Revealing America's Welfare State

In the simplest sense, historians write narratives about change over time. What distinguishes social welfare historians from their colleagues is that they choose to write not about what happened but rather about what did not happen. This strange tendency has to do with a desire to compare the American and European welfare states. Such comparisons cause historians to emphasize what we do not have, such as a guaranteed income or a program of national health insurance, and to miss much of what we do have. Christopher Howard, a political scientist rather than a historian, seeks to redress the balance by pointing out that much of our welfare state remains hidden from scholarly view because it takes the form of tax expenditures. Instead of providing national health insurance directly, for example, we finance it indirectly through our tax code. Simply put, employers who choose to pay for part of their employees’ health care get a tax break. According to Howard, the hidden welfare state of tax expenditures amounts to nearly half the size of the visible welfare state “making the United States appear less a welfare state laggard than many cross-national studies claim” (p. 17).

The concept of the hidden welfare state has great utility in capturing the unique nature of America’s social welfare policy. Not only do we use tax policy as a tool of social policy, creating important links between public and private social welfare provision, we also rely on the courts to transfer money to certain classes of individuals, such as those who have been exposed to asbestos, harmed by medical malpractice, or denied what the court deems to be adequate care in a public facility such as a state mental health hospital. The federal nature of our social policy also obscures the size of our welfare state. For example, although we have no national workers’ compensation law, we do have a series of state laws that cover the entire country and make our workers’ compensation system among the largest in the world.

Howard does not push the concept that far. Instead, he focuses on tax expenditures. Understanding his basic point requires the reader to grasp an economic concept. If a person owes $100 in taxes to the government and the government forgives the obligation on the condition that the person buy a health insurance policy, then the situation is the same as if the government had itself spent the $100. In other words, the author asks us to think of foregone revenues as similar to expenditures. Howard calculates that in 1995 the United States government lost $346 billion in revenues because of social-welfare related tax provisions (p. 25).

To get at the history and politics of these provisions, Howard chooses to concentrate on four case studies. These include two inclusive programs that reach a broad range of people, employer pensions and home mortgage interest deductions, and two means-tested programs that benefit mainly the poor, the Earned Income Tax Credit and the Target Jobs Tax Credit. Surveying the development of each of these programs, he finds the home mortgage deduction to be as old as the federal income tax system itself. From the very beginning, homeowners were allowed to deduct interest on all debt, thus creating an exemption for the interest on a loan made to purchase a home. Preferential tax treatment of employer pensions evolved between 1914 and 1926 through a series of administrative rulings and congressional statutes. The idea that motivated these actions was that employers should be permitted to deduct expenditures for employee pensions as one of the costs of doing business. The Earned Income Tax Credit dates from 1975, an outgrowth of President Nixon’s Family Assistance Plan. This program provided a tax rebate to low income workers with dependent children. People making modest sums of money might find the rebate amounted to more than they had paid in taxes, and in this manner the program functioned similar to...