Big Government: It's Mostly for the Wealthy

In the ongoing debate over fiscal policy in the United States, conservatives insist that the federal government suffers from a "spending problem" rather than a "revenue problem," dismissing the legitimacy of tax increases as a method for balancing the budget. This distinction, however, is a bogus one, and it serves only to protect expensive handouts that primarily benefit the wealthy.    

In my last post I cited a study by Professor Suzanne Mettler of Cornell University, which revealed that a majority of Americans who benefit from tax exemptions such as the home mortgage interest deduction do not actually recognize themselves as recipients of government support. This confusion stems from the fact that Americans tend to think of government assistance strictly in terms of direct spending programs. When assistance comes indirectly -- like in the form of a subsidy for transactions among private actors -- the federal government’s influence is much less visible. 

But just because these subsidies are hard to see -- even for those who get them -- doesn't mean they don't make a massive dent in the federal budget. Mettler reported the following figures in an article last month for the Washington Monthly: while federal spending on Social Security accounted for 4.3 percent of GDP in 2008, and Medicare/Medicaid together accounted for 4.1 percent, tax expenditures for individuals and families accounted for fully 7.4 percent of GDP that same year. In other words, spending is spending, and the cost of tax breaks cannot be ignored.

Their price tag, however, is not what makes tax expenditures objectionable: rather, it is that these perks overwhelmingly benefit the affluent. According to the nonpartisan Tax Policy Center, the three most expensive tax expenditures in the U.S. budget are (1) exemptions for employer-provided health insurance, (2) exemptions for employer-provided retirement plans, and (3) deductions for mortgage payments. In other words, the Americans who consume the largest share of federal spending are those who own their own homes and have jobs that offer generous benefits packages as a form of compensation. The high price of government, it turns out, has less to do with hand-outs for the poor than spending on the well-off.

It is unacceptable for conservatives to demand major cuts in social safety net programs while ignoring what Christopher Howard has called the "hidden welfare state" for the well-off. 

Taking on tax expenditures won't be easy. But if this issue can be moved to the center of the deficit debate, there is a powerful opportuntiy to restore justice and accountability to the federal budget.