09/19/2012 02:14 am ET Updated Nov 18, 2012

Romney's Greatest Deception

Mitt Romney has been widely panned for blaming 47 percent of the public for its sense of entitlement, its demand that government redistribute wealth downward, away from rich people who earn their money honestly and down to poor and middle-income Americans who just want handouts.

While observers have rightly pointed out that most Americans work hard and take responsibility for their circumstances, less attention has been devoted to the deceptive premise behind Romney's remarks, namely that government redistributes wealth downward from the rich to the poor. In fact, our taxation system funnels money from the bottom up to the top. It's the rich who get the handouts. Either Romney doesn't understand that, or he's not telling the truth about it.

Consider housing. Romney would probably prefer that the Department of Housing and Urban Development not spend its budget of about $50 billion per year, much of which subsidizes low-income housing. From Romney's point of view, the federal government provides housing handouts by redistributing money downward and subsidizing residences for the poor.

But when we step back and look at overall federal spending on housing, it becomes clear that the federal government spends a lot more money subsidizing housing for the rich than for the poor. In fact, the federal government collects taxes from the poor and then re-allocates those funds as housing subsidies for the rich. How does this work?

To understand how this particular mechanism as well as the tax system more broadly funnels money from the poor to the rich, it's first necessary to point out that when the federal government decides to spend $1 dollar, that is exactly the same as a decision not to collect $1 dollar in taxes. From the point of view of the federal budget, both decisions cost $1 dollar. The first is a direct expenditure and the second is a tax expenditure. But aside from having different names, they are the same.

Now consider the home mortgage interest deduction, a tax expenditure that costs the federal treasury approximately $130 billion per year. According to the Atlantic, 75 percent of this tax expenditure is given to the top 20 percent of income earners. What this means is that the federal government spends almost $100 billion per year subsidizing large homes for upper middle class and wealthy people. Middle-class people get a tiny piece of this pie. Poor people get nothing.

But where does the government get $100 billion to pay for this tax expenditure for the rich? From mostly-poor renters of course, in other words tax payers who receive zero mortgage interest deduction. The home mortgage interest deduction is simply a transfer of wealth from mostly poor renters to mostly well-off home-owners.

And that isn't an isolated program, as Republicans have been gaming the tax system for years to enable just such maneuvers. One of Ronald Reagan's great successes entailed cutting marginal tax rates on the rich, and then using social security taxes, which are paid disproportionately by low and middle-income earners, to subsidize the budget hole caused by his tax breaks for the wealthy.

So when Governor Romney said that 47 percent of Americans are irresponsible and simply want handouts, he was tapping into and in fact reinforcing the public's ignorance of the federal tax system as a cash cow that transfers a lot more money from the poor to the rich than the other way around. To frame poor people who require health care as free-riders while giving a free pass to rich people who demand tax cuts (tax expenditures) is a sleight of hand. I wonder if Romney understands the deception or not.

When Clint Eastwood famously addressed an empty chair at the Republican National Convention, Jon Stewart observed that the Republicans have been running against an Obama who only they can see (Muslim, foreign-born, socialist, etc) and who is invisible to the rest of America. According to Stewart, Eastwood literalized that dynamic by addressing an invisible Obama. But as Romney's comments about the 47 percent illustrate, the Republican predilection for distortion and projection extends beyond Obama, and includes a make-believe fantasy about the government's role in the redistribution of wealth.

If Republicans were honest about the way government works, they might realize that government helps everyone, and that the debate we should be having is not about moochers versus earners, but about what distribution of government support can minimize suffering and promote the public welfare.