Wednesday Links
- Senate Judiciary Committee abandons hope of bringing any real change to the Patriot Act. Julian Sanchez in The Nation: “The Obama administration makes vague, reassuring noises about constraining executive power and protecting civil liberties, but then merrily adopts whatever appalling policy George W. Bush put in place.”
- Cognitive Dissonance: New poll shows rising support for a so-called public option in health care, even as the public continues to oppose greater government control over the health care system.
- It has been tried before: Why increasing the size of government won’t work.
- Podcast: The real problem with American health care: You are not the customer. More here.
Emergency Aid to Seniors? No Way
Social Security benefits are indexed for inflation, but because inflation has been roughly zero for the past year, the adjustment formula implies no increase in benefits this year. Nevertheless,
President Obama on Wednesday attempted to preempt the announcement that Social Security recipients will not get an increase in their benefit checks for the first time in three decades, encouraging Congress to provide a one-time payment of $250 to help seniors and disabled Americans weather the recession.
Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act.
This is outrageous on four levels:
1. If the president thinks the economy needs more stimulus, he should say that explicitly and have an honest debate.
2. This is the wrong kind of stimulus. Any further stimulus should consist of reductions in marginal tax rates, such as a cut in the corporate income tax (or better yet, repeal).
3. All Social Security recipients already have a moderate guaranteed income, and many have significant income beyond their Social Security benefits. This kind of transfer has no plausible justification as redistribution for the needy.
4. Sending checks to seniors is a blatant attempt to buy their support for Obamacare, which promises to cut Medicare spending substantially.
C/P Libertarianism, from A to Z
The President’s Health Care Tax
As Michael Cannon discussed in an earlier post, the White House is trying to claim that health care “reform” does not mean higher taxes. This is a two-pronged issue. First, there is a mandate to purchase health insurance. Second, there is a tax (the White House calls it a fee) on people who fail to purchase a policy.
The White House claims this mandate is akin to state-level requirements for the purchase of health insurance, and that the newly-insured people will be getting some value (a health insurance policy) in exchange for their money. These assertions are defensible, but that does not change the fact that a tax is being imposed.
It might be plausible to argue that the mandate is not a tax if the value of the insurance policy to the individual was equal to the cost. But since these are people who are not buying policies, their behavior reveals that this obviously cannot be true. So this means that they will be worse off under Obama’s plan and that at least some of the cost should be considered a tax.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
20-somethings Will Pay for Big Government
A front-page Washington Post story today notes that the cost of Obama-style health care reform will fall disproportionately on young adults.
Younger workers are typically more healthy than the population at large, and a significant share of them quite rationally choose not to buy health insurance, as my colleague Mike Tanner explains in a recent op-ed. The major health care plans on the table in Washington would force them to buy coverage. As the Post story explains:
Drafting young adults into any health-care reform package is crucial to paying for it. As low-cost additions to insurance pools, young adults would help dilute the expense of covering older, sicker people. Depending on how Congress requires insurers to price their policies, this group could even wind up paying disproportionately hefty premiums—effectively subsidizing coverage for their parents.
I’m beginning to see a pattern. Those same young workers will be forced to pay the bills for soaring Social Security and Medicare expenditures when the Baby Boomers begin retiring en masse a decade from now. And of course, they will be the ones paying off the $9 trillion in additional federal debt expected to be wracked up from the current explosion in federal spending.
I always thought parents were supposed to support their kids, not saddle them with bigger bills and huge debts.
Filed under: General; Health, Welfare & Entitlements
Don’t Leave Room for Desert
Duncan “Atrios” Black sums up and amplifies on a much longer post by Salon’s Glenn Greenwald as follows:
Just adding on to Glenn’s post, much opposition to the government actually doing anything decent for people comes from the idea that the government is going to take my tax money and give it to people who don’t deserve it. The problem is that for decades the Dems have tried to get around this by making sure policies and programs were relatively small and incremental, everything targeted and means tested. But doing that effectively confirmed the critics’ point. The big (giant) government programs which are most popular are the ones which are universal – Social Security and Medicare – and other less controversial government programs, like highway spending, are also perceived to benefit people across the board.
