Political Hay

Investing in Word Abuse

For a clear conversation on “tax and spend” issues, a common sense and honest vocabulary is required.

By 3.25.13

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Earlier this month, House Minority Leader Nancy Pelosi said that “tax cuts are spending.” “Tax expenditures,” as she called them, including “subsidies for big oil” and “breaks for corporate jets,” are “spending that we must curtail.” Is it good news that Mrs. Pelosi is willing to cut some form of what she terms “spending”? Or do we need to question the candor of her word choice?

Also recently, President Obama warned that the dreaded “sequester” he had conceived would “gut critical investments” such as his federal pre-Kindergarten education plan. Should the creation, expansion, or preservation of government programs really be characterized as “investments”? Or do we have a vocabulary issue here?

Although the practice did not originate with Mrs. Pelosi or President Obama, the current administration has chosen its words carefully in order to obscure or even shift the terms of political debate. It is important to challenge such tactics, to reject vocabulary choices that change or confuse the otherwise clear meanings of words and phrases. After all, we should have common -- and honest, common sense -- understandings of what words mean. Otherwise, our ability to communicate clearly, and to make properly informed choices on significant issues, will be undermined.

As historian Forrest McDonald has cautioned with respect to interpretation of the Constitution, “one must pay close attention to meanings of even the most ordinary words.” What we consider ordinary words can carry plenty of devious potential. Given the statements quoted above, in this category, we can usefully examine the current darlings of our ruling elites, "investment" and "expenditure.” Although he is hardly the only commentator to join the administration in twisting these terms, in what follows I invoke the able assistance of the Washington Post’s Ezra Klein to illustrate my points.

First let’s look at the baseline. My Webster's New World Dictionary defines "investment" as an amount invested, and “invest” as putting money “into business, real estate, stocks, bonds, etc. for the purpose of obtaining an income or profit.” This is the long-standing definition.

Like the President and his party, however, Mr. Klein departs from the usual definition of this ordinary word. Thus, concerning the Solyndra debacle, last September Mr. Klein wrote that "it's entirely possible for the initial investment to have made sense and for the company to have eventually failed." Somewhat remarkably, Klein went on to assert that if "we're going to try to support young companies doing risky things,” then we should not only “be prepared for some of them to fail,” but also “should be hoping some of them fail.” If “our success rate is too high,” Mr. Klein explained to readers less well versed in the ways of Washington, “it means government is making bad investments."

So, government "invests" wisely, per Mr. Klein, when it spends your tax dollars to subsidize private ventures that fail. In the case of Solyndra, of course, the Obama administration was providing “investment” that shielded from risk the personal funds of administration supporters involved in the venture. (Would Mr. Klein be similarly supportive if the government “invested” in the construction of bridges that collapsed, and shielded the contractor from financial loss because of campaign contributions? It probably depends on which politician got the contractor’s support.)

By Mr. Klein’s standard, certainly, the "investment" policies of this administration have been wildly successful. Indeed, the beneficiaries of lavish “investment” have included not only a string of green energy companies owned by generous Obama campaign donors, but also major automobile manufacturers now owned by the federal government, or by unions that -- big surprise -- gave generously to the campaigns of President Obama and assorted Democrats, and a number of supportive financial institutions deemed “to big to fail.”

In short, "investment" means expending tax dollars (or money the government does not have but borrows), in the case of Solyndra for the benefit of private companies in political favor. Put another way, it really means spend, not invest in the usual sense.

This brings us to "expenditure," which Webster’s defines as “spending or using up of money.” Given this long accepted definition, one might think that a tax expenditure is the disbursement of government funds raised through taxation.

But one would be wrong. Mr. Klein has often used this term in the same fashion as Mrs. Pelosi. “Tax expenditures,” Mr. Klein wrote last year, “now cost the federal government $1 trillion annually -- more than Medicare and Medicaid combined.” We’re all concerned about trillion dollar deficits, but one might reasonably ask what exactly Mr. Klein means by his reference to “expenditures” in this context?

The answer is educational. The key to Mr. Klein’s and Mrs. Pelosi’s definition of tax expenditure is this: it assumes that all of the money you have earned, or saved, or received as a gift from parents -- in fact, all of your money from whatever source -- really belongs to the government. When the government, therefore, allows you to retain some of your money and use it as you see fit, that’s an “expenditure” by the government of funds (your money) it might have chosen to expropriate for some other purpose.

To illustrate, with his characteristic partisan panache, Mr. Klein equated the home mortgage interest deduction with “government social programs.” He made the astonishing assertion that people claiming such deductions are actually receiving “government assistance.” With that helpful clarification, are we now ready to have a clear discussion about the differences between doing nothing and receiving food stamps, on the one hand, and working to earn money with which to pay the principal and interest on your home mortgage, on the other?

Of course, if allowing individuals who earn money to invest it for themselves is an “expenditure,” perhaps there is symmetry in the notion that greater government spending -- either of money raised through taxation, or of money we simply don’t have but borrow -- is called “investment.”

So let’s be clear: when government funds are squandered on Solyndra, or funneled via mandatory dues payments into the coffers of unions (to be recycled as Obama campaign donations), or passed out in grants to community organizers, or even paid out in food stamps or unemployment compensation, our President and his supporters call that “investment.”

Yet when you deposit money you have earned into an IRA or a 401(k) plan, in hopes the money will grow over time and enable you to be self-sufficient in retirement, and then deduct the amount so deposited from your taxable income as the law allows, the amount by which the deduction reduces your tax bill from the government is a tax "expenditure."

Moreover, the same is true when, for one example, oil and gas companies take advantage of credits or deductions enacted by Congress to encourage them to invest in energy production. That investment in drilling equipment, or exploration, is by the lexicon of the left -- as Mrs. Pelosi demonstrated just last week -- a tax "expenditure."

Unfortunately, these misleading usages are not uncommon today. They cause confusion. This is not accidental, for the interests of the current administration and the entrenched “tax and spend” establishment in The Nation’s Only Boom Town are served by the obfuscation of these distinctions.

How nice to be able to characterize profligate spending that rewards cronies as “investment,” and to criticize as “tax expenditures” rules that allow businesses and individuals to retain and invest their own money. (Add to the mix the pernicious notion of “refundable tax credits,” which are outright transfer payments, made in the absence of a tax liability against which one is given a “credit,” and the confusion becomes downright glorious!)

The result of all this is to make it more difficult to have a clear conversation about, say, job creation through private investment, as opposed to the draining of capital away from investment through excessive government expenditures, when the latter are called “investments.” Likewise, it becomes more difficult to evaluate the job creation value of real tax deductions and credits, which are intended to encourage true investment, when they are inaccurately labeled as tax “expenditures.”

Voters should pay attention to the use by politicians and their henchmen in the press of words such as “investment” and “expenditure.” And politicians who oppose this administration’s irresponsible economic policies should be more willing to call their opponents on the misuse of our language to confuse and mislead citizens on matters of such importance.

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About the Author

Ray V. Hartwell, III was a Washington lawyer and a senior fellow at the Alabama Policy Institute. He died on February 7, 2014, in Anniston, Alabama.