How to Eradicate the Welfare State, and How Not to Do It

I’ll begin with how not to do it. One way of not doing it is simply not to do it, which is the left’s way. In fact, the left is always on the lookout for ways to expand the welfare state.

Reform conservatives offer less obvious ways not to do it. And the left loves them for it. Consider, for example, Noah Smith’s list of “People I Admire” and see if you can spot what Smith’s “admirable” persons have in common. Hint: They are either lefties or they do things that lefties like.

What’s James Pethokoukis doing on that list? Pethokoukis is an economist at American Enterprise Institute (AEI), which has been described as right-leaning and conservative. Why, then, does Smith admire Pethokoukis? Because, in Smith’s words, Pethokoukis is a “reform conservative.”

And what is reform conservatism? According to Ross Douthat,

It’s rooted in two major premises, which I would summarize as follows:

1) The core economic challenge facing the American experiment is not income inequality per se, but rather stratification and stagnation — weak mobility from the bottom of the income ladder and wage stagnation for the middle class. These challenges are bound up in a growing social crisis — a retreat from marriage, a weakening of religious and communal ties, a decline in workforce participation — that cannot be solved in Washington D.C. But economic and social policy can make a difference nonetheless, making family life more affordable, upward mobility more likely, and employment easier to find.

2) The existing welfare-state institutions we’ve inherited from the New Deal and the Great Society, however, often make these tasks harder rather than easier: Their exploding costs crowd out every other form of spending, require middle class tax increases and threaten to drag on economic growth; their tangled web of subsidies and credits and tax breaks often benefit the already-affluent and create perverse incentives for the poor, and the distortions created by the way they pay for health care, in particular, contribute mightily to the rising cost of health insurance and thus the stagnation of middle class incomes. So we don’t face a choice between streamlining the welfare state and making it more supportive of work and family; we should be doing both at once.

Proceeding from these premises, the basic “reform conservative” agenda looks something like this:

a. A tax reform that caps deductions and lowers rates, but also reduces the burden on working parents and the lower middle class, whether through an expanded child tax credit or some other means of reducing payroll tax liability. (Other measures that might improve the prospects of low-skilled men, ranging from a larger earned income tax credit to criminal justice reforms that reduce the incarceration rate, should also be part of the conversation.)

b. A repeal or revision of Obamacare that aims to ease us toward a system of near-universal catastrophic health insurance, and includes some kind of flat tax credit or voucher explicitly designed for that purpose.

c. A Medicare reform along the lines of the Wyden-Ryan premium support proposal, and a Social Security reform focused on means testing and extending work lives rather than a renewed push for private accounts.

d. An immigration reform that tilts much more toward Canadian-style recruitment of high-skilled workers, and that doesn’t necessarily seek to accelerate the pace of low-skilled immigration. (Any amnesty should follow the implementation of E-Verify rather than the other way around, guest worker programs should not be expanded, etc.)

e. A “market monetarist” monetary policy as an alternative both to further fiscal stimulus and to the tight money/fiscal austerity combination advanced by many Republicans today.

f. An attack not only on explicit subsidies for powerful incumbents (farm subsidies, etc.), but also other protections and implicit guarantees, in arenas ranging from copyright law to the problem of “Too Big To Fail.” [“What Is Reform Conservatism?,” The New York Times, May 30, 2013]

Such proposals may seem like reasonable compromises with the left’s radical positions. But they are reasonable compromises only if you believe that the left wouldn’t strive vigorously to undo them and continue the nation’s march toward full-blown state socialism. That’s the way leftists work. They take what they’re given and then come back for more, lying and worse all the way. As Saul Alinsky (a source of inspiration for Barack Obama) says in Rules for Radicals:

The third rule of the ethics of means and ends is that in war the end justifies almost any means.

The left is always at war, and will be at war until the United States becomes unrecognizable by a survivor of the 1950s, let alone a Founding Father: a nation whose official policies punish success, subvert civil society, and leave Americans defenseless against domestic and foreign predators.

