Probing the Depths of the ‘Submerged State’

A welter of tax credits, breaks and incentives help Americans out in ways they don’t understand or appreciate. This ignorance could have real consequences in debates about tax reform and deficit reduction.

By Lee Drutman

In 2009, when President Obama negotiated a stimulus bill that included $288 billion in tax cuts, his advisers decided to structure their “Making Work Pay” tax credits so that workers’ regular paychecks were a little bit bigger, and the money would flow back into circulation gradually, rather than all at once. They believed it would have a greater economic impact that way.

Without running the counterfactual, it’s hard to know whether the tax credits had the desired economic impact. But one thing is clear: It was just about the worst-advertised tax cut ever. One year later, just 12 percent of respondents knew that their taxes had been reduced. Twice as many (24 percent) thought that their taxes had actually increased.

In its subterranean nature, “Making Work Pay” resembles an astonishingly large collection of other tax credits, benefits, breaks and other sundry market-structuring incentives that direct economic activity and redistribute wealth in ways that are quite hidden from most citizens. Collectively they make up a substantial “submerged state” — a term coined by Cornell political scientist Suzanne Mettler and explored in an article in the September issue of Perspectives on Politics. (Mettler is now working on a book on the subject.)

“The average person is quite unaware of them, how they work and what their effects are,” Mettler said in an interview. “They are submerged. Ordinary people look at it and see private organizations and actors doing things.”

Which means many people fail to appreciate the role of government in helping them because that role is frequently oblique. That potentially leads them to an unjustifiably negative attitude toward both the tax code and the federal government, frustrating possibilities for reform.

Submerged state policies exist in many sectors of the economy. For example, mortgage deductions, student loan programs and child tax credits are all government programs that shape individuals’ behaviors through incentives. Yet in Mettler’s survey, 60 percent of individuals claiming the home mortgage interest deduction, 53 percent of people using student loan programs and 52 percent of people claiming the child and dependent care tax credit said that “no, I have not used a government social program.” (read more)