Suzanne Mettler’s essay in the latest Washington Monthly has drawn considerable attention, and for good reason:
Over the past few decades, while many standard social benefits have atrophied in real value, those packaged as “tax expenditures”—the formal name in federal budgeting parlance for subsidies provided through the tax code—have flourished, growing rapidly in value and number. These tax expenditures for individuals and families represented 7.4 percent of GDP in 2008, up from 4.2 percent in 1976. (Tax expenditures for business, such as those for the oil and gas industry, made up another 1 percent.) By way of comparison, Social Security amounted to 4.3 percent of GDP in 2008; Medicare and Medicaid, 4.1 percent.
These social tax expenditures comprise a major part of what I call the “submerged state.” By that I mean that they are public policies designed in a manner that channels resources to citizens indirectly, through subsidies for private activities, rather than directly through payments or services from government. As a result, they are largely hidden from the public: through them, government benefits people, providing them with opportunities and relieving their financial burdens, often without them even knowing it. Appearing to emanate from the private sector, such policies obscure the role of the government and exaggerate that of the market.
Perhaps due to space constraints, Mettler gives short shrift to the role tax expenditures play in exacerbating cost growth in the housing sector, in higher education, and other domains. Focused on the distribution of tax expenditure largesse, she doesn’t discuss the extent to which tax expenditures might represent a “lose-lose” proposition.
I also think that Mettler’s discussion would have benefited from a more granular discussion of “the two redistributions” post-1990.
Although few provisions have suffered outright termination, average benefit rates for several traditional and longstanding policies—such as welfare, unemployment insurance, Pell grants, and food stamps—have deteriorated in real terms, and in some cases the scope of coverage has atrophied. As deficit hawks continually remind us, costs have grown for the “entitlement” programs—Social Security, Medicare, and Medicaid— owing to inflation-protected benefits, soaring health care costs, and the sheer numbers of Americans aging into eligibility. Generally ignored, however, have been the rapidly escalating costs of tax expenditures for social welfare purposes—the sine qua non of our submerged state.
If Ben-Shalom et al are correct in reporting that welfare state expenditures have increased for households including an elderly or disabled person and non-elderly households with pre-transfer income between 50% and 100% of the poverty line, making note of this fact might have added a new and interesting dimension to Mettler’s case: tax expenditures are skewed to the rich, welfare state expenditures are skewed to the “deserving” poor.