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Tax Breaks and the Welfare State We Don’t See

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What is a government program? And are you on one right now? Those are the questions Cornell University political scientist Suzanne Mettler has been posing.

For her book “The Submerged State,” she asked a scientifically selected sample of 1,400 Americans whether they had ever used a government social program. Only 43 percent copped to having done so. Then she read off 21 social programs, such as Medicare and the home mortgage interest deduction, and asked the same question again: Have you ever used a government social program? This time, 96 percent said yes, in fact, they had.

According to Mettler’s survey, 60 percent of those who benefit from the home mortgage interest deduction didn’t think they had ever used a government social program. Fifty-three percent of those with student loans didn’t think they had used one. Among Social Security beneficiaries, 44 percent thought themselves unsullied by the touch of government, and among Medicare beneficiaries, 39 percent said the same. Twenty-seven percent of those in public housing answered in the negative, as did 25 percent of those on food stamps.

The implication seemed to be that Americans are hypocrites, or at least woefully uninformed. But in forthcoming research, Mettler and co-author Julianna Koch dig deeper, and find the reality is more complicated.

Their new paper argues that “policy design” is an important determinant of whether people recognize they’re using a government program or not. Some programs, like food stamps and Medicaid, force recipients to go to a government office and apply for them. Other programs, like Medicare, are provided by the government, but eligibility is mostly automatic, and recipients have paid into them. Beneficiaries of such programs are somewhat less likely to realize they’re on a government dole than beneficiaries of means-tested programs.

Then there’s what Mettler calls “the submerged state.” These policies are mostly, though not exclusively, tax breaks. They include the home mortgage interest deduction and the tax exclusion for employer-provided health care. Recipients of these – and there are tens of millions of them – are rarely cognizant that they’re benefiting from a government program.

But they are. “Indirect social policies offer benefits that are comparable to direct social benefits both in their purposes and in their costs,” Mettler and Koch write. “Both are targeted to specific groups of people, aimed to reward some kind of activity or some class of persons whom policymakers deem worthy of public support.”

The costs are huge. Tax expenditures now cost the federal government $1 trillion annually – more than Medicare and Medicaid combined. And they’re regressive.

There is also a pattern to these programs: The more a government social program benefits wealthier Americans, the less obtrusive it is. We design policies for the poor in ways that make it hard to escape the knowledge that the government is providing help. But richer Americans rely on programs that are “submerged.” The Tax Policy Center estimates that eliminating all individual-income tax expenditures would raise levies on the bottom 20 percent by $931. For the top 1 percent, the tax increase would be almost $280,000.

Even so, many middle-class and wealthy beneficiaries have no idea they’re receiving any government assistance at all.

Not surprisingly, this influences Americans’ attitudes toward government. Mettler and Koch find that the more likely you are to know you have used government programs, the more likely you are to have a positive opinion of them.

Mettler hypothesizes that such differences could play a role in the nation’s growing political divide. “I think one of the drivers of the kind of polarization we have today is policy design and delivery, because we have these policies where people can benefit a lot from the government but become more anti-government because they’re paying higher taxes and don’t think they’re getting benefits.”

I’m more worried about the role submerged policies play in the budget and in good policy. We’re funneling an enormous amount of money to people who, in many cases, don’t need it and don’t even know they’re receiving it.

If Americans who either rent or own their homes outright were asked to accept a tax increase of $150 billion in order to subsidize the mortgage payments of their indebted friends, it seems unlikely they would find that appealing. The same goes for asking Americans who don’t get health insurance through their work to spend $100 billion or so annually subsidizing the benefits for those who do. Of course, that’s exactly what’s happening right now, but it’s hidden in the tax code.

It is in part because these policies aren’t visible that they’re so difficult to change. That’s the thing about submerging a large part of your welfare state. Sink it deep enough, and it becomes almost impossible to dredge up.

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