Our government, which is comprised of an almost infinite number of Federal departments and agencies, and state, county, and local entities, etc. is filled with uncommonly generous people who have created policies and laws that reward people for making certain life choices. This incredibly complex and inefficient set of incentives encourages various behaviors, rewards constituents, employs hundreds of thousands of accountants and lawyers, and can help you financially.
Now, just to be clear, these people are being generous with other people’s money. The politicians and the agencies they run are generous in a way that helps them gain power and prestige. But, for today’s purpose, instead of dwelling on the sad reality of how politicians and political parties maintain power through the strategic taking and giving of others’ money, we are going to focus on how to take advantage of this never-ending generosity.
The outward goals of many subsidies and other government incentives are generally to promote some sort of economic growth, modify behavior so that we live more sustainably, or to promote social and economic stability or equality.* It is useful to know these goals, so we have an idea of where to start looking for these endless funds.
One question I have had to wrestle with is whether or not it is ethically acceptable to take advantage of government incentives, even if I disagree with the programs themselves. I have decided that I will not accept government funds if I have to violate my own moral code, but I will happily accept government funds whether or not I believe in the economic value of the program. For example, I would be ok with accepting a “green” tax credit for an electric vehicle even if I didn’t believe that this was a financially effective way to “save the environment.” On the other hand, I would turn down a grant that paid me to evict low income families in order to build a new football stadium (a common practice in our football loving country).
I hear people criticize “welfare queens” and others who take advantage of free government welfare programs, but let’s think openly and honestly for a moment. How different is that from claiming a tax deduction for your mortgage interest? Or accepting the child tax credit? Or sending your kids to an in-state school? Or using a tax advantaged retirement account so you keep more money and give the government less? Or accepting a subsidized health plan? Or riding on heavily subsidized mass transits? The reality of the complex economic system we live in is that it is impossible to calculate all the ways we pay into the system and the ways we collect from it.
Also, it’s easy to get upset looking at wealthy individuals and large companies who, with the help of fancy lawyers and accountants, are able to take advantage of an almost infinite number of tax loopholes to maximize their profits and minimize their tax burdens. But, the reality of the situation is that most of those “loopholes” aren’t really loopholes at all, they are intentional parts of the tax code, written in to encourage certain activities and discourage others. The average person may not have the ability to hire high-dollar tax avoidance strategists, but with the help of the internet, we can find a bunch of these government incentives ourselves. One problem is that you may not know where to start searching. Hopefully, this article will help give you a place to start.
We can categorize governmental incentives into three categories:
- Incentives designed for big companies. Ex: lower tax rates to move offices abroad or across state lines (Apple), or to produce things that are considered “green” (Tesla).
- Benefits that are well known and often used. Ex: Public school, in-state college tuition, ACA subsidies, mortgage interest tax deduction, food stamps, etc.
- Less known and less utilized subsidies that can benefit the average joe. These are the ones I want to focus on today.
The number of subsidies related to housing and real estate is enormous. This is true for homeowners, renters, small time real estate investors, and big timers like our president elect.
If you are a First time home buyer, there are options available that make financing more flexible. Many cities have programs to subsidize homes for modest income folks. In my city, a family of four can qualify for a significantly reduced priced home as long as they make below $65K/year. Now, programs like this are limited in scope, and often have many restrictions, but still worth looking into.
Are you a teacher, firefighter, cop or EMT? HUD’s Good Neighbor Next Door program is one of the most incredible opportunities out there. Six years ago, I purchased my first home at a 50% discount utilizing this program.
If your home is old, or you are thinking of purchasing a dilapidated old building, you likely are eligible for historic preservation grants. As far as owning coastal land, or land that can be considered habitat for any fish or wildlife, you might as well accept a wildlife preservation grant to keep your property looking pretty for the birds and field mice.
The state of Colorado offers a senior tax exemption which allows people 65 and over to exempt up to $100,000 off of their home’s taxable value.
High cost areas often have subsidized housing for local workers. When I was a ski instructor in Telluride, CO, the ski area provided me with ski-in/ski-out housing for $400/month after subsidies. This was a few years ago, but even then, one bedroom in town could easily go for about $1,000.
