Is Means-Testing Just?
Every once in a while, the policy wonks and would-be social engineers in the conservative camp dream up a truly awful idea, which they then present to the world as a wonder. Back in the 1990s, the Heritage Foundation dreamed up the individual mandate, which they celebrated as an ingenious, market-oriented alternative to the single-payer plan at the heart of Hillarycare.
Newt Gingrich, who can rarely resist novelties, fell prey to this one. Mitt Romney, the managerial progressive’s managerial progressive, beat back the advocates of a single-payer plan in Masschusetts, implemented the individual mandate in its place, and touted his handiwork initially as a model for the other states and later as “a model for the nation.” Barack Obama and the Democratic Congress took Romney at his word and hired his erstwhile advisors. Then, by means of the Florida Flim-Flam (sometimes known as Gatorade), the Louisiana Purchase, the Connecticut Compromise, and the Cornhusker Kickback, they foisted an even more cockamamie version of the individual mandate on those not already subjected to it by Romney and his associates.
Along the way, next to no one on the left or right paused to consider whether policing the lives of ordinary citizens in this fashion is not a species of tyranny. Almost everyone thought that the end – getting all Americans on health insurance – justifies the means, for the unspoken presumption of our masters in Washington and in the state capitols is that ordinary people lack the capacity to assess the risks they encounter, make their own decisions, and pay the consequences. They want us to throw ourselves into their arms and say, “You do the thinking for all of us!”
I mention the recent and the not-so-recent past because the policy wonks and would-be social engineers in our camp are up to their old tricks. As I noted in a post this past summer, Stuart M. Butler, Alison Acosta Fraser, and William W. Beach have developed a proposal for the Heritage Foundation entitled Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity. On that occasion, I added:
There is one particular in which the estimable Amity Shlaes, author of The Forgotten Man: A New History of the Great Depression, does not like it – and, frankly, I’m with her. The folks at Heritage want to means-test Social Security. They want to reduce payments to anyone who makes over $55,000 a year and eliminate them altogether – both for individuals who make over $110,000 a year and for couples who make more than $165,000 a year – and Tim Pawlenty has reportedly endorsed something similar.
Think of what this means. If we were to adopt this proposal, the federal government would tax one group and tax it heavily, as it has been doing for more than seventy years. Then, it would provide that group in return for its contributions with . . . nothing or next to nothing at all. This tax would be a form of punishment – designed for those who had had the effrontery to succeed. And, of course, like every other form of transfer payment, it would reward failure. It would be hard to think of any policy more likely to subvert the work ethic than this.
“It would also,” I continued, “turn our polity into a regime of broken promises” – for, as Shlaes put it,
Social Security is different from other entitlements. In their first great explanatory pamphlet of 1937, the members of the Social Security Board carefully presented the program as insurance, and they wrote in actuarial terminology: "payments are like premiums paid for fire insurance or accident insurance," or "saving for a rainy day."
Americans would pay a portion of their wages into Social Security's trust fund as they worked, helping to provide a safety net for the elderly, and in exchange the government promised to pay them reliable benefits when they retired.
That contract-and-account culture was preserved and promoted down the decades. Most Americans have, over time, considered Social Security a fairly good deal, a contract that was honored. The contractual aspect is important to retirees, especially those who may earn enough to be deemed "affluent" while still counting on Social Security's monthly payments. As Dean Baker and Mark Weisbrot pointed out more than a decade ago in "Social Security: The Phony Crisis," cutting seniors off from Social Security makes no more sense than telling them they are no longer entitled to interest payments on their Treasuries.
As Shlaes pointed out, it would be easy to fix Social Security. All that is required is to index “its base pension formula over time to inflation” (as opposed to wages) and to raise the age of eligibility. Both proposals make sense. Indexing the formula to inflation preserves the pension’s value (while indexing it to wages inflates its value), and raising the age of eligibility would restore the program to its original purpose. Social Security was meant to be a form of insurance. In the 1930s, when it was instituted, only a small proportion of Americans lived past 65. The program was aimed at those who outlived their working years. Now most Americans live well past 65, and to an ever increasing degree they work past that age. To expect them to do so is hardly unjust.
