The US Could Have A Welfare State — But We Don’t

In the United States, we have a labyrinth of tax subsidies and vouchers, and an endless line of private interests looking to cash in on social services. Don’t call that a welfare state — it’s not. And we deserve better.

Men stand in line outside a soup kitchen during the Great Depression in 1931. NARA

The United States doesn’t have a universal public health insurance system, much less a universal public healthcare provider system. Fewer than 1 percent of Americans live in social housing, while around 20 percent do in the United Kingdom, Sweden, and Austria. The city of New Orleans has no traditional public schools left. Observing this state of affairs, we can reasonably conclude that the US has a threadbare welfare state, right?

The trouble is that lately the definition of the term “welfare state” is starting to blur. In a new paper titled “American Exceptionalism and the Welfare State: The Revisionist Literature,” Monica Prasad suggests we clarify it — for our own sake.

Political economists, Prasad observes, have recently caught onto a very important distinction. They’ve pointed out that while it’s true the US doesn’t engage in very many direct expenditures (i.e. spending public money directly on social programs) compared to peer nations, we do have an elaborate system of tax expenditures intended to facilitate private welfare provision.

The US state gives tax subsidies to private businesses to encourage them to provide things working-class people need, as well as tax cuts to individuals so that they can purchase those things. So for example, instead of social housing, we have tax credits designed to subsidize the private construction of affordable housing, and housing vouchers meant to help people rent from private landlords.

Is this a welfare state? In recent years some scholars have been arguing that it is, just of a worse variety.

These scholars’ critiques of the US model — heavy on tax expenditures, light on direct expenditures — are invaluable. In his book The Hidden Welfare State, Christopher Howard shows that the US system’s reliance on tax expenditures tends to redistribute wealth upward overall, exacerbating inequality. And in The Submerged State, Suzanne Mettler argues that the invisibility and complexity of the U.S. system has a conservatizing effect, concealing the benefits of social spending and enabling the political demonization of “big government.”

Prasad finds a lot to commend in the recent literature examining how different the US system is from other countries. But she has some concerns. In particular, Prasad contends that subsidized private welfare is not a worse version of a welfare state. It’s just not a welfare state at all, and in fact it actively diminishes our capacity to build one.

The difference has real political implications. If we say that tax expenditures are a kind of welfare state — even a subpar variety — then we leave room for a defense of the US system. We’ve already seen this start to happen. Prasad observes that right-wing commentators have lately been “using the presence of tax expenditures and the supposedly larger welfare state they represent to argue that ‘when it comes to caring for the poor and least advantaged, the United States currently has little it should apologize for.’”

In simpler terms, saying that subsidized private welfare is a bad kind of welfare state gives the status quo’s defenders the opportunity to respond that it is, on the contrary, a good kind of welfare state — as though tax expenditures were either a better or worse substitute for direct expenditures, depending on who you ask.

But every dollar the state returns in a tax credit, subsidy, voucher, or deduction is a dollar that isn’t going to the construction of a social program that pools risk and redistributes wealth while guaranteeing that all people’s basic needs are met. Plus our current system overall makes rich people richer, which in turn makes it easier for them to push back against things like single-payer healthcare and social housing. The reliance on tax expenditures thus reduces the state’s ability to engage in direct expenditures and build an actual welfare state.

We could have a large welfare state in the US. We could invest in mixed-income, high-quality, and permanently affordable social housing that would eliminate homelessness and drive down housing costs across the board. We could fully fund our existing public K-12 education system and protect it from privatization, and guarantee cost-free preschool and higher education while we’re at it. We could make healthcare a universal social right, available to all in their time of need. We know these things are possible, because countries with far fewer resources than ours have succeeded on sheer force of political will.

But to pull it off, we have actually build a consensus that what we have isn’t sufficient. And by equating the subsidized private welfare system to a welfare state, Prasad argues, some scholars “are enabling a misperception that the American state is more generous than it really is.”

We should be clear: the US tax expenditure system isn’t merely the eccentric “American way” of cobbling together a welfare state. It’s actually a hindrance to the construction of such a state — and of the society we deserve.