Let's end welfare as the rich know it - Part 2

Ryan Streeter

Yesterday I suggested that the GOP should be as serious about ending welfare for affluent Americans as they are reforming welfare for low-income people. This is a live issue right now, as changing how the federal government regards wealthier Americans is at the heart of the entitlement and tax reform debates, which in turn are at the heart of our long-term spending and deficit debates.

The three types of government benefits for the affluent that I have in mind are:

• Entitlement benefits (Social Security, Medicare) that wealthier people don’t need.
• The largely regressive bunch of deductions and exemptions in the tax code.
• Propping up sectors of the economy or specific industries with subsidies and guarantees.

Today, let’s look at the first one. It’s time to ask the question whether it’s time to move from the social welfare model of a universal benefit – an entitlement – to a safety-net-only approach to the welfare state. A simpler way of asking the question: why should Bill Gates get a Social Security check, or Donald Trump have a knee replacement paid by Medicare (hypothetically only; I have no knowledge about the condition of Trump’s knees)?

Getting the federal government out of the business of subsidizing the wealthy isn’t a cure-all to our spending problems - though it will help bring down costs. Rather, it’s a question of social justice, equity, and what government is for in the first place.

Paul Ryan’s budget is more than a budget - it is an early attempt to rework the purpose of government along these lines. It doesn’t take us all the way there, but it gets us moving that way.

In fact the budget says the following on page 50:

This budget starts, not by asking what is the “right mix” of tax increases and spending cuts to balance the budget, but by asking what is the purpose of government, and then raising only as much revenue as the federal government needs to efficiently fund those missions that rightly belong in its domain, while maximizing economic growth and job creation (emphasis added).

Scaling back the way in which the government provides support for the affluent is an important part of reaching this objective. Here are the three main ideas already in circulation regarding entitlements, about which every GOP 2012 White House hopeful should be not only conversant, but noisy.

• Means-test Medicare. Ryan’s budget proposes this. The savings wouldn’t be earth-shattering, but they’re the right thing to do (the real savings come from moving to a defined contribution, the next bullet). One could argue that the budget could go farther in this regard.

• Move to defined contributions. Ryan’s budget proposes this. The main debate about this issue centers on whether it will adequate to slow health care costs. But defined contributions do something else important: they limit the amount the federal government transfers from younger, poorer workers to older, more affluent retirees. The current pay-as-we-go system allows older retirees to overconsume health care in a way that shifts the fiscal burden to younger workers. A defined contribution approach effectively shifts a significant portion of the cost-burden back on seniors who will have to choose care, be more selective, and ultimately pay more out of their own pockets for additional treatment. This, ultimately, is the direction that Social Security should move, though this wasn't touched in Ryan's budget.

• Means-test Social Security. As others have pointed out, reducing Social Security benefits for the wealthy isn’t a cure-all since most of the checks go to people with little other income. Still, it would decrease spending in the program by 6% over time. Together with a raised retirement age, it would help reduce spending on Social Security by $200 billion in 2040.

There are solid fiscal reasons to change entitlements so that the upper middle class and affluent receive fewer benefits (or even none) compared to today. But the main reason is moral. Given our need for fiscal restraint, it’s simply unjust to make the government leaner all around without making a first priority out of reforms that deprive the wealthy of benefits they are unlikely to miss all that much.