Despite high levels of inequality and wage stagnation over several decades, the United States has done relatively little to address these problems—at least in part due to public opinion, which remains highly influential in determining the size and scope of social welfare programs that provide direct benefits to retirees, unemployed workers or poor families. On the other hand, social tax expenditures—or tax subsidies that help citizens pay for expenses such as health insurance or the cost of college and invest in retirement plans—have been widely and successfully implemented, and they now comprise nearly 40 percent of the spending of the American social welfare state.  In The Other Side of the Coin, political scientists Christopher Ellis and Christopher Faricy examine public opinion towards social tax expenditures—the other side of the American social welfare state—and their potential to expand support for such social investment.
 
Tax expenditures seek to accomplish many of the goals of direct government expenditures, but they distribute money indirectly, through tax refunds or reductions in taxable income, rather than direct payments on goods and services or benefits. They tend to privilege market-based solutions to social problems such as employer-based tax subsidies for purchasing health insurance versus government-provided health insurance. Drawing on nationally representative surveys and survey experiments, Ellis and Faricy show that social welfare policies designed as tax expenditures, as opposed to direct spending on social welfare programs, are widely popular with the general public. Contrary to previous research suggesting that recipients of these subsidies are often unaware of indirect government aid—sometimes called “the hidden welfare state”—Ellis and Faricy find that citizens are well aware of them and act in their economic self-interest in supporting tax breaks for social welfare purposes. The authors find that many people view the beneficiaries of social tax expenditures to be more deserving of government aid than recipients of direct public social programs, indicating that how government benefits are delivered affects people’s views of recipients’ worthiness. Importantly, tax expenditures are more likely to appeal to citizens with anti-government attitudes, low levels of trust in government, or racial prejudices. As a result, social spending conducted through the tax code is likely to be far more popular than direct government spending on public programs that have the same goals. 
 
The first empirical examination of the broad popularity of tax expenditures, The Other Side of the Coin provides compelling insights into constructing a politically feasible—and potentially bipartisan—way to expand the scope of the American welfare state.
 

When Daniel Webster commented that the two certainties were death and taxes, he could not have imagined all the ingenious ways governments could tax and spend, though leaving this earth has changed not at all.

The tax expenditure concept is one of the newer methods of tax policy analysis that has been reshaping fiscal and monetary plans of governments. A tax expenditure is a financial benefit provided through the tax system. Whether for obsolete machinery in a factory, payment of real estate taxes, or childcare for a working mother, a special tax break is a tax expenditure. The tax expenditure concept was introduced to the Treasury Department in 1968 under the direction of Stanley Surrey and was described in his landmark book Pathways to Tax Reform. In this new book, the authors analyze the development of the concept since 1973, during which time applications of tax expenditures have expanded rapidly and new dimensions have emerged for even wider usage.

The United States prepared special analyses of tax expenditures in 1975 and Congress made the tax expenditure budget a part of the Tax Reform Act of 1981. Other countries now use the tool for analysis and budgeting, and a tax expenditure budget seems to be a permanent fixture in government planning. Recent U.S. tax expenditure budgets have increased by as much as 179 percent, while taxes collected through direct legislation have risen only 14 percent. Surrey and McDaniel focus on the impact of the tax expenditure notion on budget policy and tax policy and administration, and on how governments can decide between tax expenditures or direct spending to implement programs.