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Colleen Becker Headshot

Welfare for the Rich

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As campaigners redirect their attention from the general electorate to core voters, distinctions between the two parties are sharpening, with domestic policy at the forefront. Heated debate about the relationship of the individual to the state has hammered out two very different models, in part informed by "'demand-side' versus 'supply-side'" rhetoric. One party believes government should provide the foundations for a decent standard of living, education so workers can participate in the national economy on the basis of equal opportunity, and legislation to protect citizens' rights. The other entrusts the private sector and wealthy individuals with the responsibility of stimulating and growing a free-market economy, rejects a "one-size-fits-all" approach to social services, and resents the imposition of taxes earmarked for programs that don't represent their constituents' interests. At stake is the extent of state intervention within individuals' lives. Or is it?

President Obama's "We believe in something called citizenship" statement and Bill Clinton's "We're all in this together," indicated what Michelle Obama's convention speech articulated in clear narrative terms: even society's most successful members need a leg up to achieve their goals. But what she could have said, and what needs to be said in a very public way, is that everyone (96%) receives government aid even though only 43% admit to it. How is this possible?

Tax expenditures now cost the federal government $1 trillion annually -- more than Medicare and Medicaid combined

Political scientist Suzanne Mettler claims the "submerged" nature of the state renders its social welfare invisible. While entitlement programs like Social Security or Medicaid are well known if not notorious, others are buried within the tax code as breaks, credits or loopholes. Otherwise known as "tax expenditures," they take various forms, such as earned income tax credits or student loan interest deductions.

Because the government doesn't collect revenue on tax expenditures, they function as a form of direct state welfare. Middle-class and wealthy taxpayers -- who attend college, own second homes and donate to charities -- capitalize on tax breaks often without realizing they're receiving a government subsidy. As Metter explains, the policy design of the "submerged state" unnecessarily replenishes the coffers of the well to do and renders programs for the poor and needy vulnerable to cutbacks.

During his convention speech, President Obama briefly mentioned his intention to "reform the tax code." This is a laudable ambition but much more needs to be said on this topic, since the advantages aren't immediately apparent to the average voter. Would reforms principally be directed at households, or would the "corporate welfare" system also enter into the reckoning? How would he handle popular, and in some cases, financially necessary tax breaks, for the middle and working classes?

Mitt Romney's clarion cry to shrink "Big Government" appeases right-wing voters, especially the "Taxed Enough Already" Tea Party activists. But dismantling vital government programs like the Affordable Care Act (Obamacare) and Medicaid won't make an impactful difference to the federal deficit if state aid continues to be handed out like candy through household and corporate tax expenditures. Robbing Peter to pay Paul doesn't make budgetary sense.

Despite his astronomical income, or perhaps because of it, Romney has benefited enormously from government welfare and his tax record has become central to Democratic campaign strategy. His plan to gut entitlement programs and eliminate select tax expenditures wouldn't neutralize the effect of his corporate and high-income tax cuts, and would shift the tax burden to lower class households. His proposals amount to a two-tier welfare system: expanded benefits for the rich and reduced aid for everyone else. The main difference lies in the manner of disbursement -- non-collection of revenue versus outlays. And for all of his small government tough talk, Romney's vice-presidential pick Paul Ryan once requested a grant to fund a health clinic through Obamacare and he also applied for stimulus money on the quiet. His misuse of Social Security funds to pay for college further undermines his credibility as a budget hawk. Is Romney merely mouthing conservative values while lining his own pockets?

If "taxes are what we pay for civilized society," what can we call welfare in the form of uncollected tax revenue? I think the word is "unnecessary." Let's take higher education policy as an example. Instead of underwriting individual tax expenditures, guaranteeing debt and insuring lenders' losses the state simply should subsidize tuition. Direct payments would increase the visibility and accountability of state intervention, ease middle and working class families' financial burdens, eliminate "corporate welfare" to the banking industry, control education costs, increase opportunity for all, and enhance the competitiveness of the American workforce in the global economy. When effective means of distributing state aid are utilized, everyone benefits, not just the rich.