The Hidden Welfare State: Tax Expenditures and Social Policy in the United States

267 Pages·2001·1.896 MB·267\267

by  Christopher Howard

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The Hidden Welfare State
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PRINCETON STUDIES IN AMERICAN POLITICS:
HISTORICAL, INTERNATIONAL, AND
COMPARATIVE PERSPECTIVES
SERIES EDITORS
IRA KATZNELSON, MARTIN SHEFTER, THEDA SKOCPOL
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The Hidden Welfare State
TAX EXPENDITURES AND SOCIAL
POLICY IN THE UNITED STATES
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Christopher Howard e
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PRINCETON UNIVERSITY PRESS
PRINCETON, NEW JERSEY
Copyright(cid:211) 1997byPrincetonUniversityPress
PublishedbyPrincetonUniversityPress,41WilliamStreet,
Princeton,NewJersey08540
IntheUnitedKingdom:PrincetonUniversityPress,Chichester,WestSussex
AllRightsReserved
LibraryofCongressCataloging-in-PublicationData
Howard,Christopher,1961–
Thehiddenwelfarestate:taxexpendituresandsocialpolicyintheUnitedStates/Chris-
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topherHoward.
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p. cm.—(PrincetonstudiesinAmericanpolitics)
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Includesbibliographicalreferencesandindex.
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eISBN 1-4008-0384-5 r
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1. Taxation—United States. 2. United States—Social policy. 3. Tax expenditures—
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UnitedStates. I.Title. II.Series.
HJ2381.H684 1997 336.2¢06¢0973—dcn21 96-50044
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PortionsofthisbookpreviouslyappearedinOsomewhatdifferentformin“TheHiddenSide
oftheAmericanWelfareState,”reprintedwithpermissionfromPoliticalScienceQuarterly,
vol.108,no. 3(1993): 403–36; “Test ingtheToolsApproach:TaxExpenditures versus
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DirectExpenditures,”reprintedwithpermissionfromPublicAdministrationReview,vol.
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55,no.5(1995):439–47;and“HapipyReturns:HowtheWorkingPoorGotTaxRelief,”
reprintedwithpermissionfromThesAmericanProspect,no.17(Spring 1994):46–53,(cid:211)
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NewProspect,Inc.Chapter7isearevisedversionof“ProteanLurefortheWorkingPoor:
PartyCompetitionandtheEarnedIncomeTaxCredit,”StudiesinAmericanPoliticalDe-
v
velopment,vol.9,no.2(1995):404–36,(cid:211) 1995CambridgeUniversityPress(reprinted
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withpermissionfromCambnridgeUniversityPress).
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ThisbookhasbeencomposedinGalliard
Contents
List of Tables vii
Acknowledgments ix
Abbreviations xiii
PART ONE: Overview
INTRODUCTION 3
CHAPTER 1 k
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Sizing Up the Hidden Welfare State 17
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PART TWO: Origins
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INTRODUCTION b 43
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CHAPTER 2 n
Home Mortgage Interest and Employser Pensions 48
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CHAPTER 3
Earned Income Tax Credit 64
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CHAPTER 4 it
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Targeted Jobs Tax Credit 75
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PART THREE: Developvment
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INTRODUCTION n 87
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CHAPTER 5

Home Mortgage Interest 93
CHAPTER 6
Employer Pensions 115
CHAPTER 7
vi · Contents
Earned Income Tax Credit 139
CHAPTER 8
Targeted Jobs Tax Credit 161
PART FOUR: Conclusion
CHAPTER 9
Politics of the Hidden Welfare State 175
APPENDIX
List of Interviews 193
Notes 195
Index k 247
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Tables
Table I.1 The Four Case Studies 15
Table 1.1 The Hidden Welfare State: Major Programs, 1995 20
Table 1.2 The Hidden and Visible Welfare States, 1995 26
Table 1.3 Distributionof Selected Tax Expenditures, 1994 28
Table 1.4 Growth of the Hidden and Visible Welfare States,
1965–1995 35
Table 7.1 Growth of Major U.S. Social Programs, 1980–1992 141
Table 9.1 Origins of Major U.S. Social Programs 176
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Acknowledgments
ABOUTAYEARintothisproject,theheadofthedepartmentwhereIwas
a graduate student gave a talk about writing a dissertation. She offered
some good pointers about keeping the literature review short and not
waitinguntilwefinishedourresearchtostartwriting.WhatIremember
most, though, was this piece of advice: choose your topic carefully, for
it may be with you for at leastadecade. Ideally, shesaid, we wouldtake
afewyearstoresearchandwritethedissertation,anothercoupleofyears
torefine(i.e., shorten)thedissertationintoabook,andthenspendsev-
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eral years basking in the glow of professional accclaim or rebutting our
critics. Her advice elicited some nervous laueghter, particularly from a
certain graduate student who started imaginuingthenexttenyearsofhis
careerasapaintingentitled,“StillLifewithrTaxExpenditures.”Yethere
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I am, squarely in the middle of the sequence she laid out.
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No one in his right mind would choose to study and write about tax
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expenditures (better known as tax loopholes) knowing in advance that
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it entailed a ten-year commitment. Investigating the ins and outs of the
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byzantineU.S.taxcodeissimplynotitsownreward,whichiswhymany

people pay lawyers and accountaynts good money to do it for them. If
someone were going to study tatx expenditures for longer than a day or
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two, he or she would need toscome upon the topic by accident. Over
time, that someone might drevelop a curious affection for tax expendi-
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tures,muchasonedoesforastraydogorcatthatkeepshangingaround
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the house. Eventhen, onie wouldhave toremindoneself constantlythat
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studying tax expenditures was not the ultimate goal but a means of say-
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ingsomethinginterestingaboutalarger issue,likeU.S.socialpolicy.At
least that has been m y experience.
Even in the best of circumstances, making a long-term commitment
to study tax expenditures requires a great deal of support. I have been
fortunate to receive such support from the very start of this project and
want to acknowledge a number of individuals and institutions for their
help. A good place to start is with the library staffs of various institu-
tions, including the Massachusetts Institute of Technology (MIT),
HarvardUniversity,theCollegeofWilliam&Mary,theLibraryofCon-
gress, and the National Archives, all of whom provided me with knowl-
edgeable, prompt service. By the same token, this study could not have
been written without the cooperation of several policy makers and ex-
perts who taught me much about tax expenditures during a series of
interviews. Although their names are listedin an appendix to this book,