There’s a couple of interesting things going on here that seem worth unpacking. The first is actually a legitimate point about how valid arguments against various kinds of redistribution tend, with unsettling ease, to shade into unsavory demonization of the folks on the receiving end of the transfer. Suppose someone suggests that the government should, either by regulation or direct subsidy, ensure that the indigent are provided with health care or that insolvent homeowners are protected from foreclosure. Now, there are a few types of objections people might raise. There’s an argument from efficiency and incentives: To the extent that the risks associated with individual financial or lifestyle choices are borne by the public, there’s a familiar problem of “moral hazard” reducing incentives for prudence. And there’s an argument from property and autonomy, to the effect that even if people ought to help others in need, each person is entitled to decide whether and how to do so without compulsion. Neither of these implies any blanket judgment about the folks who find themselves in need of aid. The first argument does suggest that redistributive policy will make it rational for people to take more risks at the margin, but it does not follow from either that people who are having trouble meeting their mortgage payments, or people who get sick and cannot afford care, are bad or foolish or irresponsible or otherwise deserving of their fate. And it is a good thing for these arguments that no such conclusion follows, because it’s clearly not true.
Filed under: Government and Politics; Health, Welfare & Entitlements; Political Philosophy
Assessing the Claim that CDT Opposes a National ID
It was good of Ari Schwartz to respond last week to my recent post querying whether the Center for Democracy and Technology outright opposes a national ID or simply “does not support” one.
Ari says CDT does oppose a national ID, and I believe that he honestly believes that. But it’s worth taking a look at whether the group’s actions are consistent with opposition to a national ID. I believe CDT’s actions — most recently its support of the PASS ID Act — support the creation of a national ID.
(The title of his post and some of his commentary suggest I have engaged in rhetorical excess and mischaracterized his views. Please do judge for yourself whether I’m being shrill or unfair, which is not my intention.)
First I want to address an unusual claim of Ari’s — that we already have a national ID system. If that is true, his support for PASS ID is more sensible because it is an opportunity to inject federal privacy protections into the existing system (putting aside whether it is a federal responsibility to manage a state system or systems).
Filed under: Law and Civil Liberties; Telecom, Internet & Information Policy
Taxpayer-Funded Lobbying
There’s lots of outrage in the blogosphere over revelations that some of the biggest recipients of the federal government’s $700 billion TARP bailout have been spending money on lobbyists. Good point. It’s bad enough to have our tax money taken and given to banks whose mistakes should have caused them to fail. It’s adding insult to injury when they use our money — or some “other” money; money is fungible — to lobby our representatives in Congress, perhaps for even more money.
Get taxpayers’ money, hire lobbyists, get more taxpayers’ money. Nice work if you can get it.
But the outrage about the banks’ lobbying is a bit late. As far back as 1985, Cato published a book, Destroying Democracy: How Government Funds Partisan Politics, that exposed how billions of taxpayers’ dollars were used to subsidize organizations with a political agenda, mostly groups that lobbied and organized for bigger government and more spending. The book led off with this quotation from Thomas Jefferson’s Virginia Statute of Religious Liberty: “To compel a man to furnish contributions of money for the propagation of opinions which he disbelieves is sinful and tyrannical.”
The book noted that the National Council of Senior Citizens had received more than $150 million in taxpayers’ money in four years. A more recent report estimated that AARP had received over a billion dollars in taxpayer funding. Both groups, of course, lobby incessantly for more spending on Social Security and Medicare. The Heritage Foundation reported in 1995, “Each year, the American taxpayers provide more than $39 billion in grants to organizations which may use the money to advance their political agendas.”
In 1999 Peter Samuel and Randal O’Toole found that EPA was a major funder of groups lobbying for “smart growth.” So these groups were pushing a policy agenda on the federal government, but the government itself was paying the groups to lobby it.
Taxpayers shouldn’t be forced to pay for the very lobbying that seeks to suck more dollars out of the taxpayers. But then, taxpayers shouldn’t be forced to subsidize banks, car companies, senior citizen groups, environmentalist lobbies, labor unions, or other private organizations in the first place.
Bernie Madoff and Government Fraud
In an op-ed Chris Edwards and I wrote for National Review Online yesterday, we shed light on the $100 billion or more in government subsidies pilfered by recipients through fraud and abuse:
Every year, criminals and cheats pilfer over $100 billion — that’s $40 billion more than Bernie Madoff scammed off his investors — in federal benefits to which they are not legally entitled. Medicare, Medicaid, food stamps, refundable tax credits, and many other programs are targets for looting.
Chris and I focused on fraud and abuse perpetrated by the recipients of taxpayer largesse, and Bernie Madoff made for a good comparison. But as the great economist and Cato adjunct scholar Robert Higgs also pointed out yesterday, “Bernie Madoff Was Only a Petty Crook Compared with Uncle Sam.” Typically, Higgs doesn’t mince words when it comes to comparisons between private and public Ponzi schemes:
Madoff, in contrast to the government, carried out his fraud in a civilized way: he merely misrepresented what he was doing, purporting to invest his clients’ money and to obtain a high rate of return on these investments. People dealt with him voluntarily. Those who suspected something was fishy did not do business with him, and some people went so far as to give substantial information to the SEC to show that Madoff’s business had to be fraudulent (which information the SEC ignored for years on end, of course).