Shlaes argued that Medicare and Medicaid are programs of a different character – aimed at providing transfer payments. Reconfiguring these programs might actually serve the public good, she suggested, and it has to be done – for there is no other way to contain the costs.
I return to this question now because there is every prospect that, if the Republicans win and win big in 2012, they will means-test all of the so-called entitlements programs – Social Security, Medicare, Unemployment Compensation, and the like. John Boehner, Paul Ryan, Tom Coburn, Rick Perry, and Mitt Romney have all signed on. So has Governor Mitch Daniels, alas. Only Newt Gingrich seems to be opposed. At least on the right, means-testing would appear to be yet another terrible idea whose time has arrived.
I am no friend to any of the entitlement programs. All of them involve a stealthy transfer of wealth. All of them discourage diligence and industry. All of them reward sloth and punish success – and it seems to me that means-testing those not yet means-tested would serve only to take bad policy and make it worse, for it would transform what presents itself as a species of social insurance (and to some degree really serves as such) into an out-and-out welfare program.
In effect, as Paul Krugman on the left and Tyler Cowen on the right have noted, the proposals entertained by the gentlemen mentioned above are marginal tax increases – the very thing that these same gentlemen are inclined to decry (with the notable exception of Mitt Romney, who, like Obama, openly espouses increasing the taxes of high earners and successful investors). In my judgment, the last thing we should do is to raise taxes on the investing class, and we do not need to shore up these programs. We need gradually to whittle them down – and to do so without ours becoming a regime of broken promises that denies benefits to those who have paid in for years.
As things stand, we live in a world in which something close to half of Americans pay no income tax at all. The top ten percent of earners bear the bulk of the burden. Means-testing – which already exists for Food Stamps, Medicaid, and the like – would serve only to reinforce a set of arrangements that is not only an outrage but counter-productive to boot.
Why should anyone in today’s America work really hard, scrimp, and save?
After all, in the end, you will only be punished for your efforts. You will pay punitive taxes at the federal level and in many states. When your children apply for college, you will have to pay tuition at a radically inflated rate. The great majority of the applicants will be offered what are called “scholarships.” But these are rarely what they seem. What the majority of students are offered is, in fact, discounted tuition. The only people who actually pay full freight are those foolish enough to have played by the rules and to have made a real go of it. The tuition listed on the school’s website is a nominal rate artificially inflated so that high-earners can be forced to pay for the education of other people’s children. It is as if you went to a restaurant and there was one set of prices for the well-to-do and another for everyone else.
If the Republicans win and win big in 2012, they are likely to take the same malicious principle and extend it to Social Security and Medicare. They ought to know better. But even the best of them – and I say this about men whom I admire – do not. Someone should pull John Boehner, Paul Ryan, Tom Coburn, Rick Perry, Mitt Romney, and the Governor of Indiana aside and whisper in their ears, “When the Tea-Party sprang up in 2009, its initial adherents carried signs reading, ‘Honk if you are paying someone else’s mortgage?’ You would do well to take notice!”
There is anger out there, justified anger, but the policy wonks and would-be social engineers in the conservative camp blindly soldier on. The clever folks at the Heritage Foundation are up to their old tricks, and the Republican notables are falling in line, just as they did when the individual mandate was first proposed.
I would like to hope that this blogpost might serve as a wake-up call. Otherwise, I fear that the Republican Party will once again march over a cliff.
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Comments:
May '10
Re: Is Means-Testing Just?
Paul A. Rahe
Scott Reusser
True, which is why Ryan and others have vowed to honor those promises to those in and near retirement. As someone forced to deal with real numbers, Ryan understands that this is the best we can do.
