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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.

mitt_romney.jpgAlong 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.

Paul-Ryan.jpgI 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.

JohnBoehner.jpgIn 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?

RickPerry3.jpgAfter 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.

TomCoburn.jpgIf 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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