California Conservative

Like the refugees of New Orleans, it’s always been there - but now it’s getting exposed.

AP reports: “House and Senate tax writers agreed Tuesday on a package of tax breaks designed to help Hurricane Katrina victims recoup their losses and access needed cash.”

Sounds fair and reasonable. But wait.

“The Congressional Research Service, an office that provides lawmakers with nonpartisan legislative analysis, said some of those tax breaks could do more for higher income survivors than for the neediest.”

Why? Because if you only have one dollar and we have ten, then (let’s just say) a 10% tax break saves you only 10 cents but saves me one dollar. Disparity? Sure.

But by most accounting standards that would be called fair. Or as Einstein would say, it’s merely relative.

“The tax bill is one avenue lawmakers have pursued in sending relief to hurricane evacuees. Since Katrina hit the Gulf Coast in late August, Congress has approved $62 billion in emergency spending and promised more.

House and Senate lawmakers debated Tuesday whether some costs for cleaning up after Katrina should be defrayed by cutting fat elsewhere in the federal budget.”

What’s to debate? There’s plenty of fat to cut.

Since Congress exists to represent “the people,” then they should behave accordingly. Namely, whenever a prudent taxpaying family needs to balance their budget, they must find savings which normally means cutting costs. Government should operate the same way. Yet, Congress’ carte blanche check writing is what keeps us in debt.

“House and Senate tax writers, meanwhile, agreed on a tax bill that helps Katrina victims access their savings by waiving penalties imposed for tapping retirement savings accounts before retirement. Other provisions let taxpayers write off more of their destroyed property and erase taxes regularly imposed when a debt, like a mortgage, is forgiven.”

Once again, it’s a matter of fairness. If you’re a victim of Katrina and you’ve saved (invested money earned) into retirement accounts, tapping into them for emergency shouldn’t be penalized. The same goes for write-offs. If you’ve lost an asset (that you purchased as an investment), there should be forgiveness of debt. This will allow an individual or family to get back on their feet — and, most likely, invest in the economy again be replacing the property or purchasing a new one. In either case, creating jobs because workers are needed to build it.

“The bill, which lawmakers expect to pass quickly, will include a two-year tax credit for businesses hiring people within the disaster area. Those who take in evacuees, other than family members, would be eligible for a $500 personal exemption.”

Nothing wrong with these proposals, either. Tax credit for any businesses hiring people within the disaster area creates a good incentive to stimulate employment and is mutually beneficial. For if someone is working they won’t be on the government dole, which is far more costly. The same math applies to individuals and families that provide shelter for evacuees. Granting a $500 personal exemption is a pittance compared to the extended costs of government support for more homeless people.

“The Congressional Research Service report said some elements of the tax assistance would do more for wealthier taxpayers because many lower income individuals and families pay little tax. Lower income survivors are also less likely to have retirement accounts like 401(k)s and IRAs.”

Well, someone pin a ribbon on the Congressional Research Service (CRS). That is a brilliant analysis demonstrating a powerful grasp of the obvious.

As we illustrated earlier, of course tax breaks benefit “wealthier taxpayers” more than low income people who “pay little” or no taxes. Thus, it’s true, they’re also less likely to save and invest (in the economy) towards accumulating personal retirement assets. But should wealthier families and individuals be held responsible for this? Christian charity is one thing. Government redistribution is another.

As Steve Forbes might argue, that’s the advantage of a flat tax: it’s inherently fair because it treats everyone equally. You have a dollar, we have ten - but we pay (or save) the same proportionately.

By contrast, as indicated by the CRS report, our U.S. government is entirely accustomed to viewing tax policies on an unequal basis. Socioeconomic considerations drive the debate, not fair accounting. It is Robin Hood politics.

And because this political system doesn’t work, the poor stay poor as Katrina revealed, it’s a fairy tale without a happy ending.

Open Post at Mudville Gazette

This entry was posted on Thursday, September 22nd, 2005 at 4:18 am and is filed under Domestic Policies, Economy, Washington, DC. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.