The leaders of the U.S. government have carried out their Social Security fraud—essentially a Ponzi scheme, in substance exactly the same as Madoff’s scheme—since 1935. . . . The U.S. government, however, does not bother to claim any prowess in investing the money it forces people to surrender to its scheme. It admits that the ‘client’s’ return is now close to zero (varying a bit according to the client’s age and other factors). Nor does it carry out its admitted Ponzi scheme in a civilized way. Not only is participation in the scheme involuntary, but the government threatens violence against anyone who fails to participate as it commands him. Thus, the government operates its Ponzi scheme in a markedly more thuggish manner than Bernie would ever have dreamed of. He might have been a crook, but he was not a thug.
My $1 Trillion vs. Your $1 Trillion
Do you remember how, during the debate over proposals to create personal accounts for Social Security, opponents called the $1 trillion transition cost intolerable? Now, a $1 trillion floor for health care reform is seen as a sign of success. Says something about priorities, doesn’t it?
What’s a Trillion Dollars Among Friends?
If you’re Barack Obama, money is no object. The national debt exceeds $11 trillion. We’ve had about $13 trillion worth of bail-outs over the last year. The deficit this year will run nearly $2 trillion. The Congressional Budget Office warns of a cumulative deficit of some $10 trillion over the next decade.
Now Obama-style health care “reform” will add another $1 trillion in increased spending over the same period. And the ultimate cost likely would be higher, perhaps much higher. Reports the Congressional Budget Office:
According to our preliminary assessment, enacting the proposal would result in a net increase in federal budget deficits of about $1.0 trillion over the 2010-2019 period. When fully implemented, about 39 million individuals would obtain coverage through the new insurance exchanges. At the same time, the number of people who had coverage through an employer would decline by about 15 million (or roughly 10 percent), and coverage from other sources would fall by about 8 million, so the net decrease in the number of people uninsured would be about 16 million or 17 million.
These new figures do not represent a formal or complete cost estimate for the draft legislation, for several reasons. The estimates provided do not address the entire bill—only the major provisions related to health insurance coverage. Some details have not been estimated yet, and the draft legislation has not been fully reviewed. Also, because expanded eligibility for the Medicaid program may be added at a later date, those figures are not likely to represent the impact that more comprehensive proposals—which might include a significant expansion of Medicaid or other options for subsidizing coverage for those with income below 150 percent of the federal poverty level—would have both on the federal budget and on the extent of insurance coverage.
Then there is the more than $100 trillion in unfunded Medicare and Social Security benefits.
Just who is going to pay all these bills?
Don’t worry, be happy.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
E-Verify: The Surveillance Solution
The federal government will keep data about every person submitted to the “E-Verify” background check system for 10 years.
At least that’s my read of the slightly unclear notice describing the “United States Citizenship Immigration Services 009 Compliance Tracking and Monitoring System” in today’s Federal Register. (A second notice exempts this data from many protections of the Privacy Act.)
To make sure that people aren’t abusing E-Verify, the United States Citizenship and Immigration Services Verification Division, Monitoring and Compliance Branch will watch how the system is used. It will look for misuse, such as when a single Social Security Number is submitted to the system many times, which suggests that it is being used fraudulently.
How do you look for this kind of misuse (and others, more clever)? You collect all the data that goes into the system and mine it for patterns consistent with misuse.
The notice purports to limit the range of people whose data will be held in the system, listing “Individuals who are the subject of E-Verify or SAVE verifications and whose employer is subject to compliance activities.” But if the Monitoring Compliance Branch is going to find what it’s looking for, it’s going to look at data about all individuals submitted to E-Verify. “Employer subject to compliance activities” is not a limitation because all employers will be subject to “compliance activities” simply for using the system.
In my paper on electronic employment eligibility verification systems like E-Verify, I wrote how such systems “would add to the data stores throughout the federal government that continually amass information about the lives, livelihoods, activities, and interests of everyone—especially law-abiding citizens.”
It’s in the DNA of E-Verify to facilitate surveillance of every American worker. Today’s Federal Register notice is confirmation of that.
Filed under: Cato Publications; Telecom, Internet & Information Policy; Trade and Immigration
Social Security: Debating the Ostriches
Over at Salon, Michael Lind takes me to task for raising the alarm about the latest Social Security Trustees report showing that a) Social Security’s insolvency date is growing closer, and b) the system’s unfunded liabilities have increased dramatically since last year’s report.
