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Tax “Expenditures” and Welfare States: A Critique

  • Monica Prasad (a1)
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1. Surrey, Stanley S., “Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures,” Harvard Law Review 83 (1970): 705–38; Surrey, Stanley S., Pathways to Tax Reform (Cambridge, Mass., 1973); Lubick, Donald C., “A View from Washington,” Harvard Law Review 98 (1984): 338–40.

2. Pozen, David, “Tax Expenditures as Foreign Aid,” Yale Law Journal 116 (2007): 869–81, 877–78.

3. Howard, Christopher, The Hidden Welfare State: Tax Expenditures and Social Policy in the United States (Princeton, 1997).

4. Ibid., 9.

5. Hacker, Jacob, The Divided Welfare State: The Battle over Public and Private Social Benefits in the United States (Cambridge, 2002).

6. See Howard, The Hidden Welfare State, 191.

7. Howard, Christopher, “Making Taxes the Life of the Party,” in The New Fiscal Sociology, ed. Martin, Isaac, Mehrotra, Ajay, and Prasad, Monica (Cambridge, 2009).

8. Pozen, “Tax Expenditures as Foreign Aid.”

9. Stead, Meredith, “Implementing Disaster Relief Through Tax Expenditures,” New York University Law Review 81 (2006): 2158–91.

10. Kelly, Erin L., “The Strange History of Employer-Sponsored Child Care: Interested Actors, Uncertainty, and the Transformation of Law in Organizational Fields,” American Journal of Sociology 109 (2003): 606–49; Morgan, Kimberly J., “A Child of the Sixties: The Great Society, the New Right, and the Politics of Federal Child Care,” Journal of Policy History 13 (2001): 215–50.

11. Novak, William, “The Myth of the ‘Weak’ American State,” American Historical Review 113 (2008): 752–72.

12. Morone, James A., “American Ways of Welfare,” Perspectives on Politics 1 (2003): 137–46.

13. Surrey, Stanley S., “Tax Incentives as a Device for Implementing Government Policy: A Comparison with Direct Government Expenditures,” Harvard Law Review 83 (1970): 705–38, 717.

14. Reagan, Ronald, Reagan’s Path to Victory: The Shaping of Ronald Reagan’s Vision, ed. Skinner, Kiron, Anderson, Annelise, and Anderson, Martin (New York, 2004).

15. Murphy and Nagel’s core argument is that “the modern economy in which we earn our salaries, own our homes, bank accounts, retirement savings, and personal possessions, and in which we can use our resources to consume or invest, would be impossible without the framework provided by government supported by taxes” (emphasis added, Murphy, Liam and Nagel, Thomas, The Myth of Ownership: Taxes and Justice [New York, 2002])—in other words, that taxes are justified because they provide benefits to the society at large.

16. I am grateful to an anonymous reviewer for these points.

17. Stinchcombe, Arthur, “The Functional Theory of Social Insurance,” Politics & Society 14 (1985): 411–30.

18. Esping-Andersen, Gøsta, The Three Worlds of Welfare Capitalism (Princeton, 1990); Brady, David, Rich Democracies, Poor People (Oxford, 2009).

19. It should be noted that the EITC applies only to those with an income; however, this is an administrative feature of this particular policy, not a feature inherent to refundable tax preferences.

20. Stead, “Implementing Disaster Relief Through Tax Expenditures,” 2165–66.

21. Marshall, T. H., Citizenship and Social Class (New York, 1950); Titmuss, Richard M., Essays on the Welfare State (London, 1966).

22. Ewald, François, L’État-providence (Paris, 1986). An older intellectual lineage is suggested for this thought in Robert Frost’s 1947 “Masque of Mercy,” which hints at early twentieth-century unease over the collectivization of risk: “The thing that did what you consider mischief…. Was the discovery of fire insurance.” See Collected Poems (New York, 1969), 505–6.

23. Hacker, Jacob, “Privatizing Risk Without Privatizing the Welfare State,” American Political Science Review 98, no. 2 (2004): 243–60.

24. Baldwin, Peter, The Politics of Social Solidarity (Cambridge, 1990).

25. Scholars might also argue that collecting revenues and then distributing them creates state capacity—that is, it creates organizations that acquire expertise in certain kinds of activities, and it creates a set of people with interests that are not reducible to social interests. Those independent interests can have causal effects of their own, and that expertise can be redeployed in other ways. However, the same could be said of the bureaucracies that enforce taxation and tax preferences: reducing taxes in targeted ways requires policing to ensure that citizens are not overstepping the stated limits of the legislation, and these bureaucracies may have similar social effects as welfare bureaucracies.

26. Howard, “Making Taxes the Life of the Party,” 96.

27. Ventry, Dennis, “The Collision of Tax and Welfare Politics: The Political History of the Earned Income Tax Credit, 1969–99,” National Tax Journal 53 (2000): 983–1026; Pamela Herd, “The Fourth Way: Big States, Big Business, and the Evolution of the Earned Income Tax Credit,” paper presented at the annual meeting of the American Sociological Association, Boston, 2008.

28. Martin, Isaac, The Permanent Tax Revolt (Berkeley and Los Angeles, 2008).

29. Conley, Dalton and Gifford, Brian, “Home Ownership, Social Insurance, and the Welfare State,” Sociological Forum 21 (1998): 55–82; Conley, Dalton, Being Black, Living in the Red: Race, Wealth, and Social Policy in America (Berkeley and Los Angeles, 1999).

30. Of course, no welfare state completely avoids, or wishes to avoid, reinforcing market processes (see, e.g., Korpi, Walter and Palme, Joakim, “The Paradox of Redistribution and Strategies of Equality,” American Sociological Review 63 [1998]: 661–87). But there are differences in degree that have important consequences for the level of poverty and inequality in a society.

31. Wilensky, Harold, Rich Democracies (Berkeley and Los Angeles, 2002); Prasad, Monica, The Politics of Free Markets (Chicago, 2006).

32. Milton Friedman to William F. Buckley Jr., 26 April 1974, Box 22, folder 22.13 “Buckley, William F., Jr.,” Milton Friedman Papers, Hoover Institution, Stanford.

33. Baldwin, Peter, “Beyond Weak and Strong: Rethinking the State in Comparative Policy History,” Journal of Policy History 17 (2005): 12–33.

34. Pimpare, Stephen, “Toward a New Welfare History,” Journal of Policy History 19 (2005): 234–52.

35. Jens Alber, “What the European and American Welfare States Have in Common and Where They Differ: Facts and Fiction in Comparisons of the European Social Model and the United States,” Social Science Research Center Berlin (WZB) (order no. SP I 2009), 203.

36. Adema, Willem, Net Social Expenditure, 2nd ed., Labour Market and Social Policy, Occasional Papers No. 52 (Paris, 2001), OECD.

37. Price V. Fishback, “Social Welfare Expenditures in the United States and the Nordic Countries: 1900–2003,” National Bureau of Economic Research, Working Paper 15982,

38. Fishback, Price V., “Who Spends More on Welfare: The United States or Sweden?” Freakonomics Blog,

39. Schulz, Nick, “The U.S. Is More Compassionate than Sweden?” The Enterprise Blog,; Wilkinson, Will, “America’s Nordic-Sized Welfare State,” Will Wilkinson,

40. Monica Prasad, The Politics of Free Markets; see also Monica Prasad, The Land of Too Much, forthcoming.

For comments on earlier versions of this essay I am grateful to Chris Howard, Len Seabrooke, and audience members at the American Political Science Association annual meeting, 2009; and especially to Isaac Martin and Ajay Mehrotra.

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Journal of Policy History
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  • EISSN: 1528-4190
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