Steve Moore and Walter Williams’ proposed “Millionaire Subsidy Elimination Act” , floated in today’s Wall Street Journal, surely has a lot to recommend it. People who make a huge amount of money surely don’t deserve any true individual benefits from the state.
Nice as it sounds on paper, however, making the idea work in practice seems to present a lot of practical and logistical hurdles. None seem insurmountable but all would have to be dealt with in some way. Here are four:
1) Timing of benefit loss: While nobody who realizes a $1 million yearly income is poor, a fair number of people who earn very high incomes do so only for a few years or, quite often, one year. A married couple of reasonably diligent savers earning a good-but-not spectacular income of say $100,000 combined and sell a paid-off house while realizing capital gains from 401(k) asset sales can easily have an income of $1 million in one year. Such a couple, however, is almost certain to continue to rely on Medicare and, to a lesser extent, Social Security to live in retirement.
Do they give up benefits forever? Just for the year? This could make a large difference. If they have a strong reliance interest on the benefits but have to pay out of pocket for similar services (or, say, remain enrolled in Medicare but have to pay the full cost) during the year that they earn an unusually high income, then isn’t that really just a surtax on wealth for some people? If they lose benefits forever, then it’s a huge invitation to shelter income in various ways.
2) Unless all subsidies for everything are eliminated, the eliminating subsidies for the wealthy alone could end up actively punishing achievement: Plenty of heavily subsidized activities–energy production, education, farming–are obviously worthwhile. Receiving subsidies gives individuals and firms an advantage. Cutting them off to only firms/people with incomes over $1 million could actively discourage growth beyond and risk taking beyond a certain level.
3) Unless all subsidy programs are actually cut, the plan won’t save money: The way a great many subsidies are structured, narrowing the range of people eligible for them won’t actually save a dime. The actual budgets of the subsidies would need to be cut at the same time as it was eliminated. This would require a lot more than a single law and would require significant political tussling. And, of course, program budgets could always be brought back up to their previous levels.
4) By Grover Norquist’s definition, the plan is probably a tax hike: Many subsidies are provided through the tax code. If wealthy individuals are denied these tax benefits, then they will pay more taxes and whatever negative consequences come from hiking taxes on the well off will take place anyway. If these benefits aren’t denied to the well off, then the plan will produce less savings than promised.
Eliminating subsidies for millionaires is a good idea but presents logistical and ideological hurdles. It’s worth study and investigation but, in reality, it probably can’t save anywhere near the $200 billion that Moore and Williams say it would.