Also true. Nonetheless, it's our burden as the party of the adults. · Dec 13 at 8:13am
Adults act prudently. They do not commit suicide. · Dec 13 at 8:41am
So why do you support Ryan again?
Aug '10
Re: Is Means-Testing Just?
Guruforhire: So what is the value of this accounting gimmick outside of it legitimizes previous accounting gimmicks? · Dec 13 at 7:37am
Edited on Dec 13 at 07:38 am
They weren't 'gimmicks.' They were transfers from one account into another via the exchange of an 'asset'. The 'asset' is a 'promise to pay' or, in other words, a 'bond'.
But never was the 'fund' supposed to reimburse itself. Those reimbursements come from the general revenue as trustees 'cash' in the 'bond'.
The "Forgotten Man" in this conversation is the man who will continue to be compelled to pay more than 11% of his income for a 'benefit' that he is not entitled to. Those people deserve to use that money to fund their own retirement - not perpetuate a scheme resulting in largess to current retirees.
Why are those near retirement spared the pain involved in solving the problem - they are just as culpable as the rest of us.
Re: Is Means-Testing Just?
Genferei,when a commitment is made publicly and politically by the representatives of the people -- and when that commitment is reasserted again and again decade after decade for nearly eighty years -- the public is entitled to treat it as an obligation, and they will do so. As for the con, yes, it did involve a promise -- most cons do. You may want to say that those who get conned deserve their misfortune, and you would no doubt be partially right in saying so. But can you legitimately blame the American people for putting their trust in their representatives? And, more to the point, whom do you think that they will blame? Themselves? Or those who were seen to have broken the solemn pledge?
Oct '10
Re: Is Means-Testing Just?
Which sounds like channeling Mike Murphy. Which is fine, if the idea is to elect folks with an R after their name.
You "pay in" to Social Security in the same sense that the government "invests" stimulus money. That is, not at all.
Dec '11
Re: Is Means-Testing Just?
Mr. Reusser, I would like to dispute this but only in degree and not in kind. We did properly fund it. The major failing isnt funding it's that we have been generous by negligence by not making sure that things like retirement age increases with life expectancy. No system designed to support a population for x number of years will survive when it is forced to support a population for x+y number of years, y being the delta between assumptions and outcomes on life expectancy.
Re: Is Means-Testing Just?
Scott Reusser
Paul A. Rahe
Scott Reusser
True, which is why Ryan and others have vowed to honor those promises to those in and near retirement. As someone forced to deal with real numbers, Ryan understands that this is the best we can do.
Also true. Nonetheless, it's our burden as the party of the adults. · Dec 13 at 8:13am
Adults act prudently. They do not commit suicide. · Dec 13 at 8:41am
So why do you support Ryan again? · Dec 13 at 8:49am
In the world of the blind the one-eyed man is king. I never ascribed infallibility to Ryan. His pre-eminence is, in part, a function of the incapacity of nearly all of the alternatives.
Re: Is Means-Testing Just?
Amen. Add to that a dramatic decline in the rate of birth (caused in part by social insurance).
Edited on December 13, 2011 at 6:55pmDec '11
Re: Is Means-Testing Just?
Instugator
Guruforhire: So what is the value of this accounting gimmick outside of it legitimizes previous accounting gimmicks? · Dec 13 at 7:37am
Edited on Dec 13 at 07:38 am
They weren't 'gimmicks.' They were transfers from one account into another via the exchange of an 'asset'. The 'asset' is a 'promise to pay' or, in other words, a 'bond'.
But never was the 'fund' supposed to reimburse itself. Those reimbursements come from the general revenue as trustees 'cash' in the 'bond'.
The "Forgotten Man" in this conversation is the man who will continue to be compelled to pay more than 11% of his income for a 'benefit' that he is not entitled to. Those people deserve to use that money to fund their own retirement - not perpetuate a scheme resulting in largess to current retirees.
Why are those near retirement spared the pain involved in solving the problem - they are just as culpable as the rest of us. · Dec 13 at 8:53am
What you describe is a gimmick.