What this means is that “reforms” like those listed by Douthat can be achieved only by opposing them, not by agreeing to them up front. But that’s not what Pethokoukis proposes. For example, with respect to Social Security, he endorses a proposal by Andrew Biggs that would work like this, according to Pethokoukis:

First, workers would be enrolled automatically in an employer-sponsored retirement account and contribute at least 1.5% of pay, matched dollar for dollar by their employers. Second, Social Security’s government-provided benefits would be transformed into a flat universal benefit mean to improve social-insurance protections for low-income Americans. Biggs: “If you put the two benefits together, this poverty-level benefit, plus the individual accounts, the result is near what Social Security promised to pay, but can’t afford. It’s a more reliable system for low-income folks and it’s more affordable on the tax end.” [“Joni Ernst, the Tea Party, and Conservative Reform,” AEI.org, February 10, 2014[

Why throw in the towel now? Because, according to Biggs,

President Bush’s 2001 Commission to Strengthen Social Security (on which I was a staffer) wrote that once the program began to run payroll-tax deficits — something that happened this year — policymakers would face difficult choices to raise taxes, cut benefits, reduce other programs, or increase the budget deficit. … With personal accounts, we face the same choices, only sooner. If workers invest part of their Social Security taxes in personal accounts, they could indeed earn higher returns and generate higher benefits without taking more risk. But diverting taxes to accounts leaves the program short of what is needed to pay benefits to today’s retirees. To cover these “transition costs,” we would need to generate new revenues for the program, either by raising taxes, cutting other programs, or borrowing. [“Personal Accounts Are No Cure-All,” National Review Online, August 30, 2010]

The real problem, as Biggs sees it, isn’t that shifting to personal accounts (for younger workers) would lead to transition costs, but that those costs would come sooner. So what? The end of Social Security revenue surpluses doesn’t alter the fact that non-retirees will have to pay higher taxes to avert a reduction of retirees’ benefits, it just makes the fact more apparent.

In other words, the likes of Biggs and Pethokoukis are willing to sacrifice privatization on the altar of public relations. The dog that doesn’t bark in their proposals is real reform of Social Security. Privatization isn’t real reform because it accepts a basic premise of Social Security: Americans must and should be forced to save for retirement. The joke is that Social Security doesn’t foster saving; it’s a transfer-payment Ponzi scheme.

Real reform means eradication, albeit gradual eradication, like this:

1. Repeal and replace Social Security as of a date certain. Call it Abolition Day (AD), which would occur 12 months from the day on which reform legislation is enacted.

2. After AD, the federal government would continue to pay benefits to persons who are then collecting Social Security. The federal government would also pay benefits to persons who turn 55 before AD but who haven’t yet begun to collect benefits. Persons who are 45 to 54 years old on AD would receive benefits that are pro-rated according to the Social Security taxes that they and their employers had paid as of AD. Cost-of-living increases for benefits paid after AD would be tied to chained CPI. (This is a better measure of inflation, and it doesn’t rise as fast as CPI-W, the price index now used to compute cost-of-living increases.)

3. Persons who are younger than 45 on AD would receive a lump-sum repayment of Social Security taxes paid by them and their employers, plus interest at, say, the rate on 10-year Treasury notes. The repayment would be made when a person turns 70. It would automatically go to a surviving spouse or next-of-kin if the recipient dies intestate. Otherwise, the recipient could bequeath, transfer, or sell his interest in the payment at any time before it comes due.

4. For persons who are 45 to 54 years old on AD, the retirement age for full benefits would be raised to 70, and the minimum age for partial benefits would be raised to 65. (Full retirement age is now scheduled to rise to 67 in 2027; the minimum age for partial benefits is currently set at 62.)

5. The residual obligations outlined above would be funded by a special payroll tax, which would diminish as obligations are liquidated, then vanish.

But what about retirees (and their households) whose incomes are below the poverty line? It might be necessary to provide for them, to ensure the passage of reform legislation. But it would be self-defeating to offer a program for the indigent. An important goal of Social Security reform is to encourage work and saving — not to preemptively discourage work and saving by rewarding indolence.