Like most of those who resist having an honest debate about Social security’s finances, Lind relies on a combination of economic flim-flam and political sophistry to obscure the true problem. For example, Lind points out that when I quote the Trustee’s assertion that the system’s unfunded liabilities currently top $17.5 trillion, that “assumes there are no changes made between now and eternity.” Well, duh! All estimates of US budget deficits assume that spending won’t be cut or taxes raised enough to eliminate the deficit. In fact, when I get my Visa bill and it shows how much I owe, it doesn’t tell me anything about whether I will or can pay that bill in the future. Obviously, if we raise Social Security taxes, cut Social Security benefits (or create personal accounts), we can reduce or even eliminate the program’s unfunded liabilities.
Lind then returns to the hoary idea of the Trust Fund. He objects to my characterization of the Trust fund “contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much the government owes the system.” This, he says, is the same as saying “government bonds backed by the full faith and credit of the U.S. government, a government that has never defaulted on its obligations in its entire existence since 1776, are not actual assets?” He points out that millions of Americans invest in government bonds through their retirement programs and consider them assets. “Are U.S. government bonds “actual assets” when they are part of IRAs but not “actual assets” when they are owed to the Social Security system?” he asks.
That’s right. If I write you an IOU, you have an asset and I have a debt. If I write an IOU to myself, the asset and debt cancel each other out. I haven’t gained anything, else it would be a whole lot easier to pay my bills. When Lind invests in a government bond, he has an asset and the government has a liability. But when the government issues a bond to itself (ie. Social Security), the asset and liability cancel each other out. There’s no net increase in assets.
But don’t take my word for it. This is what Bill Clinton’s budget had to say about the Trust Fund in FY2000:
These Trust Fund balances are available to finance future benefit payments…but only in a bookkeeping sense….They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of Trust Fund balances, therefore, does not by itself have any impact on the government’s ability to pay benefits.
Lind then switches course and says, ok, forget about the Trust Fund. Think about Social Security like we do about defense spending. “Why do we never hear of the “unfunded liabilities” of Pentagon spending — the third of the big three spending programs (Social Security, Medicare, defense) that take up most of the federal budget? Defense spending comes out of general revenues, not a dedicated tax.”
Actually, that is a valid comparison. Both defense and Social Security spending for any given year are ultimately paid for out of that year’s tax revenue. The composition of the tax revenue is largely irrelevant. And, when taxes don’t equal expenditures, we get budget deficits. Those deficits will eventually have to be paid for by raising taxes or cutting spending.
Current projections by the Congressional Budget Office suggest that unless we reform entitlements programs, government spending will reach 40 percent of GDP by mid-century. Paying for all that government will be a crushing burden of debt and taxes for our children and grandchildren.
No amount of obfuscation by defenders of the status quo can obscure that fact.
Canada and Jefferson’s Natural Progress
Thomas Jefferson famously opined that “the natural progress of things is for liberty to yield and government to gain ground,” but Canada has bucked that gloomy forecast in recent years. As my co-authored op-ed in the Washington Post yesterday showed, Canada has:
- Cut government spending
- Cut government debt
- Balanced its budget consistently
- Pre-funded its version of Social Security to make it solvent
- Decentralized power within its federation of provinces
- Cut taxes, particularly corporate taxes
Meanwhile, the United States has headed in the opposite direction in each of these policy areas. Consider further that Canada has other economic policy advantages over the increasingly uncompetitive welfare state to its south:
- Canada has more liberal immigration policies for highly skilled workers than does the United States, which has added greatly to the entrepreneurial vibrancy of Canada’s economy.
- Canada has long had a stable, efficient, and competitive financial sector, which avoided the government-assisted meltdown that occurred in the United States.
- Canada has a home ownership rate as high as the United States, yet it does not have a distortionary mortgage interest tax deduction.
- Canada recently implemented large Roth IRA style savings accounts, which are much more flexible than the U.S. version.
- The Canadian federal capital gains tax rate is 14.5 percent, which compares to the current 15 percent in the United States and 20 percent under Obama’s tax plan.
- Canada has no federal ministry or department of education. The K-12 schools are the sole responsibility of the provinces, yet Canadian kids generally do better than American kids on international tests.
- In recent years, Canada has probably been more supportive of NAFTA, and free trade in general, than its main trading partner, the United States.
Major pro-market reforms are possible in advanced welfare states — Jefferson can be proven wrong, as Canada illustrates. U.S policymakers can prove Jefferson wrong as well. They can start by cutting spending, decentralizing power out of Washington, and making pro-growth tax reforms in response to globalization, as Canada has, rather than imposing self-defeating “Buy America” provisions and making childish rants about “corporations moving jobs offshore.”
