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Row! Row!

YOU MIGHT REMEMBER a letter you received from the federal government about a decade ago: “We are pleased to inform you that the United States Congress passed and President George W. Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001, which provides for long-term tax relief for all Americans who pay income taxes. You will be receiving a check.” And then there was the check itself, which was typically for $600. Alas, the letter and the check were almost a scam, since many taxpayers wound up paying the money back to the IRS the following year. And the checks to “all Americans” were only a tiny fraction of the $2.3 trillion cost of Bush’s tax cuts, most of which benefited the very wealthy. But thanks in part to the publicity campaign, the Bush tax cuts were generally popular, at least for the first few years.

Contrast this with the Obama tax cut in 2009. Here there was no letter and no check. This cut primarily took the form of a tax credit, delivered seamlessly and efficiently through reduced payroll tax withholding. While a far better way to deliver economic stimulus—recipients were more likely to spend it—the result was that a majority of people never even knew about the money they were receiving. Only 12 percent of voters, in one poll, knew their taxes had gone down.

The Obama tax cut is a classic example of what Suzanne Mettler calls “the submerged state”: policies invisible to citizens. Countless federal benefits are delivered so unobtrusively, through the tax system or through public-private partnerships, that their beneficiaries hardly know government played any role. It is difficult to have a real democratic debate about the role of government, Mettler argues, when so much of what government does is unknown and unseen. And all conventional analysis about the relationship between policy and politics—embodied in such statements as “people will be enthusiastic about health care reform when they start to get the benefits”—is useless in a world where people rarely see or feel the government that provides those benefits.

The concept of the submerged state first attracted attention about a year ago in an article that Mettler published in Perspectives on Politics. Reproduced on almost every liberal blog, a single table from the article showed the percentage of beneficiaries of various government programs who nonetheless claimed that they had “never used a government social program.” Almost 45 percent of Pell Grant and Social Security recipients claimed they had never benefited from the government. And when the benefits took the form of invisible “submerged state policies,” such as tax credits or the student loan programs run through banks, the numbers went much higher: 53 percent of student loan borrowers and 64 percent of those who benefit from tax-preferred college savings plans said they received nothing from Uncle Sam.

Some interpreted this data as an affirmation that voters, especially conservatives, are hypocrites, happy to think of themselves as ruggedly self-sufficient even as they suck up public benefits. Others saw evidence of a need to “reframe” government, with a public relations campaign to advertise the good that it does. Mettler sees the results, convincingly, as an indictment of the structure of government itself. The submerged state is too complicated and too subtle, and the public misunderstanding should therefore not be surprising. Mettler is not calling for a change in the public image of government; she wants to change government itself.

Three forces drag the submerged state under the waves. Pulling down one corner are conservative politicians, whose insistence on “market-based” solutions to public problems means in practice that they are willing to support benefits such as student loans or Medicare benefits only as long as their allies, such as banks or insurance companies, are cut in on the deal. The results are higher costs, needlessly complex systems, and none of the efficiencies, competition, price-signaling, and technological advances associated with actual markets. On another corner are the lobbyists, of all ideologies, who represent those private interests, and who often prefer to negotiate compromises discreetly, rather than risk a public showdown. The more vexed, ambiguous and complicated government is, the more power is conferred on those with the knowledge to decipher it.

At the third and most interesting corner of the triangle are Democrats enraptured by subtle, invisible social policies. Influenced by the perceived success of the Earned Income Tax Credit in reducing poverty, and the pollution-pricing scheme adopted in the Clean Air Act Amendments of 1990, liberals moved away from large, decisive programs such as Medicare and embraced gentler interventions that could be seen as using market forces for social good. From David Osborne, co-author of the widely read Reinventing Government (1990), liberals adopted the Delphic pronouncement that government should “steer, not row”—that is, provide subtle incentives to guide the private sector along the right path. A decade or so later, “steer, not row” was replaced by the insights of behavioral economics, popularized by Richard Thaler and Cass Sunstein, the prolific law professor now overseeing all federal regulations. They summed this philosophy up in the term “nudge.” Nudging is not even steering.

At least Osborne and Thaler and Sunstein had a philosophy. For most Democratic political operatives, tax expenditures are just cheap gestures that poll well, benefit the suburban middle class, and cannot be called “tax and spend” because they are, technically, tax cuts. In the run-up to the Democratic presidential primaries in 2008, the leading candidates put forward policy platforms that consisted of a half-dozen tax credits each. The centrist think tank Third Way generates tax-credit proposals at an industrial clip. The only difference between liberals and centrists on tax expenditure politics is that liberals propose to make their credits refundable—families that do not pay taxes would get a benefit, too—although refundability is almost always dropped in practice.

The Submerged State is a short book, but Mettler adds two new dimensions to the articles that preceded it. First, she proposes to situate policies that draw out the structure of government at the center of democratic reform efforts. In this, she is absolutely correct. We often hope that citizens will be able to deliberate thoughtfully about policy choices, but that is impossible if the policies are shrouded in complexity and in blurred responsibility. And corruption thrives in the fuzzy margins between public and private. “Transparency” has joined campaign finance efforts as an important component of democratic reform, but too often transparency takes the form of databases and mash-ups of trivial information rather than of exposing the broad dimensions of policy. In several states, for example, there is a bipartisan push to put the credit card bills of all public employees online, while the same states still don’t have budget systems that show the cost of huge tax expenditures.

Second, and less persuasively, Mettler seeks to draft Barack Obama as an ally in the fight to reveal the submerged state. It is true that certain Obama initiatives—notably the successful effort to get the banks out of the student loan business, and a new online transparency about federal regulations—brought submerged state programs into view. Obama talked about submerged programs such as the employer deduction for health insurance; but he has been an aggressive practitioner of tax-credit politics both as a candidate and as president, and his improvised responses to the financial crisis have added new layers of public-private ambiguity. As with so many things, Obama’s rhetoric suggests that he gets it. The results suggest otherwise. One might just as easily adopt George W. Bush as an ally, based on his letter about the tax cut of 2001. Skilled politicians unveil aspects of the submerged state strategically. Republicans probably do it more skillfully.

Without Obama as an ally, and with few elected Democrats who even appreciate the problem, we are a long way from bringing the submerged state into public view. It is still possible that a major push for tax reform will emerge from the ongoing budget negotiations, creating an opportunity to clear out the clutter of tax credits that make up much of the submerged state. But I would go further than Mettler: it is not just a matter of “revealing” submerged policies or replacing them with more visible ones. It is time for a new era of reinventing government, in which the goal is to establish certain clear, unambiguous public functions, and put energy and resources behind them—to row, and not merely to steer. Responsibilities should be clearly delineated between the public and private sectors, and between governments at different levels. If providing affordable housing is a public responsibility, for example, agencies such as Fannie Mae should be fully public and fully accountable to the public, and to the extent that it’s not a public function, they should be private. Such a radical rethinking of government would not only make it more efficient and more effective, but possibly better respected. It would also allow a level of public engagement that is impossible in the current world of half-seen and little understood programs. And instead of making small gestures to show government cares about problems, this approach might actually solve them.

Mark Schmitt is a senior fellow at the Roosevelt Institute and former editor of The American Prospect.