Posts
We Are Trading Dollars for Pennies
When I was in grade school I learned of a cruel trick that you could play on younger kids of about 5-6 years old. (I'm happy to report that I never tried to do this.) The trick was simply this: offer to trade them a few pennies for a dollar, with the explanation that the pennies are (numerically) more than a dollar. To a young mind that understands numeric values but doesn't yet comprehend the relative worth of units of money, this seems like a good deal. It is, of course, a dishonest and cruel exploitation of their naivety.
I keep thinking about this trick as a metaphor for this political moment. Voters have been bombarded for decades with messaging that tells them that their taxes are being wasted and that our country can't afford it's current services and the debt that it has accumulated. The solution Republican politicians have proposed has been to trade government spending for tax cuts [1].
The cruelty of this trick, as more people are beginning to realize, is that government spending is mostly "wasted" on...we the people. One way to see this is to look at how much states pay into the federal system vs how much they receive in benefits. It quickly becomes obvious that states like Washington, New Jersey, Massachusetts, and especially California are helping to fund everyone else, while virtually the whole southern United States receives more than it contributes.
Social Security, Medicare, and Medicaid are the largest and most direct examples of how federal spending benefits citizens, but federal spending extends deeply into the national economy in less obvious ways and helps create demand for entire industries. Again, some of this is direct, but some of it is indirect and easily overlooked until it is gone. For example, Alabama is realizing that cuts to scientific funding could greatly damage one of the largest employers of the state (University of Alabama at Birmingham), the effects of which will ripple further into the Alabama economy. And all of this doesn't even consider the intangible benefits we all receive from federal spending--things that make our lives better without us knowing, or the fact that many government workers are actually underpaid relative to the services they provide. There is a real sense in which federal spending is like fertilizer to the soil of our economy.
The benefit we are to receive for trading these things away is lower taxes. This is a great deal for people like Elon Musk because they have very high income and therefore stand to save a lot in taxes [2]. But they can buy virtually anything they want anyway (including politicians). If you have the median household income, on the other hand, your benefit is a relative pitance. And even then you will likely end up spending it (and even more) on things like more expensive household appliances and cars due to the Trump tariffs, or more expensive tuition because universities have to make up for loss of federal funds, or specialized therapy for your disabled child because public schools have lost funding for those services. And if Social Security, Medcaid, or Medicare get cut, there's no making up for what you lose.
Moneyed interests and politicians are taking advantage of our naivety, having stirred us up to anger against a system upon which we all depend. As a result, the average person is trading dollars for pennies.
Notes:
1. Talking about the federal debt is complicated by the fact that there's not a known threshold above which it becomes a big problem. Even at current levels it doesn't seem to be causing much harm to our country, but that's not to say that it should be allowed to grow without restraint. Republicans have railed against federal debt for as long as I can remember (usually only when Democrats are in power), as if it violates some law of nature or offends God. However, cutting taxes gives away the game. If you truly care about the debt then it makes no sense to cut taxes. If anything, in times of prosperity taxes should be raised a little. And here again, most of that federal debt is owed to...we the people.
2. Financial commentator Ben Carlson once quipped that rich people hate paying taxes more than they like making money.
Continue reading...