For real estate investors, there are even more government incentives designed to keep your business profitable. If you use a buy and hold real estate strategy, you can take a tax depreciation on a portion of the value of the property every year. If I were a betting man, and I am, I would bet that Mr. Trump usually pays no, or almost no, Federal income tax by using this and other legal tax minimization strategies. House flippers often pay huge chunks of their profits to Uncle Sam, but if you are flexible about how you live, you can use this slower tax free fix ‘n flip model, which makes it so you are gaining appreciation on your primary residence instead of an investment property. There are also a variety of generous programs designed to encourage investors to provide housing in rural and low income areas.
The cost of college has skyrocketed while the wage premium you gain from the degree has been falling. However, it might still be worth the investment if you utilize one of the many programs designed to help keep it affordable. More and more high schools around the country now allow you to take up to two years of community college classes while enrolled in high school. Also, there are various programs that allow for college Loan forgiveness.
Because of the many available “green” car state and Federal subsidies, it is possible to drive a new electric car for significantly less than a gas powered vehicle. If I drove more in town and did fewer long distance road trips, I would have already taken advantage of these free suitcases of cash.
Other ideas to think about:
The list of government grants is constantly changing, and I am sure that everyone qualifies for at least a few. Currently, some of the more interesting grants available encourage individuals and small businesses in a variety of fields like daycare, healthcare, and writing poetry. You can even obtain a grant for promoting civil society in Ukraine, or encouraging a national identity in Sri Lanka. I am confidently waiting for a grant to study the surfing waves of Mexico’s Pacific coast. I will let you know when I find it.**
Are you thinking of starting a business? Many cities and states mandate that a certain portion of their contracts be won by companies controlled by economically disadvantaged individuals (women or minorities). It may be advantageous for a female in the family, or whoever is considered the most disadvantaged, to be listed as owner, or to partner with someone who meets those criteria if you don’t.
I don’t know nearly as much as Mrs. Clinton about non-profit corporations and foundations, but I get the impression that for high net worth individuals, there are considerable benefits to using them to store and utilize your wealth. Designed well, you can control vast amounts of capital and resources with little or no tax obligation.
Stay aware of whatever is currently in vogue, as is likely to have some serious government money thrown at it. For the past decade, almost anything with the word “green” in it has been eligible for grants or tax subsidies. A few years ago, I received a 30% “green energy” tax rebate on new windows for my home I was rehabbing. The deals have changed since then, but similar rebates are still in effect.
With the new administration set to take power in January, starting a green business may not get you the grants that it previously did. But, that is ok, new opportunities will surely arise. Right now is a perfect time to start the wall construction company you have always dreamt about. Just remember, in order to maximize your government incentives, you should partner with someone who the wall is designed to keep out.
We can complain about the ridiculousness or unfairness of the policies, but the only thing complaining will change is our mood (and not for the better). A better plan, in my opinion, is to educate ourselves about how these incentives work, and use them for our own benefit.
Sometimes the hoops you have to jump through, or what you have to give up make “free” money is not worth the trouble, and because of that, I haven’t always taken the “free” money that was available to me. For example, I turned down $5,000 in college loan forgiveness because I didn’t know if I would meet the criteria of teaching in a low income school for five consecutive years, and I didn’t want to have to pay back the money with interest if I didn’t end up meeting the criteria. Many of these government incentives come with conditions, and they may or may not make sense to you, but if you are flexible and keep your eyes peeled, you will find something that makes you feel as economically privileged as Donald or Hillary.
I am sure there are
hundreds thousands more programs that I am unaware of. The point of this article isn’t to provide an exhaustive list of all the government incentives available, but to get you thinking about how to start looking for ways to gain from some of the programs which you inevitably pay for. Remember, when the taxes are due, the government will make sure you know about everything that needs to be paid, but when it comes to subsidies, grants, and credits, you will need to do your homework yourself. The IRS isn’t going to audit you and send you a list of deductions you should have taken.
I would like to hear others’ thoughts on the topic. In what unique ways have you ever benefited from government programs? Do you think my attitude towards this is acceptable?
* Environmental sustainability, economic stability, social equality are all loaded terms that mean completely different things to different people. For the purpose of this article, the actual meanings of these concepts, viability of the programs to meet their goals, and even the value of these goals don’t matter. We are only looking for ways to accept the generosity of our government.
** I know this sounds like I am joking, but i’m not. I honestly believe that if you connect surfing with climate change or some local economic condition, you could qualify for a grant that would pay you to surf.