Tax expenditures, commonly known as tax breaks, are a prominent tool of public policy in the United States. This is especially true in social policy: tax expenditures for retirement pensions, health care, and housing cost the US government hundreds of billions of dollars in foregone revenue every year. Nevertheless, we know much more about social insurance and public assistance programs than tax expenditures. The Other Side of the Coin represents a major advance in our understanding of public opinion about social tax expenditures.
The authors are building on and responding to Suzanne Mettler’s book, The Submerged State (2011). She found that many Americans who benefit from tax expenditures do not consider themselves to be receiving help from government. Ellis and Faricy ask, “Why would policymakers, who are motivated by reflection, create and expand social tax expenditure programs for which the beneficiaries are unable to assign them credit?” (p. 7).
To answer this question, the authors rely on four special surveys conducted between 2015 and 2019. The authors used this opportunity to conduct some survey-based experiments. For example, some respondents were given a vignette about direct government spending for a specific policy domain while others were given a vignette about tax breaks in that same domain. Both groups were then asked about their level of support or opposition. Most of the evidence in the book is based on statistical analysis of survey data, and the authors do a consistently good job of presenting their results clearly. The bottom line is that Americans have positive opinions about tax expenditures. In fact, support levels are often as strong as or stronger than comparable direct spending programs.
When explaining their results, Ellis and Faricy argue that individuals do not need to be policy experts in order to answer survey questions. People rely on informational cues. For instance, knowing that programs are tax breaks is enough to generate support among individuals who favour limited government. Those who identify as conservative are more likely to prefer tax expenditures over direct spending. Likewise, the less people trust government, the more they favour tax expenditures over direct spending (Chapter 4). Knowing that these programs promote health insurance, retirement income, or housing is enough to generate support from liberals. Finally, Americans understand that tax expenditures benefit workers and taxpayers, who are generally viewed as groups that deserve assistance (Chapter 5).
Economic self-interest also shapes public opinion. Individuals who are paying off a mortgage were more likely to support the home mortgage interest deduction. Those with student loan debt were more supportive of related tax breaks (Chapter 3). The combination of self-interest and informational cues produces bipartisan support for social tax expenditures. The American public may be divided on many issues, but not here.
While Ellis and Faricy are mostly engaged in academic research, they draw out some policy implications. In a polarized environment, tax expenditures may be more viable, politically, than direct spending. In particular, tax expenditures could help low-income Americans without activating racial stereotypes. They found that symbolic racism was more strongly associated with attitudes toward welfare than attitudes toward the Earned Income Tax Credit. The latter could therefore be a model for future programs targeted at child care or job training.
One premise of this book is that public opinion has a strong influence on public policy, and not everyone believes that. To explain why policymakers create and expand tax expenditures, one could highlight the role of interest groups and third-party providers. Housing tax expenditures might be popular among elected officials because they subsidize home builders, realtors, and construction unions. Tax breaks for retirement pensions generate business for large financial institutions. Other tax breaks help health insurance companies stay profitable. Elected officials rely on such groups for campaign donations. Officials also understand how important these businesses are to the economy. If this explanation is correct, then public opinion might be consistent with policy outcomes without causing them.
Alternatively, some policymakers could be acting strategically. If they want to block demands for national health insurance, then they might support tax expenditures for job-based health insurance. If they want to slow down the growth of Social Security, they might want to subsidize individual and corporate pensions. In effect, officials could be trying to shape public opinion rather than respond to it.
These concerns aside, The Other Side of the Coin tackles important questions with original data and analytic rigour. It is a valuable addition to the study of US social policy and of public opinion.
