The Fiscalization of Social Policy: How Taxpayers Trumped Children in the Fight Against Child Poverty (under contract, Oxford University Press)
In 1970, a single mother with two children working fulltime at the federal minimum wage in the U.S. received no direct cash benefits from the federal government to help her raise her children. Today, after a period often characterized as one of intense austerity, that same mother would receive $7,572 in federal cash benefits. These benefits do not come from social assistance, family allowances, or other programs we traditionally see as part of the welfare state. Instead, she benefits from the earned income tax credit (EITC) and the child tax credit (CTC). Tax credits for low-income families, which were nonexistent fifty years ago, have come a major component of American social policy. In 2014, the combined value of the CTC and EITC amounted to $126.2 billion, dwarfing traditional welfare programs aimed at low-income families and making them the fourth and third single largest tax expenditures respectively.
If we look beyond the United States, we find similar trends in other liberal welfare regimes. In 1970, neither the United Kingdom nor Canada had child or in-work tax credits. By 2013, the value of the CTC and Working Tax Credit (WTC) in the U.K. amounted to £28.8 billion. In 2012, the value of Canada’s two CTCs and Working Income Tax Benefit (WITB) amounted to C$12.9 billion. Existing research on the politics of tax credits focuses exclusively on the U.S. but the total value of tax expenditures for social policy purposes relative to GDP is now greater in the U.K. and Canada than in the U.S.
This leaves us with two puzzles to solve. First, how do we explain the growing use of tax credits for low-income families – usually thought to be a uniquely American trend – across other liberal welfare regimes? Second, despite convergence on the use of these tax credits, American children remain nearly twice as likely to live in poverty relative to their British and Canadian counterparts. How do we explain continued American exceptionalism on child poverty when American social policy is becoming less exceptional than ever?
Argument of the Book
Focusing on the twin puzzles of the growth and distribution of tax credits aimed at low-income families across the United States, United Kingdom, and Canada, my book challenges the conventional wisdom on American exceptionalism in social policy.
First, while several scholars have noted the aforementioned international trend in what I am calling the fiscalization of social policy, they offer little explanation for it. I develop a theory of fiscalization that accounts for both its timing and extent across liberal welfare regimes. The proliferation of tax credits should be seen as an adaptation to austerity. Building on work in economic and political sociology, I argue that two unique dimensions of tax credits, one rhetorical and the other technical, enabled policymakers to pursue a strategy of obfuscation in order to expand the welfare state in the form of child and in-work tax credits during a period of otherwise intense austerity.
Tax credits’ rhetorical advantage hinges on their popular perception as reductions in spending and/or taxes while their technical advantage stems from their classification as “revenues not collected” in government budgets. Obfuscation “involves efforts to manipulate information concerning policy changes.” Tax credits flourished, in part, because they were not classified by the public and important stakeholders as new spending in government budgets, insulating them from political pressures for deficits reduction via spending constraint.
Second, I find that the reason American tax credits are less effective in reducing child poverty is because, unlike the British or Canadian tax credits, the poorest families are unable to claim them and therefore excluded from their benefits. Why would American policymakers exclude the poorest families from the benefits of tax credits aimed explicitly at reducing child poverty?
The most prominent explanations for why cash benefits are extended to some groups but not others focus on the perceived deservingness of the target populations. Specifically, the legacy of Poor Law distinctions between the undeserving “welfare poor” and the deserving working poor limit policymakers’ ability to extend the same benefit to both groups. But tax credits were extended to the “welfare poor” in the U.K. and Canada, largely without debate, at the same time U.S. policymakers denied such benefits to similar families. Since these countries all share the cultural distinction between the deserving and undeserving poor, it cannot explain the policy divergence.
Instead, I build on theories about the institutionalization of cultural categories by arguing that policies also institutionalize distinct “logics of appropriateness” that can constrain policymakers trying to expand benefits, even to seemingly deserving target populations such as children. For a policy to be implemented, it is not enough that recipients are seen as deserving. There must also be an appropriate match between the type of benefit and the category of recipient.
Specifically, I argue that the historical legacy of family allowances in the U.K. and Canada institutionalized a “logic of income supplementation” for families that enabled policymakers there to extend the benefits of tax credits to all families regardless of official tax liabilities. Lacking a history of family allowances, U.S. policymakers instead relied on the legacy of tax exemptions, which institutionalized a narrower “logic of tax relief” and constrained their ability to extend benefits to those perceived as non-taxpayers.
Leveraging the advantages of comparative analysis, I trace each county’s path from the institutionalization of these logics in the introduction of social assistance, tax exemptions for dependents, and families allowances in the 1930s and 1940s, then move ahead to the start of fiscalization in the 1970s and 1980s when these logics were reinforced, and end with the full convergence on child and in-work tax credits in the 1990s and early 2000s. Along the way, I identify critical junctures where the logic of income supplementation (in the case of Canada the U.K.) or logic of tax relief (in the case of the U.S.) was established, reinforced, and continually structured the perceptions of policymakers as they worked to diagnose the causes of child poverty and craft appropriate solutions.