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Tax Breaks Are a Politically Palatable Way to Reduce Inequality

New research finds that race-related resistance toward social spending is reduced when programs feature tax credits rather than handouts.
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New research suggests that we should design policy to give needy people financial indirect support, via tax credits.

Reducing economic inequality by increasing public spending is a core goal of the current Democratic Party. But this progressive idea has traditionally been met with serious backlash, for two interconnected reasons.

Taxpayers are highly reluctant to provide support for people they perceive as undeserving. And because of stubborn racial stereotypes, a lot of voters lump African Americans into that category.

New research reveals that there may be a way to help the needy that is less likely to trigger racism-related resistance. It suggests that programs should be designed to give needy people financial support indirectly, via tax credits.

"Social benefits delivered through the tax code are less likely to trigger racialized thinking than similar or identical benefits delivered directly," write political scientists Christopher Ellis of Bucknell University and Christopher Faricy of Syracuse University. "This is true, at least in part, because recipients of tax expenditures are perceived as more deserving than recipients of otherwise identical direct spending. For policymakers seeking to reduce inequality, tax expenditures may have one critical advantage over direct spending programs: They are, in all likelihood, more politically feasible."

The research, published in the journal Political Behavior, describes a series of studies, including a nationally representative survey conducted in January of 2016. Participants were asked to consider "three different hypothetical recipients of government aid: a man who receives aid to pay for basic necessities in lieu of having a regular job; a married couple who receives aid to purchase health insurance for their low-income family; and a man who receives aid to subsidize his low-wage employment."

For each of these, participants were informed that the government payment was either direct or indirect (in the form of tax breaks). For example, the "aid for basic necessities" description said either that the man "receives federal assistance in the form of monthly checks," or else that he "receives federal assistance in the form of a federal tax refund."

"As might be expected, those receiving aid to supplement low-wage work, or to purchase health care, were perceived as generally more deserving than the aid recipient who was not working," the researchers report. "These differences illustrate how closely the notion of work is tied to deservingness. But for two of these questions ('basic necessities' and health care), people who received aid through the tax code were, on average, perceived as modestly but significantly more deserving than people who received aid through direct spending."

The people surveyed also indicated their level of "symbolic racism" by noting their level of agreement with statements such as: "Generations of slavery and discrimination have created conditions that make it difficult for blacks to work their way out of the lower class." Not surprisingly, the researchers found that people with more racially regressive mindsets "perceive government aid recipients as less deserving of the aid they receive."

Still, when it came to health care, racist attitudes only influenced perceptions of deservingness "when benefits are delivered through direct means." They were not a factor when people offered their views of tax credit-based health-care policies.

A similar pattern was found in the "paying for necessities" question: Responses were significantly conditioned by racial attitudes when the money was described as a government giveaway, but this was far less true when it was presented as a tax credit.

"In general," the researchers conclude, "tax-code spending is evaluated through a less racialized lens." This finding suggests that "policymakers will generally be freer to expand or change such programs without fear of public backlash."

"As currently constituted, most major tax expenditure distribute benefits upward," the researchers note. (Think the mortgage interest deduction.) "But provided that tax credits are refundable, there is no a priori reason that tax expenditures must be regressive. We can certainly conceive of any number of downward-distributing social benefits—to finance childcare, pre-K education, or job training, for example—that could be delivered through the tax code."

Opposition to "handouts" for supposedly lazy minority-group members has long been an effective pitch for Republican candidates, especially among working-class whites. Given the realities of the Electoral College, Democrats will need to coax at least some of these voters back into the fold if they're going to win in 2020.

Espousing policies centered around tax credits may be a way to do that without discarding their party's principles. Many people are suspicious of government spending, but it's harder to begrudge someone for getting a tax break.