The Value of Abandoning Tax Breaks as a Policy Mechanism
With the House passage of ‘cash for caulkers’ – the Home Star Energy Retrofit Act, creating the Home Star Retrofit Rebate Program – this marks a good time to visit a topic that interests me for its intersection of substance and rhetoric. Over the past generation, Republicans have become so successful at ingraining ‘tax cuts’ into our policy discourse that Democrats now openly champion this approach as something to celebrate.
Now, I’m aware that this approach is broadly popular. But I would argue it’s mostly superficial, because we’ve stopped offering the alternative: direct government investment in the public commons. As someone advocating the minority viewpoint, it’s obviously my burden to demonstrate the value of a different perspective.
What I want to do is provide a conceptual approach to seeing the problems posed by our party’s reliance on an inferior policy mechanism. In short, this approach ingrains Republican frames while displacing superior policy responses.
Basically, the rebate program creates a list of products that property owners can purchase at 50% off. The merchant sends a request to a rebate aggregator to send a request to a newly established federal rebate processing system for reimbursement of the other 50%. Significantly, the legislation exempts the value of the rebate from federal income taxation.
There was a time when we had clearer demarcations in our society between ‘private’ actors and the ‘public’ good, between the roles of individuals and the roles of government. I don’t think we’ll ever return to that. ‘Public/private partnerships’ are here to stay, and there’s a lot of value they add. But just because they’re useful in some situations doesn’t mean they’re beneficial in all situations.
Over the past few decades, the GOP has engaged in a concerted effort to gut the progressive nature of our income tax code. They have done this through a variety of means. Just the sheer number of terms we have is illustrative of how suffocating the GOP framing has become: tax cuts, tax breaks, tax deductions, tax credits, tax incentives, tax rebates, tax increment financing, tax exemptions, tax loopholes, tax refunds, tax deferrals, tax writeoffs, and so on and so forth. At a conceptual level, simply playing this game hands the home court advantage to the GOP.
In addition to the direct political framing, there is the problem of undermining both the private sphere and the government sphere. Liberalism in the broad philosophical sense, the concept of sovereign individuals cooperating together through a government of limited power in order to ensure liberty and justice and equality and so forth, depends upon the tension between individual responsibility and government action. It recognizes that generally speaking, individuals are the best actors to be making decisions, but in some specific circumstances, it is better for government to take direct action. Both democracy and market economics depend upon this. Hopefully, none of this so far is controversial. This is why government regulates what’s in toothpaste but doesn’t tell me which brand to buy. This is why government establishes building codes but doesn’t tell me what color I can paint my bedroom walls. This is why government runs courthouses but lets me choose my own attorney.
What’s happening with all of the incentives we have written into the tax code is that we’re undermining the responsibilities of individuals to make decisions. This is not always bad. Sometimes individuals shouldn’t be making decisions. And what’s key in those situations is that individuals aren’t making decisions. We don’t use the tax code to incentivize drivers to stop at red lights. We pass laws mandating that drivers stop at red lights. Private property owners don’t run the National Parks. The government owns the land.
Currently in the United States, most residential and commercial real estate is owned by private interests. For example, a homeowner can call the police if someone is trespassing on their property, and generally speaking, the police will side with the homeowner. Therefore, property owners, generally speaking, are responsible for their property. That’s what comes with the territory: where there is private gain from ownership, there is also private responsibility. When somebody makes money by selling it, the private property owner owns the proceeds.
Now, it could be that real estate shouldn’t be owned by private parties. Maybe making decisions about what to do with houses and office buildings is so critical to the public good that the public should own them, just like we own parks and schools and police stations and fire departments and the Army and the Navy and the Air Force and the Marines and the Coast Guard and the FBI and the DMV and the CIA and the NSA and on and on. But few people advocate for a public housing stock. Most Americans like the idea of home ownership.
So when we consider energy efficiency specifically, this leads to an interesting question. Why would homeowners not make rational investments in their homes to make them more energy efficient? Would a homeowner not call a plumber, or an electrician, or a roofer, or a carpenter, when those services were so needed? Is there something unique about energy efficiency?
There are many potential answers to this question. It might be because the cost of making buildings more energy efficient is greater than the benefit. It might be because there are externalities involved, whereby the cost to the property owner is greater than the benefit the property owner would receive, but the cost is less than the total benefit society recieves. It might be because property owners aren’t educated about the benefits of energy efficiency. It might be because there are upfront costs involved. It might be due to social pressures or aesthetics or other cultural and behavioral artifacts. It might be that homeowners can’t afford to maintain their homes. There are a whole range of reasons we can ponder.
Here’s what I hope would stand out. Cash for caulkers isn’t a good way of solving any of those problems. The philosophical statement it makes is that individual property owners are too dumb to respond to market incentives about maintaining their investment while reinforcing the frame that government is the problem, not the solution. In other words, programs like cash for caulkers are gimmicks. They don’t really address the issues.
If the basic reason is people are too poor to maintain homes, then that’s a wage problem. Giving homeowners a window for half off makes no more sense than giving homeowners a phone or a candy bar or a sweatshirt for half off. And, it indicts the basic premise of private property ownership. If the housing stock is so fragile that people can’t even afford to add insulation to their homes, then we are so fragile as a society that it becomes a national security priority for government to start operating the housing stock. This line of thought is inconsistent with the concept of private property ownership. This is like saying it’s okay for someone to own and drive a car who can’t afford car insurance or oil changes. And the proper policy response to that isn’t to give people $4,500 to buy a car. It’s to build multi-modal transit systems that provide mobility to people who don’t have cars.
Or to say it differently, if the problem is money, then that’s a problem that is not randomly distributed. It’s limited to people who don’t have a lot of money. So, we should limit the policy response to people who don’t have a lot of money. And the great news here is that we have exactly such a program. It’s called the Weatherization Assistance Program. It’s a direct government investment that is only available to low-income households.
If the basic problem is something other than money, then it really is kind of funny to propose throwing money at individual property owners as a solution. For example, we could simply mandate that homeowners install the desired products. Or, we could do annual ‘energy’ testing similar to the emissions testing required in many places for motor vehicles. Or, we could make the price of energy reflect the total cost of energy, making consumers pay instead of externalizing some costs onto society at large.
In other words, there are a variety of mechanisms we have for direct government action, and all of them are substantively superior to gimmicks like cash for caulkers. This might not even be worth commenting on if it were one isolated program. But we’ve created a whole policy environment that depends on these sorts of approaches which, in aggregate, greatly misallocates resources while having a net effect of being regressive, of helping people with more money more than people with less money.
But hey, maybe what we want is to embrace the GOP approach to public policy. The next time I go to the grocery store, I want my 50% discount on shredded cheese and candy bars to make sure we keep all those small family farmers.
Full Disclosure: My roommate has benefited from both the $8,000 homebuyer tax credit and the 30% consumer energy efficiency tax credit. Meanwhile, I’ve benefited from a wide range of tax breaks I outlined here. Where’s the social value in giving public dollars to private actors?
You can read these words all over again at Daily Kos.