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27 April 2012

America's secret state

Though the Eurozone elites may prefer a collapse towards Keynesianism than a collapse of the single currency, voters in northern Eurozone countries will likely have other ideas. That is why every attempt will be made to disguise the emergence of a transfer union.

However, according to a fascinating article in Foreign Policy, there is nothing exclusively European about disguised transfers:

  • “One consequence and driver of the contested legitimacy of the American state is the degree to which so much government work has gone underground in recent decades, far more than in other advanced industrial countries, which is the subject of the political scientist Suzanne Mettler's important new book, The Submerged State. Increasingly, Mettler argues, many government policies in the United States are designed to be hidden from view, executed not through direct, highly visible legislation but rather through indirect and passive mechanisms, such as tax breaks, leading citizens to underestimate both the scale of government activity in general and the extent to which it benefits them individually.”

Central to this argument is the idea that tax breaks for particular interest groups are equivalent to straightforward subsidies:

  • “The submerged state is vast. In 2008, forfeited federal tax revenues – the bulk of the American submerged state – came to 7.4 percent of GDP. This was more than two-fifths as large as the costs of the nonsubmerged state, which amounted to 18 percent of GDP. In 2011, tax relief for employer-provided health insurance cost $177 billion, tax relief for employer-provided retirement benefits cost $67.1 billion, and tax relief for home mortgages cost $14.5 billion. Three industries in particular – finance, real estate, and insurance – benefit from the system, which they achieve by lobbying heavily and systematically contributing to political campaigns in order to retain and fortify their privileges.”

The submerged nature of the American state may explain the strength of anti-Government feeling as expressed through the Tea Party movement. If people don’t even recognise the help they get from government, then they’re unlikely to be grateful for it.

If you think this is a good thing from a conservative point of view, then think again. Hidden transfers are designed to escape public attention and thus can be harder to cut than visible ones. By the same token, they’re unlikely to inspire support for the taxation needed to pay for them – meaning that the money has to be borrowed instead. The submerged state is therefore a powerful driver of debt – another notable feature of the American system of government.


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