Filed under: International Economics and Development; Tax and Budget Policy
The Social Security Trustees Report
Editors’ Note: The post below is an expanded version of Tanner’s initial post at this URL.
The Social Security system’s trustees have released their annual report on the system’s finances and announced that — surprise — the program’s looming financial crisis hasn’t gone away.
Social Security will begin running a deficit by 2016, meaning that just seven years from now the program will begin spending more money on benefits than it takes in through taxes. That’s a year sooner than last year’s report.
Of course, in theory, the Social Security Trust Fund will pay benefits until 2037. But even that figure is misleading, because the Trust Fund contains no actual assets. Instead, it contains government bonds that are simply IOUs, a measure of how much money the government owes the system.
Even if Congress can find a way to redeem the bonds, the Trust Fund surplus will be completely exhausted by 2037. At that point, Social Security will have to rely solely on revenue from the payroll tax — and that revenue will not be sufficient to pay all promised benefits. Overall, the system’s unfunded liabilities — the amount it has promised beyond what it can actually pay — now total $17.5 trillion. Yes, that’s trillion with a ‘T.’ That’s $1.7 trillion worse than last year.
Critics of personal accounts for Social Security have pointed to the decline in the stock market over the last few years as an argument against allowing younger workers to privately invest a portion of their Social Security taxes. Yet studies [more here and here] have shown that long-term investment remains remarkably safe. If workers retiring today had been allowed to start privately investing their taxes 40 years ago, they would obviously have less money than those who retired a couple of years ago.But they would still have more than Social Security promises. And, as the Trustee’s Report shows, a poor economy hurts Social Security’s ability to pay benefits just as it hurts the stock market.
In the end, there are only three possible solutions to Social Security’s problems: raise taxes (and the Social Security payroll tax would have to be nearly doubled to keep the program afloat), cut benefits, or allow younger workers to invest privately.
We can have an honest debate about which of those options is the best choice. But, as the Trustee’s Report makes clear, Congress and the Obama administration cannot continue to duck the issue.
Obama the Planner
New Republic editor John Judis has a couple of insights about the Obama administration’s economic and social goals. He points out that, for more than a century, Progressive and free-market forces have gone through cycles of “reform and reaction.”
The Progressives — who my friend John Baden calls the “American counterrevolutionaries” — have repeatedly sought to increase the size and scope of government: railroad regulation, public land agencies, and the income tax in the 1900s; Social Security, low-interest home loans, and government ownership of power plants in the 1930s; Medicare, the war on poverty, and environmental laws in the 1960s.
In between, friends of free markets tried to roll back those reforms, but were never completely successful. Thus, each successive reform era has further increased government power and reduced free markets.
Social Security Is Running a Surplus…Oops
For years, opponents of Social Security reform have told us that there is no need to rush into changing the program because, after all, Social Security is running a surplus today. Well, according to a new report by the Congressional Budget Office, not so much.
CBO reports that the Social Security surplus, originally expected to be $80-90 billion this year and next will shrink to $16 billion this year and just $3 billion next year (essentially a rounding error) as a result of the recession and rising unemployment. And those estimates may be far too optimistic. In February of this year, for example, Social Security actually ran a deficit—spending more than it took in through taxes and interest combined.
And, while CBO expects a return to modest surpluses after 2010, as the recession ends and unemployment falls, that is betting on the success of the unproven Obama economic program. If unemployment stays at current levels, Social Security will begin running permanent cash flow deficits in 2011 (eight years earlier than previously predicted).
Opponents of personal accounts have pointed out recent declines in the stock market as a reason why private investment should no longer be considered an option for Social Security reform. The evidence suggests that, even with recent market declines, private investment would still produce higher returns than Social Security. The new surplus numbers provide yet another lesson: if the economy is in such a mess that it hurts private investment, traditional Social Security isn’t going to be in any better shape.
The case for personal accounts remains as strong as ever.
How Will Barack Obama Reform Social Security?
Barack Obama says he will make entitlement reform a central part of his attempt to control government spending. Just how serious is President Obama about entitlement reform? Are private accounts for Social Security on the table? In today’s Cato Daily Podcast, senior fellow Michael D. Tanner weighs in on Obama’s plan for the future of entitlement programs.
“The fact is, of course, private investment would still be a better deal than Social Security, but you have to face the fact that people are scared of the market right now,” Tanner says. “But I think you’ve got to give Barack Obama points for political courage. In addressing the need for entitlement reform he is taking on one of the mainstays of his party.”
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