Opinion Editorial | |
| Monday, May 3, 1999 | |
The Invisible Welfare State |
One unfortunate effect of balancing the federal budget has been a sharp decrease in concern for growth of the welfare state. Because fiscal responsibility has been defined solely in terms of the budget deficit, it has been possible for welfare spending to skyrocket to record levels virtually unnoticed by many so-called fiscal conservatives. Moreover, because the welfare state has been defined only in terms of on-budget spending, tax and off-budget programs have created an invisible welfare state that is also escaping scrutiny.
According to a new report from the Census Bureau, federal domestic spending reached $1.5 trillion last year.
One area of particular growth in welfare spending has been on low-income families not receiving cash assistance. Such spending has risen almost 10 times since 1984, according to the Congressional Budget Office, from $5.6 billion to $51.7 billion this year. And almost three-fourths of this increase has been in the form of tax provisions, especially the Earned Income Tax Credit (EITC), that are not normally counted as welfare spending.
The impact of taxes on measures of the welfare state is significant. In the U.S., so-called tax expenditures add considerably to the welfare state. This phenomenon is well documented in the recent book, "The Hidden Welfare State" (Princeton University Press, 1997) by Christopher Howard. In Europe, however, taxes actually shrink the welfare state because Europeans must often pay heavy taxes on their welfare benefits.
A recent study by the Organization for Economic Cooperation and Development looked at the effect of taxes in comparing the size of the welfare state in various countries. The results are striking. The welfare state shrinks by about a fourth in Sweden, Denmark and the Netherlands when one nets taxes out of welfare benefits (see figure). By contrast, the inclusion of tax provisions, such as the EITC, raises total welfare spending in the U.S. by about 5 percent. The overall impact is to considerably narrow the gap in welfare spending between the U.S. and Europe.
Howard concludes that "the United States may not spend less on social welfare than other countries do; it may just spend similar amounts of public monies in different ways." Both liberals and conservatives should take note.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, May 3, 1999.
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