The price is right (or at least obvious)

September 30, 2007

Hang on to your seats kiddies because I’m about to defend Hillary Clinton.  I recently read about her “baby bond” program in which she would give every newborn $5000 that would be put into an individual account and would accrue interest until they reach adulthood (sounds suspiciously like private SS accounts but that’s another story).

From Hillary:

“I like the idea of giving every baby born in America a $5,000 account that will grow over time, so that when that young person turns 18 if they have finished high school they will be able to access it to go to college or maybe they will be able to make that downpayment on their first home,” she said.

The New York senator did not offer any estimate of the total cost of such a program or how she would pay for it. Approximately 4 million babies are born each year in the United States.

Clinton said such an account program would help people get back to the tradition of savings that she remembers as a child, and has become harder to accomplish in the face of rising college and housing costs.

I’m not so much in love with the program as I am with the way that it is being presented. She’s talking about the government spending money.  She puts a dollar amount on it, $5,000 per baby (ie $20 billion a year with 4 million children born each year) and gives a reason for doing so. We know it’s going to cost someone that money.

While most on the right will deride her proposal, she is doing something that our current crop of politicians, of all political stripes are afraid to do.   She wants more government spending and the cost of that government spending is obvious. This is important.  The latest bipartisan proposal for relief from the cost of college tuition comes in the form of tax credits. Both Republicans and Democrats love tax credits because they can say they are cutting taxes and at the same time they can spend money without calling it spending .

As the Tax Foundation puts it: “There is essentially no difference between a refundable tax credit that ends up raising taxes on others and a government spending program that ends up raising taxes on others.”

From Forbes:

A 1993 law required at least some oversight of how effective direct government spending programs are, but imposed no similar requirement on tax breaks. “Tax expenditures are off the radar screen, and it’s important they be on the radar screen because they cost money and they may or may not be working,” GAO head David M. Walker told the committee. Indeed, in the areas of housing, energy and commerce, the federal government now spends more on tax breaks than it does on direct programs.

“Republicans buy into it because they like tax cuts, and Democrats buy into it because they want new programs. But it has the same effect as direct spending, and it’s more wasteful,” argues Len Burman, director of the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution. Burman, a former Clinton administration treasury tax official, adds that the proclivity of the Clintonites to push their favored programs through tax credits “used to drive me crazy.”

Some Republicans–including in the Bush administration–have objected to the concept of “tax expenditures,” on the grounds it assumes all money belongs to the government. But the point is that by favoring some activities (and therefore taxing others more heavily) the government is still having an impact on the economy–it just doesn’t know whether it’s the intended one.

At least Hillary is being upfront about the spending on this program (although she likes to play the game too).


2 Responses to “The price is right (or at least obvious)”

  1. Thomas Says:

    One of the advantage of completely getting rid of the income tax is that it removes these “tax expenditures” and pandering tax breaks.

  2. John in IL Says:

    I think I like you.

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