The concept of the “submerged state” is full of surprises with impressive power to deepen our understanding of who government helps and how, and why people feel about it the way they do. And it packs a little subversive punch.

Cornell University Political Scientist Suzanne Mettler, who developed the concept and has written a book called "The Submerged State" (subtitled “How invisible government policies undermine American democracy”), will explain the concept at noon Tuesday at the U of M’s Humphrey School of Public Affairs.

But in case you can’t make it, Mettler gave me a version over the phone. Here goes:

A 2008 Cornell poll asked Americans whether they had had ever used a federal government social program. 57 percent said no. Then the poll asked them if they had used or benefitted from about 21 specific federal programs. Among those who said they hadn’t received any federal assistance, 94 percent said they had used at least one of the 21 programs, and the average respondent had used four. (Mettler summarized the survey last fall in a New York Times op-ed.)

I assume that many of those who preferred to believe that they received no government benefits were in denial. There may also be those who think Social Security and Medicare aren’t really “government social programs” because they “paid” for their benefits through their FICA “contributions.” (As summarized in this excellent chart, 44 percent of those who said they had received Social Security checks, originally said that they had not benefitted from any government social programs. And yes, there was a greater tendency for self-described Republicans to fall into this category.)

More and more things that the government does for citizens are invisible, Mettler emphasizes, but for a variety of reasons. For example, the government pays for many services that are actually delivered by a private company. One in four Medicare beneficiaries last year got their benefits through a private company. Even though the government paid the bill, that arrangement may have rendered the government’s role invisible to the beneficiary. Students (and their parents) who benefit from loans for higher education often receive the loan from a private bank (which is profiting from the deal) and may lose sight of the fact that government guarantees and subsidies make it a better deal for both the student and the bank.

Government policies often seem designed to “allow people to delude themselves” about whether they are being helped by the government, Mettler said. In her books, she proposes that after people pay their taxes, the feds should send each household a receipt describing which benefits they receive and the value of them. Such information would give Americans a clearer idea of all the things the government does, how big it really is, and greater understanding might promote informed political action, she says.

A subversive turn

But this bland preachment takes on a more subversive (and interesting) hue when Mettler points out that the large and growing -- and ultimately most regressive element -- of the submerged state is probably the “tax expenditures” that the government provides in the form of tax credits or tax deductions.

While people start out thinking about government programs as welfare for the poor, most of the “tax expenditures” actually help the affluent and widen the gap between rich and poor.

I’ve always been a little uncomfortable with the term “tax expenditures” to refer to deductions and credits. And I know righties bristle at the notion that the government is giving you a “benefit” by not taking as much of your hard-earned money in taxes. But whatever you call them, these tax breaks have a total value of more than $1 trillion a year – more than the cost of Medicare and Medicaid combined – and if the government did away with those tax provisions, it would collect that sum and could spend it to help the neediest needs or to balance the budget.

Lindsay France/University PhotographySuzanne Mettler

Mettler quotes Eugene Steuerle, a tax economist who worked in the Reagan administration, who said of the distinction between tax expenditures and direct social spending: “One looks like smaller government; one looks like bigger government. In fact, they both do exactly the same thing.”

The federal government has relied more and more heavily on the tax code to provide incentives for certain kinds of behavior like owning a home (so interest on mortgages is deductible) or contributing to charity, or for employers to provide health insurance (so your employer’s share of your monthly health insurance premium isn’t counted as part of your taxable income).

And, Mettler emphasizes, while we tend to think of government social programs as designed to help the poor and struggling, many of the benefits that are provided through the tax code are far, far more generous to the wealthy, first of all because they pay a higher marginal tax rate.

How does that work?

Let’s focus on the Home Mortgage Interest Deduction (HMID), for example. It’s the original tax incentive and was included in the original income tax code in 1913. It is currently the second most expensive tax break (the tax-free status of employer-provided health coverage is the most expensive). In a piece she wrote for Salon, Mettler used it to nail to the wall why these deductions are welfare-in-reverse. Mettler wrote:

Let us assume that a family buys a median-value home and to finance it borrows $230,000 at an interest rate of 6.25 percent for 30 years. The richer the household, the larger the benefit: In the first year, the average family, with an income between $16,751 and $68,000, would owe around $3,619 less in taxes; those in the next income group, with earnings up to $137,300, would reap an extra $5,146; and so forth, on up to the wealthiest 2 percent of families, with incomes over $373,650, who would enjoy a savings of $6,673.

That’s just based on the difference in marginal tax rates and on the fairly silly assumption that the middle-class family and the rich family buy comparable houses. Mettler’s comparison continues:

“Of course, in reality, these differences are likely to be much greater. Low- to moderate-income Americans usually do not have enough deductions to itemize, so they would forgo this benefit and receive instead only the standard deduction. Meanwhile, the most affluent are likely to purchase far more expensive homes. If a family in the top income category opts for a more upscale home and borrows $500,000 for a mortgage, it will reap a benefit of $14,506 from the HMID; if this family purchases a truly exclusive property and borrows $1 million for a mortgage, it will qualify to keep a whopping $29,012!”

Moreover, Mettler has written, 69 percent of the benefits of home mortgage interest deduction are claimed by households with incomes of $100,000 or above -- the top 15 percent of the income distribution. “That same group also reaped 55 percent of the benefits emanating from the tax-free status of retirement benefits and 30 percent of those from employer-provided health benefits,” Mettler wrote.

Not only the affluent homeowner but also the real estate industry benefits from the subsidy, which means that there are well-heeled lobbies to make sure it stays on the books. Surely, the realty lobbyists argue, America could not sustain its long tradition of widespread home ownership without the deduction. Maybe, but Mettler notes that Canada and Australia manage to have U.S.-level rates of home ownership without offering a home mortgage interest deduction.

1991 tax change

Surely, you’re thinking, no one would dare try to remove those tax deductions. But as recently as the 1991, Congress did make them less regressive by putting a cap on the value of the deductions for taxpayers in the top marginal brackets. This was signed into law by the first President Bush as a budget-balancing measure. Mettler says it was part of the bill that famously caused President Bush I to violate his “read-my-lips, no-new-taxes” campaign promise. Ironically, the cap on the deduction signed into law by Papa Bush was wiped out in 2002 by one of the rounds of tax cuts signed into law by his son.

Over the last 30 years or so, the rising conservative tide hasn’t succeeded in actually doing away with many of the old-fashioned programs of government assistance to the poor, Mettler said, but the average benefit rates for direct government aid to the poor such as welfare, unemployment insurance, Pell grants and food stamps have declined in real terms.

Meanwhile, between 1981 and 2010, the number of submerged, auto-piloted tax breaks – which don’t go through the annual appropriations process and that tend to help the already well-fixed -- increased by 86 percent, from 81 to 151.

She said that President Obama is well aware of these tendencies and has, on occasion, explained quite clearly the basic math of their regressive nature. Early in the creation of the big health care bill, the Obama administration floated a proposal to pay for almost half of the cost of the health care program by basically reenacting the kind of caps that Bush Sr. signed in 1991 -- for example, by putting a cap on the portion of mortgage interest and charitable contributions that those in the top tax brackets could deduct.

“As soon as these ideas were announced on Capitol Hill, they were immediately shot down on a bipartisan basis,” Mettler said.