How to save more than $1 trillion in 5 years: Eliminate government benefits for the 1%

by Ryan Streeter on December 9, 2011. Follow Ryan on Twitter.

As someone who’s not rich and has no personal affection for bankers (no Wall Streeters among the Streeters I know), I have never thought it immoral or unjust that rich people get richer – even at faster rates than the rest of us – but I do find it morally objectionable that the rich receive government subsidies.

Trying to slow down down wealth creation among the rich by taxing it more never takes care of the more important problem at the heart of socioeconomic inequality:  the inability of people on the bottom rungs of society to move up more quickly. The main problem with the left’s tax-the-rich game plan is that it’s based on faulty zero-sum economics – as if all the money in America sits finitely in a big pot, and if the rich get more of it, the rest get less. That’s just not how today’s global economy works.

What’s not faulty, though, is the claim that American taxpayers subsidize the rich among them to the tune of hundreds of billions of dollars each year.  It may not be immoral that the rich get richer, but taking payroll or income taxes from the less fortunate and using those resources to subsidize the behaviors, businesses, or preferences of the rich is a moral absurdity.

For this reason, the idea in today’s WSJ column by Stephen Moore and Walter Williams should really be a no-brainer.  They propose a “Millionaire Subsidy Elimination Act,” which would prohibit millionaires from receiving any government benefits. This would save some serious money.

They write:

If our calculations—which include corporate welfare and other subsidies reported in a variety of studies including most recently Mr. Coburn’s [“Subsidies of the Rich and Famous”]—are correct, there is now more than $200 billion in annual income transfers every year to Americans whose whose incomes exceed $1 million. Washington’s myriad subsidy schemes betray the middle class and the poor in ways that sanctimonious politicians who talk incessantly about “fairness” seldom admit to.

I actually think the number is – or could be – higher than $200 billion. I’m not sure how they considered the mortgage deduction (all or partial for people making over $1 million), and I don’t think anyone has a good enough handle on how much we pay out in Medicare to the wealthy. Wealthier people live longer, and the older you get, the more expensive health care is.

More than this, I think applying the act to people earning over $1 million starts too high. The 1% are those making more than $590,000. I know those living in New York making that amount don’t feel rich, but let’s face it: they are. I haven’t lived in Manhattan, but I have lived in the heart of London, and I can say for certain that you can eat well on $590,000. No one earning that much should be receiving government benefits. If we lowered the threshold, the Moore-Williams bill might be harder to pass for political reasons, but it would generate even more savings that the recipients wouldn’t miss.

Even so, saving $200 billion a year would trim $1 trillion over 5 years. That would be a good start.