Thursday, February 08, 2007

Means testing, inequality and subsidies...

Economists love blogs and more than a few of them have been opining about inequality in the US and the globe. When Pres. Bush surprisingly mentioned it (where has this part of his personality been for 6 years?) along with admonishing Wall Street on CEO salaries, he poured gasoline on the debate.

But there is a linkage I believe between inequality of income/assets and the administration ideas for means testing "middle-class" benefits.

The budget represents a challenge to parts of the system of entitlements enacted as part of the Great Society agenda of the 1960s, with plans to cut Medicare spending, the main publicly funded health insurance programme for those over 65, by raising premiums for wealthier recipients.

That could save $66bn over five years, according to budget estimates, and up to $9,000bn during the next 75 years, according to some analysts.

Michael Franc, vice-president for government relations at the Heritage Foundation, said Mr Bush had considered means-testing as part of Social Security reform. “Now there is a shift to applying it across the board for all entitlements. The big change concerns the wealthy. Democrats want to tax them more. Republicans say they want to make them pay more for their middle-class benefits and shoulder more of the burden.” [More]

While normally associated with Medicare, the practice is exactly what prompted the "AGI Test" in the farm bill proposal.

"Going from a $2.5 million AGI to $200,000 AGI is huge," she said.

The AGI is a limit for farmers who wish to receive farm program payments. The lower AGI limit means a producer with more than a $200,000 AGI would not be eligible for commodity payments. The Internal Revenue Service data for 2004 indicated that 97.7 percent of tax filers have an AGI under $200,000. [More]


Regardless of your position on whether inequality is a problem or simply a characteristic of a dynamic and growing economy, one of the social consequences could be the willingness, even the hope of sticking it to the wealthy. For those whose economic conditions have improved, but at a far slower rate than the very top, disallowing federal payments to the privileged is a thought to savor.

There are many of our fellow citizens in this group. Some even vote.

The result might be, in our part of the economy, an amazing number of farmers who somehow make $199,000 every year.

2 comments:

John Phipps said...

brian: Well, Mr. Smarty-pants, you are sooo wrong. Having used cash accounting to delay my taxes until late in my career which is ummm, now, I would happily embrace another scheme to allow me to dodge them altogether.

No kidding, I did some proforma forecasting out through 2009 and the taxes I haven't paid seem to be coming home to roost. Accelerated depreciation (Sec 179) was just too tempting for simple farm boys like me.

Time to lobby for investment tax credits, maybe.

You are right about the 200K limit. Next year at this time some guys who weren't close with $2.50 corn could be over the top with $4 corn. And they may find out too late.

John

Bill Harshaw said...

Rather than the flat cutoff at $200K, I'd think it would be better to reduce the payments gradually. Pay 80 percent of calculated at $150K AGI, 60 percent at $200K, etc.

Or see How to handle payment limitations