Aug '10
Re: Is Means-Testing Just?
The issue isn't about blame, it is about justice. Yes, we were lied to.
But it is the height of injustice to compel victims to continue to contribute to a ponzi scheme.
Madoff's victims aren't required to continue paying so that those who happen to be more elderly can continue their lifestyle - the scheme was stopped and remaining investments are being returned.
Re: Is Means-Testing Just?
genferei
You "pay in" to Social Security in the same sense that the government "invests" stimulus money. That is, not at all. · Dec 13 at 8:53am
Nonsense, one pays into Social Security the way one pays into a bank account. There is a trust fund; it holds Treasury bonds.
You will reply that these bonds are promissory notes. What, you will ask, are they worth? But, I will respond, the money that you have in the bank is also a promissory note. Heck, the bills in your wallet are the same.
The bank has a legal obligation, you will respond. And in a sense the government is legally bound to honor dollar bills.
True, say I -- and the government can, without breaching the law, print money in such a manner that those dollar bills and the money in your bank account becomes worthless.
But that would be unjust, you would perhaps respond. Indeed, say I. Indeed -- and it will be seen as such whether it debases the currency or means-tests Social Security.
Dec '11
Re: Is Means-Testing Just?
Mr. Rahe, I believe we ought to pass an amendment to first legitimize Social Security as constitutional in fact, but also to clearly circumscribe by implication the extent by which the collective social responsibility may be imposed by violence (law). There are enough technical problems and tortured thinking that cannot bear up to public scrutiny not to resolve them, and make the promise by implication explicit and limited.
Aug '10
Re: Is Means-Testing Just?
Wow, the first time I ever heard of an asset swap (cash for a bond) being called a gimmick.
When I think of an example of a gimmick I think along the lines of, 'pay taxes for 10 years, benefits for 6' and score it as though it were a stable 10 year program (obamacare)
or
Reductions in the future rate of growth is a 'spending cut' as opposed to 'spending for year X is less than spending for year Y - where Y>X' (the method by which any congressman defines a cut)
Edited on December 13, 2011 at 6:15pmDec '11
Re: Is Means-Testing Just?
Instugator: Wow, the first time I ever heard of an asset swap (cash for a bond) being called a gimmick.
When I think of an example of a gimmick I think along the lines of, 'pay taxes for 10 years, benefits for 6' and score it as though it were a stable 10 year program (obamacare)
or
Reductions in the future rate of growth is a 'spending cut' as opposed to 'spending for year X is less than spendig for year Y - where Y>X' (the method by which any congressman defines a cut) · Dec 13 at 9:13am
Lending money to one's self and claiming twice the value plus interest is a gimmick. There is not a seperate entity from which value has transferred for it to transfer back.
Edited on December 13, 2011 at 6:24pmAug '10
Re: Is Means-Testing Just?
Guruforhire
Instugator: Wow, the first time I ever heard of an asset swap (cash for a bond) being called a gimmick.
When I think of an example of a gimmick I think along the lines of, 'pay taxes for 10 years, benefits for 6' and score it as though it were a stable 10 year program (obamacare)
or
Reductions in the future rate of growth is a 'spending cut' as opposed to 'spending for year X is less than spendig for year Y - where Y>X' (the method by which any congressman defines a cut) · Dec 13 at 9:13am
Lending money to one's self and claiming twice the value plus interest is a gimmick. There is not a seperate entity from which value has transferred for it to transfer back. · Dec 13 at 9:17am
Edited on Dec 13 at 09:18 am
The Social Security Trust Fund loaned money to itself? How is that?
Nonetheless you are a scenario 1 guy per the article above.
And your way to make it 'just' is?
Edited on December 13, 2011 at 6:32pmMay '10
Re: Is Means-Testing Just?
Stipulating ad arguendo that the age to collect Social Security benefits must be raised, the unanswered question remains unanswered:
Where are those of us who are not judges, career politicians, tenured faculty, and the like going to work?
