COLUMN LEFT/ ROBERT A. MOSKOWITZ : Give the Poor Same Rights as Polluters : Allowing low-income people to market their tax credits makes political and economic sense.
In recent years, the federal government has begun to develop a new and “cost free” approach to social engineering that uses the free market instead of regulatory strictures. So far applied only to business, this innovative approach presents a wonderful model for how we can lift millions of Americans out of poverty without massive new government spending.
The 1990 Clean Air Act is the latest example. It places a dollar value on the “right” to dump toxic materials into the air and water. The first transaction took place in May, when the Tennessee Valley Authority paid Wisconsin Power and Light about $2.5 million for some of the Wisconsin utility’s “right” to emit sulfur dioxide and other toxic materials. This is a direct descendant of the market in investment tax credits the Internal Revenue Service created during the 1980s.
I say we follow the same thinking by allowing a market in unused personal income tax credit and deduction “rights.” Here’s how it would work:
The Jones family--six people barely scraping by on, say, $10,000 a year--cannot use the full value of its dependent deductions, which equal $13,800. For simplicity, let’s assume they take a deduction equal to all of their income. Today, the remaining $3,800 simply disappears. Under the new plan, they sell it in the open market.
The Smith family--six people barely scraping by on $50,000 a year--takes all of their tax credits and deductions, but has room for more. So the Smiths buy the Joneses’ $3,800 of deduction rights and apply them against their own taxable income.
While the specific rules must still be ironed out, the basic idea is to create an open market in which taxpayers with too little income to fully utilize their tax credits and deductions could turn the excess into cash, and hard-pressed middle-class taxpayers could ease their tax burdens by paying for additional credits and deductions.
For fairness, each dollar of credit or deduction rights could be used only once in a given tax year. It could be sold only if not used by the person or family to whom it was originally granted. Once sold, however, it would become infinitely transferable, creating a gold-mine opportunity for brokers who would buy excess credits and deductions and package them for resale.
This wouldn’t be the first time the government created conditions for open market trading in artificially created commodities. When an airline downsizes or fails, it sells off the airport landing slots it no longer needs. When a utility cleans up its smokestack emissions, it transfers credit for the pollution it no longer emits.
A simple change will do the trick. Under today’s unenlightened tax law, credits and deductions tend to evaporate when income drops too low. Let President Clinton help America’s unemployed, under-employed and average working-class taxpayers who lack enough income to claim all of their credits and deductions by empowering them to sell these rights for cash. At a single, brilliant stroke, we would put millions of families into a sideline business and increase their disposable income, without increasing government expenditures by a dime.
What about government income lost from these new deductions? Those earning income from sale of these rights will need fewer government handouts, cutting the need for the taxes that fund them. And anyway, the government has granted every citizen the right to these tax credits and deductions. It’s un-American to take away a person’s rights just because he or she has a cash flow problem. To keep the rich from benefiting disproportionately, we could simply declare those with incomes over a certain limit--say, $100,000--ineligible to claim another’s tax credits or deductions.
The free market in tax credit and deduction rights would not only lessen the need for government handouts, on which we spend $3 for every $1 of actual benefits, but it also would put money in the pockets of the poorest consumers, where it would “prime the pump” of the general economy. Pump-priming, the opposite of “trickle down” economics, boosts economic activity by funneling money to those at the lower end of the economic spectrum, who tend to buy food, clothing and shelter with every dollar they can get their hands on. And, it would instantly give millions of Americans a bigger stake in the system and a valuable commodity with which to begin jockeying for a better place in the sun.
