Ross Douthat Watch Lesson One: Money Is Fungible

While we wait for Ross Douthat to make his debut on the Times opinion page, this seems like a good time to get some of his basic strategies out. As the Chinese saying goes, teach a person what crap looks like and they will recognize crap for the rest of their lives.

Today's Douthat Watch focuses on his assumption that the value of the money a person gets from a tax break is different from the value of the money saved when they get a government service. Tax breaks, Douthat contends, lead to more choice. Taxes that fund services? The Road to Serfdom.

In contending that tax breaks do not direct peoples' behavior to whatever policy the breaks reward, Douthat seems to be contending that money is not fungible. This metacrap strategy surfaced in what is hopefully one of his last contributions to the Atlantic online, "Is Feminism the New Natalism?" Douthat took up again his favorite proposal for social wellbeing -- women quitting their jobs to stay home with the children. In the course of a piece discussing why many European women are refusing to have children, Douthat writes that "if you're a choice feminist interested in maximizing female (and male, for that matter) freedom to choose to work or to choose not to...you might be looking for reforms -- like, ahem, a more pro-family tax structure -- that would increase the flexibility that our model currently affords to parents." But (god forbid) "if you're more of a Linda Hirshman-style feminist, on the other hand, you'll probably prefer the Scandinavian model, where after the guaranteed family leave runs its course, the socialized day care effectively incentivizes parents to get (back) to work whether they want to or not."

What's wrong with this picture? Douthat is saying that tax cuts, in this case, if you agree to quit your job, increase choice, while the same amount of money in the form of a government benefit, in this case, say, day care, makes you a slave. How would that work exactly? It wouldn't.

Case #1: The Socialist enslavement model
A family makes $100,000 in income and pays $50,000 in taxes and the government offers them public day care worth $20,000 and they take it. They have effective after tax income of $70,000. So they have a $20,000 incentive to use the government benefit and not have the mother quit her job and stay home with the children.

Case #2: Douthat "freedom" model
If a family makes $100,000 and pays $50,000 in taxes and the government offers them a tax break worth $20,000 off their taxes if the mother stays home with the children, and they take it. They have an effective after tax income of $70,000. So they have a $20,000 incentive to have her quit her job and stay home with the children.

Fancy that: tax cuts, government benefits, from the standpoint of pushing people to do something, it's the same. In both cases, if the couple (in social context, overwhelmingly, mother) decides not to do what the government is offering the money to "incentivize" them to do, they are penalized $20,000, winding up with an effective after tax income of $50,000.

It's not only day care, of course. If the dollar figures are the same:

Give tax deductions for mortgage interest and you incentivize people to create sprawl city whether you want it or not. Prefer, say, Paris? Make rent deductible or (money is fungible) levy taxes for good public transit. Like the billions Harvard sits on? Tax deductions for charitable donations. No charitable tax deductions? Tax and spend more money for, say, unemployment insurance. I could go on, but you get it, right? As it happens, at present, even without Douthat's proposed more stay-at home-mom tax breaks, the tax system of joint filing already incentivizes women to quit their jobs and stay home with the children. From the context, you can guess which public policy I prefer, but that's not the point at all. The point is that if the dollars are the same tax cuts should have exactly the same compelling effect on people that taxes and benefits do. That's because (repeat after me)

Money

Is

Fungible.

Comments

[tkm]

I think you're missing the point. In this situation you're facing two kinds of monetary incentives, income and taxes. In the first case they work in the same direction--toward returning to work. If you choose to stay home you lose the $20,000 in child care that you paid for, and you also lose whatever your income was, so you're facing a large monetary incentive to reenter the workforce. In the second case they work in opposite directions--if you choose to reenter the workforce you lose the tax break, but you gain whatever your income is, so the two effects cancel each other out to some extent and you face a weaker monetary incentive. The decision to return to work or not has less effect on your wealth than in does in the first case, so non-monetary considerations will be more important. You can argue that this means you have more "freedom to choose to work or to choose not to" or "flexibility" than you do in the first case. To make this numerical assume you and your spouse both make $50k.

Case 1
If you return to work, effective income is ($100k income) - ($50k taxes) + ($20k childcare)=$70k.
If you don't return to work, effective income is ($50k income) - ($25k taxes) =$25k.

Case 2
If you return to work, effective income is ($100k income) - ($50k taxes) = $50k.
If you don't return to work, effective income is ($50k income) - ($25k taxes) + ($20k tax credit) =

[Kaviraj]

Money is fungible. And?
Concepts are not.

[ScreenName05]

Ah. The difference. Fungibility does not mean liquid. Even if the tax reduction for staying home were the same as the tax credit for day care (they aren't the fool ignored the lost revenue of $50,000 in his calculation) then they are still not equal because fungibility only means that a single unit of one is equivalent to a single unit of the other. But if your spouse loses his/her job, you lose your entire income including the tax credit. Therefore, you can't eat the non-existent tax credit or use it to pay the mortgage like you can that good old pay check that you would still have half of if both parents had been employed.

[Zubeck]

Sure, money is fungible. But when this runs into a conservative philosophy that isn't, how do you sell the idea?

[Sagra]

Money is totally fungible. That's why I always wash my hands after handling it.

[randbrick]

Well played.