Beneath the surface of American government lurks a system of social programs for the wealthy that is consuming the federal budget. It’s time for progressives to do battle with tax expenditures.
To make sure respondents weren’t just reacting negatively to the term “government social program”—which for some Americans may connote welfare for low-income people—the survey also asked participants whether they agreed with the statement “Government has given me opportunities to improve my standard of living.” Among people with the same income, level of education, age, race or ethnicity, and sex, the greater the number of direct, visible policies they had ever used—from a list including Social Security, food stamps, Pell grants, unemployment insurance, and several others—the more likely they were to agree with this statement. Yet, controlling for the same factors, the more tax expenditures the individual had used, the less likely he or she was to agree. Those who used the visible programs could see government improving their life chances, but those who used the hidden ones failed to observe such effects.
This finding is ironic, because policymakers of both parties routinely justify tax expenditures by claiming that they either provide people with opportunities—for example, to pursue education or home ownership—or they improve their standard of living. Such policy effects appear to be lost on the beneficiaries themselves—who, in fact, seem fairly convinced that government did not assist them. The submerged design of tax benefits appears to mistakenly convey to people that they have gained whatever measure of economic security or opportunity they have strictly through their own merits, unaided by government help.
We might expect that even if recipients of tax expenditures do not recognize them as public social benefits, then at least the lower tax bills they enjoy as a result would generate more positive views about the tax system. I examined this possibility in the same survey by asking people whether they felt that the amount they were asked to pay in federal income taxes was “more than [their] fair share,” their “fair share,” or “less than [their] fair share,” once again controlling for the factors noted above. All else equal, the greater the number of visible policies individuals had used, the more likely they were to feel that they paid “less than [their] fair share.” By contrast, however, tax expenditures seemed to have no discernible impact on their beneficiaries’ attitudes about taxes, regardless of the enormous drain these policies impose on federal budgets. Evidently, beneficiaries of visible policies understood that taxes help to pay for such programs, whereas those who prospered from the policies of the submerged state failed to grasp that connection.
Not surprisingly, given the invisibility of tax expenditures to most Americans, they generate a passive public. If people are barely aware that such policies emanate from government, then they are obviously unlikely to have opinions about them that reflect their interests and values, or to engage in political participation related to them. The same 2008 survey also asked beneficiaries of specific policies who had indicated that they participated in political activities whether they had ever done so with that policy in mind. For example, beneficiaries who had voted were asked if they had ever “taken into account the position of a candidate on the [program used] in deciding either how or whether to vote,” and, if they had ever made campaign contributions, whether they did so “at least in part, because of [their] concern about [the program used].”
Beneficiaries of visible programs like Social Security and Medicare reported high rates of action to influence the policies they rely on—far more than beneficiaries of tax expenditures. Certainly part of the problem is that, whereas seniors are mobilized by the AARP and the political parties, no broad-based citizens’ groups advocate on behalf of the public’s interest in tax expenditures, leaving the vested interests’ power unchecked. But even beneficiaries of the food stamps program, who lack a group to mobilize them, targeted their political activity at higher rates than the tax break beneficiaries: among those who had voted, 21 percent reported taking the policy into account when doing so, compared to only 14 percent of Home Mortgage Interest Deduction beneficiaries; the rates for campaign contributing among those same groups were 17.7 percent and 8.1 percent, respectively. In short, while the policies of the submerged state engender activism among the powerful groups that benefit most from their existence, they inculcate only passivity among ordinary citizens. This means not only that their interests are routinely circumvented through these upwardly distributive policies, but also that democracy itself is undermined by their existence.
Given how unaware the average citizen is of the submerged state, it’s no surprise that decisions to cut or expand it typically happen with little public airing, usually as part of some larger debate over budgets and taxes. In his first budget to Congress, President Obama proposed to rein in the tax breaks given to the most affluent Americans via deductions for charitable contributions and home mortgage interest by capping their value at a rate lower than the marginal tax rate assigned to those in the upper income brackets. Instead of being able to deduct 39 or 36 percent of the value of their mortgages, in other words, single Americans making more than $174,400 per year would only be able to deduct 28 percent—the same as those who earn $83,600 a year. (This change would actually have reinstated restrictions on tax breaks that existed during the 1990s, signed into law by President George H. W. Bush and ended by his son George W. Bush in 2001. During the decade in which these restrictions were in place, housing prices and charitable contributions soared.) Obama’s proposal was projected to save the federal government $267 billion over ten years—45 percent of the funds needed to finance health care reform.
Instantly, the proposal set in motion the typical politics of the submerged state, as vested interests rallied to defend their pet policies while the public remained out of the loop. Each of the organizational “likely suspects” in the real estate industry stormed Capitol Hill, circulated letters to all elected officials, and placed ads in prominent newspapers in order to express their unequivocal opposition to the changes. Charles McMillan, president of the National Association of Realtors, said, “Diminishing or eliminating [the Home Mortgage Interest Deduction] would hurt all families, the housing market, and our national economy”— language that cloaked the fact that the proposed changes would affect only the wealthy, and would simply reinstate prior policies. Perhaps more surprisingly, the philanthropic, foundation, and nonprofit sector mobilized just as quickly—and in some ways more effectively than the real estate sector. They committed two-thirds as much to lobbying—$44 million—but as the presumed beacon of altruism, they were able to stir even more opposition to Obama’s plan. Claiming the moral high ground, the Council on Foundations and others predicted sharp declines in charitable giving if the tax benefit was reduced. Even Democratic leaders in Congress quickly distanced themselves from the president’s proposal.
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