The problem with so many conservative "solutions" like "raise the retirement age" "save more" "be more successful" is that the words can be easily, even glibly spoken; but the actions are very difficult to effect. As in "hand me that piano, my unicorn wants to fly."
Without real solutions, not just facile talking points, conservatives are essentially the party of the flying unicorn (which I must admit is more up-to-date than an elephant).
May '10
Re: Is Means-Testing Just?
Paul A. Rahe
In the world of the blind the one-eyed man is king. I never ascribed infallibility to Ryan. His pre-eminence is, in part, a function of the incapacity of nearly all of the alternatives. · Dec 13 at 8:56am
True and well said.
I wonder, though, given your admiration for the man, if you suppose there's any chance that Ryan, in a sit-down in which he presents you with the numbers he's faced with and the political realities as he sees them, could win you over on the necessary evil of means-testing. Any chance at all, do you think?
Personally, I've come to trust his judgment. It's not blind trust, but it's deep nonetheless.
Aug '10
Re: Is Means-Testing Just?
Scott Reusser
Paul A. Rahe
In the world of the blind the one-eyed man is king. I never ascribed infallibility to Ryan. His pre-eminence is, in part, a function of the incapacity of nearly all of the alternatives. · Dec 13 at 8:56am
...I wonder, though, given your admiration for the man, if you suppose there's any chance that Ryan, in a sit-down in which he presents you with the numbers he's faced with and the political realities as he sees them, could win you over on the necessary evil of means-testing. Any chance at all, do you think?
Personally, I've come to trust his judgment. It's not blind trust, but it's deep nonetheless. · Dec 13 at 9:31am
Why are we looking for specific solutions when the problem hasn't been properly defined?
Means testing is one solution maintaining the solvency of the trust fund, but it isn't in danger until the 2040's and even then the choices also include reducing benefits to about 70% of what they are now.
Or is the core problem that people don't save for their retirement years unless compelled?
Oct '10
Re: Is Means-Testing Just?
Again, the second part - the 'pragmatic' part - I can understand
But if I cannot blame the voters in a representative democracy for the actions of their representatives, who can I blame? Don't forget that the "promise" is not redeemed against those representatives, or even those voters, but against the generation as yet unborn (and unable to vote). It all just seems so convenient - "I believed the lies I told myself, so you have to pay".
I'm saying nothing about the immediate electoral calculus of a decision to highlight means testing as an answer to the fiscal problems of Social Security. But if the middle class has become so wedded to the government teat that it genuinely believes it has an inalienable right to steal from their children, surely the lesson is that entitlements are desperately dangerous, so desperate measures may be needed.
Dec '11
Re: Is Means-Testing Just?
Instugator
The Social Security Trust Fund loaned money to itself? How is that?
Nonetheless you are a scenario 1 guy per the article above.
And your way to make it 'just' is? · Dec 13 at 9:29am
Edited on Dec 13 at 09:32 am
No the federal government lent money to itself. The SSA or even the SSA trust fund is NOT a seperate entity.
Edited on December 13, 2011 at 7:00pmRe: Is Means-Testing Just?
Scott Reusser
Paul A. Rahe
In the world of the blind the one-eyed man is king. I never ascribed infallibility to Ryan. His pre-eminence is, in part, a function of the incapacity of nearly all of the alternatives. · Dec 13 at 8:56am
True and well said.
I wonder, though, given your admiration for the man, if you suppose there's any chance that Ryan, in a sit-down in which he presents you with the numbers he's faced with and the political realities as he sees them, could win you over on the necessary evil of means-testing. Any chance at all, do you think?
Personally, I've come to trust his judgment. It's not blind trust, but it's deep nonetheless. · Dec 13 at 9:31am
I wrote a staffer of his to ask that he pass along my post and take note of the comments (especially my own). There is not that much money to be saved by means-testing . . . unless, of course, one excludes the middle class from receiving benefits -- which is politically a non-starter.