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.
At one press conference, reporters pressed Obama on whether he regretted putting forth the idea, to which he answered forthrightly,
People are still going to be able to make charitable contributions. It just means if you give $100 and you’re in this tax bracket instead of being able to write off 36 or 39 percent, you’re writing off 28 percent. Now, if it’s really a charitable contribution, I’m assuming that shouldn’t be the determining factor as to whether you’re giving that hundred dollars to the homeless shelter. What it would do is it would equalize. When I give $100, I get the same amount of deduction as a bus driver who’s making $50,000 or $40,000 a year [who] give[s] that same hundred dollars . [H]e gets to write off 28 percent, I get to write off 39 percent. I don’t think that’s fair.
This explanation—a rare instance in which a public official clearly articulated how tax breaks function and who benefits— failed to be heard amid the fray, as executive directors of numerous philanthropic organizations wrote to Congress insisting that the proposal would “impose a tax on charitable giving.” The proposal never had a chance. Rent-seeking crony capitalism reigned, with interest groups protecting the subsidies that benefited themselves and the affluent, and ordinary Americans had no inkling of what had transpired.
Would ordinary citizens be more likely to support efforts like Obama’s if they were better informed about them? A survey-based experiment I conducted with Matt Guardino of Syracuse University in 2008 suggests the answer is yes. After respondents were provided with basic information about the upwardly redistributive effect of the Home Mortgage Interest Deduction— the fact that it benefits mostly affluent people—opposition grew sharply, particularly among those with low to moderate incomes and among liberals and Democrats. By contrast, after being informed that the EITC benefited mostly those in low-to-moderate-income groups, support grew among respondents generally, regardless of income.
These findings are consistent with what we know about contemporary American attitudes toward taxes in general. Countless polls in recent years have shown that strong majorities of voters favor higher taxes on the wealthy as the way to close budget deficits and shore up entitlements like Social Security. Similar majorities would likely favor cutting tax expenditures for the well-off if the issue were explained to them.
At present, however, few opinion leaders, even on the left, have taken up the cause of tax expenditure reform, except on a few issues, such as ending tax subsidies for oil companies. Indeed, some of the most sophisticated and influential seem confused about the subject. Comedian-commentator Jon Stewart, for instance, has mercilessly skewered Republicans for defending the Bush tax cuts for the wealthy. But when Obama gave a speech in April calling for “spending reductions in the tax code,” Stewart took the position—common among conservatives— that the president was engaging in doublespeak:
What? The tax code isn’t where we spend. It’s where we collect. You managed to talk about a tax hike as a spending reduction. Can we afford that and the royalty checks you’ll have to send to George Orwell?
American politics today is ensnared in the paradox of the submerged state. Our government is integrally intertwined with everyday life from health care to housing, but in a form that eludes our vision because it makes governance invisible. As a result, many Americans express disdain for government social spending, incognizant even when they themselves benefit from it. They are disturbed by growing deficits, but do not realize that policies whose benefits flow disproportionately to the affluent consume a large portion of growing federal entitlements. They are easily seduced by calls for small government, not realizing that champions of that philosophy brought us the most costly policies of the submerged state.
Political and opinion leaders permit this deception to persist by failing to talk openly and honestly about tax expenditures. A minor exception to the rule, Obama has shown that he is quite capable of speaking clearly and candidly about how such policies work and who benefits from them, but the number of occasions when he has done so have been few and far between. His own party in Congress has yet to join him in a full-throated manner; in fact, its leaders themselves torpedoed his efforts in 2009. Without discussion of what is actually at stake in spending through the tax code, citizens are not told what these subsidies really are: special provisions for particular groups of people, especially the wealthy, that are paid for through either higher taxes on other Americans, reductions in spending, or expansions of our deficit.
For too long, progressives have accepted the conservative playbook, creating and expanding tax expenditures on the assumption that they can tilt some of their benefits to low- and middle-income Americans. As long as this cornerstone of the submerged state is left intact, it fosters the delusion that governance is generally ineffective and unhelpful to most Americans, and it prompts people to attribute to markets more credit than they are due.
Fortunately, and rather ironically, the coming showdown over raising the debt ceiling presents a golden opportunity to substantially scale back the submerged state—and to advance progressive goals in the process. Republican lawmakers, obliged by their base to cut federal spending but fearing an electoral backlash if popular social programs like Medicare are decimated, are increasingly open to the suggestion of the Democratic deficit hawks in the administration and Congress that if the budget ax must fall, it ought to fall most heavily on tax expenditures. It is a negotiating strategy that liberals would be wise to encourage. For those who care about reducing inequality, making American governance more transparent, and reinvigorating democratic citizenship, this is a chance that should not be missed.
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