives on perceived injustice.