How do you like your welfare?
Chances are awfully good that you get some and that you approve of it mightily. That you see it as fair and just and righteous and super-constitutional and not-really-welfare-at-all. As opposed to that other guy’s blood-sucking welfare.
But a Washington State University political science professor, Christopher Faricy, has taken a close look at the country’s spending and concluded that we’re telling only half the story when we talk about government spending on social programs.
Faricy, who’s published several articles and is working on a book, argues that there is little bottom-line difference between Republicans and Democrats when it comes to drawing down the Treasury to promote social goals. One party provides welfare for the rich through targeted tax breaks; one provides welfare for the poor through direct spending; both are trolling for votes in friendly waters; and “both believe in massive government subsidies,” as Faricy told Dan Froomkin of the Huffington Post.
And yet, this is not how the narrative usually shapes up. Conventional wisdom tells us that Democrats are the ones who spend government money on social programs to provide health care or protect retirement savings. Republicans just give people their own money back, right? Well, they give certain people their money back. Most of those people are rich, and the richer people are, the bigger their tax breaks.
And in case you don’t consider a tax break a form of spending, rest assured that when it comes to the pluses and minuses of budgeting, there is no difference. Except this: the tax breaks are more or less hidden.
“There are many ways the government spends money that are not reported on the federal budget,” Faricy said.
If you’re concerned that America is becoming a welfare state, you’re behind the curve. America is already in constant tug-of-war between two welfare states, Faricy says, and the total impact on the Treasury grows and grows.
“Although direct spending and tax (breaks) are both treated as ‘spending’ for federal budgetary purposes, these two policy instruments represent very different roles for the government in the economy,” Faricy writes in the introduction to his book manuscript, tentatively titled “The Two American Welfare States: How Both Parties Increase Social Spending and Affect Income Inequality.”
“In particular, direct social spending uses the public sector to redistribute federal money down the income ladder to poorer populations while tax (breaks) accrue more federal money to wealthier individuals through subsidizing the private sector.”
According to Faricy, we are already a larger-than-average, European-sized welfare state, if you add up direct government spending, tax breaks and private spending on social programs.
What we’re not is a European-style welfare state. The United States leads the world in social engineering by tax break. There are 191 tax breaks that benefit some people, such as homeowners or big earners on capital investments, more than others. The number of tax breaks grows year by year. It’s equal to about 2 percent of GDP.
In terms of effect on the Treasury, tax breaks are a bigger factor than spending. In 2010, Faricy says, the government spent about $1.43 trillion on Social Security, Medicaid and Medicare. It gave away $1.7 trillion in tax breaks. And Faricy isn’t even counting corporate welfare.
Whether you view this as welfare for the rich or not, you can’t argue the effect on the bottom line. And these tax breaks don’t lower taxes across the board; they reward certain preferred behaviors.
“People say tax breaks are giving them their own money back, but what’s critical is that only certain people are allowed to get that money back,” Faricy said. “There’s a saying: In America, there’s equality for all, but only tax breaks for some.”
The richer you are, the bigger your tax break. When Mitt Romney pays an effective tax rate of 15 percent, thanks to preferential treatment at tax time, he wins twice: once for paying a lower rate than a wage-earner, and again for the proportional size of his reduction in taxes. Faricy notes that 80 percent of the benefits from tax breaks for private pensions go to the top 20 percent of earners; their after-tax income gets as much as a 4 percent bump.
Direct spending on social programs tilts the other way, of course. The typical family in poverty gets $7.50 in Social Security benefits for every dollar it contributes. Those at four times the poverty level get just 26 cents for each dollar in contributions.
Somehow, though, only this second example occupies our political debates about government spending and fiscal responsibility. Faricy says he hopes his work can help us all tell a fuller story.
“A lot of people, when they think of government spending, they automatically think of African-Americans, Latinos or women as the recipients,” he said. “They don’t actually have an accurate picture of who the recipients of government spending are.”