To better understand the concept of social welfare tax expenditures and how they are similar to direct expenditures, Edward Berkowitz gives the example of, “if a person owes $100 in taxes to the government and the government forgives the obligation on the condition that the person buy a health insurance policy, then the situation is the same as if the government itself spent the $100.”[1] Each expenditure also targets a specific portion of the population in an effort to give the selected population some type of relief.
[2] In general, the government uses the tax code to entice market actors to consume in socially desirable ways.
[4] As David A. Rochefort, a Northeastern University professor, points outs, “the most significant function in the hidden welfare state is income security, accounting for roughly half of all expenditures, and the single most important program[citation needed][clarification needed] of this tax supports employer-provided pensions.
[citation needed][clarification needed] Christopher Howard's research reveals that one quarter of direct spending goes to public assistance and three-quarter goes to social insurance and that the visible welfare state serves a far greater proportion of individuals below the poverty line than does the hidden welfare.
[2] As Thomas Shapiro, author of The Hidden Cost of Being African-American, points out, the fact that most Americans are not aware of the many housing tax expenditures that the government provides shows that these programs are "ingrained and taken for granted by home owner subsidies have become, as opposed to the intense annual scrutiny programs assisting needy families receive.
[citation needed] In the 1930s tax expenditures passed that exempted benefits from public programs created during the New Deal.
Throughout American history the enactment of direct spending social welfare programs has caused debate, controversy and resistance.
[3] Christopher Howard points out that "the tax expenditure for corporate pensions had probably the quietest start of any major social program in contemporary welfare state.
However, although the Family Assistance plan generated a lot of attention, there was little debate over the Earned Income Tax when it was passed.
Howard also claims that tax expenditures have "inherent ambiguity" and that they are "able to gain diverse support because tax expenditures are often ambiguous in terms of their clientele (serve, workers, employers, service providers), and in terms of their purpose (social welfare, economic stimulation, labor support, political constituency, and more.
"[3] Attention has recently been brought to the "hidden welfare state" because Howard and others believe it negatively impacts numerous aspects of society.
Many of the social welfare programs are targeted to help lower-income families, who have throughout history been racial minorities, such as African Americans.