A deal for the passage of reform might include separate legislation that provides for stringently means-tested income support. The amount of support would be aimed at boosting the total income of a retiree (or his household) to the poverty line. Examiners would take into account an applicant’s income (including income in kind) from all sources, and an applicant’s assets (with a look-back period of several years and criminal penalties for hiding assets). For an applicant who is married or a member of a household, the income and assets of a spouse and/or other members of the household would be taken into account. Benefits wouldn’t be paid to able-bodied and able-minded persons who are unemployed and below retirement age.  (No handouts to slackers who still live at home.)

How might such a “radical” plan be enacted?

Proponents of reform — Republicans, presumably — must launch a vigorous, pro-reform campaign the minute that they gain control of both Houses of Congress and the White House. They must sustain the campaign for several months before Congress sends a bill to the president, to ensure broad support for the enactment of reform. And to prevent their efforts from being stymied by Democrats, they must change the rules of the Senate to eliminate the filibuster and other obstructive tactics.

Here are the key elements of the campaign:

  • Document, publicize, and ceaselessly emphasize the the size of the tax increases that will result if Social Security benefits aren’t reduced to match projected revenues.
  • Point out, relentlessly, that a large fraction of Americans (cite number) who “contribute” to Social Security will earn worse “returns” that they would by putting their money into safe, interest-bearing investments (e.g., investment-grade corporate bonds).
  • Emphasize the true, original purpose of Social Security: keep the poorest of the elderly out of poverty.
  • Show how much less costly it would be if Social Security were restored to its original purpose.
  • Explain that their program (a) achieves the original purpose of Social Security, (b) enables the non-poor to do better for themselves than they would with Social Security, and (c) fosters economic growth that reduces dependence on Social Security:

Enough of Social Security. What about Douthat’s other “reforms”?

Tax reform that caps deductions and lowers rates, but also reduces the burden on working parents and the lower middle class, whether through an expanded child tax credit or some other means of reducing payroll tax liability.

This is too complex and easily manipulated. What’s needed is a true flat tax.

Repeal or revision of Obamacare that aims to ease us toward a system of near-universal catastrophic health insurance, and includes some kind of flat tax credit or voucher explicitly designed for that purpose.

Just repeal Obamacare and its partners-in-crime — Medicare and Medicaid — and phase them out gracefully (along the lines of my proposal for Social Security). Eliminate regulations that hinder interstate competition. Provide for the indigent — and only the indigent — through means-tested vouchers (along the lines of my proposal for Social Security).

Medicare reform along the lines of the Wyden-Ryan premium support proposal.

See above.

Immigration reform that tilts much more toward Canadian-style recruitment of high-skilled workers, and that doesn’t necessarily seek to accelerate the pace of low-skilled immigration. (Any amnesty should follow the implementation of E-Verify rather than the other way around, guest worker programs should not be expanded, etc.)

Immigration reform should discourage low-skilled immigration, as opposed to Obama’s policy of encouraging it. Discouraging it requires stronger security at the borders, a vigorous and well-publicized deportation effort, and the end of subsidies (no free health care, no free schooling, no eligibility for income or housing subsidies, no drivers’ licenses, etc.).

A “market monetarist” monetary policy as an alternative both to further fiscal stimulus and to the tight money/fiscal austerity combination advanced by many Republicans today.

Eliminate the Federal Reserve, a leading cause of the Great Depression and Great Recession. Allow free banking. Fiscal and monetary policy should be “none,” as in the case of the Depression of 1920-21, the depression that cured itself. (NB: The Fed caused that one, too.)

An attack not only on explicit subsidies for powerful incumbents (farm subsidies, etc.), but also other protections and implicit guarantees, in arenas ranging from copyright law to the problem of “Too Big To Fail.”

Douthat gets this one right. But one out of seven is a batting average of 0.143 — abject failure in any league.

“Attack” is the key word in Douthat’s unusual stroke of boldness. Liberty is born of attack, not compromise.

Signature