A former colleague used to quip that if you really wanted to understand policymakers’ priorities, start with the budget because that is where the rubber hits the road. Chris Faricy’s rich, incredibly detailed, and eye-opening book does exactly that, and in the process shatters a key conventional understanding about how American politics works. The conventional wisdom is this: One of the fundamental differences between the Democratic Party and the Republican Party, at least since the New Deal, is that the former supports a robust, government-sponsored welfare state while the latter supports limited government as much as possible.
Welfare for the Wealthy challenges this idea by first pointing out that conventional notions of what counts as the welfare state—that is, the collection of public policies designed to increase citizens’ economic security and reduce material hardship—are outdated. Indeed, past research finds that when Americans think about social welfare spending, what comes to mind are public social expenditures—social welfare benefits and services that are financed through direct expenditure and administered via government. Social Security, Medicare, and Medicaid are perhaps the most well-known examples, and they provide their largest benefits to the elderly and the poor.
In response, Faricy first underscores a central argument of many other scholars of the American welfare state: There is an entirely different set of social policy instruments on the revenue side that the federal government uses to enhance citizens’ economic security. These are tax subsidies for private expenditures—goals financed via tax expenditures (i.e., the collection of deductions, exclusions, and exemptions colloquially known as “tax breaks”) that involve private provision and administration of social welfare benefits and services. They subsidize employer-provided pension plans such as 401(k)s, employer-provided health insurance, 529 college savings accounts, and the like. Taken together, these subsidies constitute the book’s namesake, the welfare state of the wealthy. That is because the primary beneficiaries of such programs are the private entities that provide these services (e.g., banks, financial institutions, and private health-care companies), along with the middle- and upper-class white-collar professionals who receive most of the subsidies.
Thus, although popular imagination regarding the American welfare state focuses on large, visible government appropriations for the poor and elderly, in reality the federal government can enhance economic security by choosing to directly spend money it receives via taxes or by choosing to subsidize, via the tax system, other kinds of economic security-enhancing behavior. Which path it chooses has enormous distributional implications for those whose economic security is enhanced and, ultimately, the shape of income inequality.
The book addresses two big questions: 1) How does America produce a welfare state for the wealthy? 2) Why does it do that? Faricy’s answer to both questions is based on a brand-new data set that charts the federal government’s spending on all public social expenditures, as well as tax subsidies for private social expenditures, from 1970 to 2012. While some past work has looked at certain aspects of each category, this is the first time that we see all of the data in one place, over such a wide timespan, and in one data set that also includes a wide range of political and socioeconomic factors that might help explain the direction of social policy as well.
Using time-series models that capture the short- and long-term implications of political party control of government, Faricy finds that Democratic control of government leads to increased public social expenditures, whereas Republican control leads to increased tax subsidies for private expenditures. In addition, Republican control also increases the proportion of total social expenditures devoted to the private side as well. That is how we end up with a welfare state for the wealthy.
Faricy finds that public social spending and private social spending are not simply substitutes for each other. Public social expenditures are (on balance) progressive, whereas the opposite is true for tax subsidies. The result has critical implications for economic inequality. Thus, the author also finds a direct relationship between political party control of government and the shape of the income distribution. Regardless of the rhetoric they use, when the rubber hits the road, both parties have been steadily increasing the size of the welfare state in recent decades. They just use very different means of doing so.
This brings us to the second question: Why does America produce a welfare state for the wealthy? Here, electoral considerations play a central role in the book. Faricy argues that Democrats favor public social expenditures and Republicans favor tax subsidies for private social expenditures because of their different electoral bases and their divergent party ideologies. This is a perfectly reasonable argument, and again his evidence in support of this point is very convincing. At the same time, given that the goal of the book is ultimately to explain policy change, the mostly singular focus on electoral politics also raises a number of important and unanswered questions.
For instance, we know that the likelihood of policy change is directly related to who is organized and who is not outside of elections. Even just looking at public expenditures alone, there are many policies that key parts of the Democratic coalition favor that never make it onto the political agenda and/or never get passed. And so Faricy’s analysis raises the question of why we see certain kinds of public social expenditures that many people favor (e.g., retained and/or even increased Social Security) but not other ones that many people also greatly favor (e.g., more affordable college education and a public health-insurance option). One answer is that the latter would require mobilizing cash-strapped young people and those facing high health-care costs to the same degree that the AARP regularly mobilizes older citizens. Yet we know that it is much easier to mobilize older people who stand to lose benefits than it is to mobilize those who stand to benefit from policy change but are currently facing severe financial constraints in their personal lives. These dynamics show one way in which nonelectoral organizing can affect the direction of policy change.
In addition to raising questions about why we do not see certain kinds of public social expenditures, Faricy’s analysis also raises questions about why tax subsidies for private social expenditures continue to flourish. As the author notes in his conclusion (p. 206), it is unlikely that most Americans would support many tax expenditures if they knew how the benefits were distributed. And, moreover, strictly on the basis of electoral considerations, we might expect that Democrats would want to talk about this and would want to engage in any counterframing that Republicans might offer in favor of tax expenditures. Yet Democrats do not seem to be rushing to do that (and it is not even clear that they have persuasive counterframes waiting in the wings). So again Faricy’s analysis raises questions about other forces that help drive the welfare state of the wealthy, such as campaign finance, the set of organized interests, voter psychology, and so on.
Ultimately, as with any great and convincing book, Welfare for the Wealthy answers important questions and raises many others. It is an important contribution to our understanding of growing income inequality in the United States and how it is a function not just of broad economic and technological factors but also of our federal government’s pursuit of clear policy choices.
