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Posts Tagged ‘Entitlements’

Since I’m in the United Kingdom, it’s appropriate to announce that another Briton has been elected to the Moocher Hall of Fame.

Ms. Kay Bird deserves this “honor” because it takes a very reprehensible entitlement mentality to brag about taking a global holiday with welfare cash.

And we’re talking about a global holiday that appears to be far more extravagant than the foreign trips enjoyed by Natalija, another member of the Moocher Hall of Fame.

Here are some of the jaw-dropping details from a report in the U.K.-based Daily Mail.

A single mother on benefits has admitted spending £3,000 of taxpayers’ cash on a dream round-the-world trip to far flung destinations with her 10-month-old baby daughter. ...she still receives more than £8,500 a year in child benefit, income support and tax credits as it is considered that she has a low income. …she visited places such as Australia, Bali and Dubai. Miss Bird says she could work but chooses not to… She said: ‘No, I don’t need the money as such and I didn’t need to go travelling either but I wanted to so I did. ‘If someone’s offering you free money and telling you to take it, you’d have to be a fool not to – that’s all I did. …‘I don’t feel guilty and I don’t regret it. It started off just as a ­holiday to Athens, then things started to fall into place.

Let’s think through her statement about “free money.” Is she really so clueless that she doesn’t realize that her handouts are only possible because other people are actually working and producing?

She says “I don’t feel guilty,” which is remarkable because I doubt taxpayers who financed her jaunt have ever been to Dubai and Bali.

‘Each time some more money landed in my account, I booked something. ‘I started booking flights and accommodation in Europe in October and was booking something with every payment until a few days before I went.’ …She also visited Athens, Istanbul, Dubai, Colombo in Sri Lanka, Kuala Lumpur, Jakarta, Bali and Darwin before returning home via Amsterdam. In total, she spent four months worth of her benefits cash on the trip, paying for 13 flights, travel visas, accommodation and spending money. Her benefits continued to be paid into her bank account while she was away and she returned to the UK just before the five-week travel limit imposed on people claiming Jobseekers’ Allowance.

I have to confess that I’m mystified how someone who chooses not to work can get a handout called “jobseekers’ allowance.” I wonder if MHoF members Danny and Gina are benefiting from the same scam?

In any event, the bureaucrats seem more concerned with enabling welfare fraud than in protecting the interests of taxpayers.

She added: ‘I went to the job centre and told them I wanted to go travelling and they told me there was a five-week limit. I came home just within those five weeks so my benefits didn’t get cut off.’ …she was claiming £90 a week income support, £90 a month child benefit and £230 a month in tax credits. She said: ‘I told them I wanted to register back in the country and they told me I was already eligible for Jobseekers’ Allowance. ‘Then a couple of weeks later they said I could switch to income support which meant I didn’t even have to apply for jobs. ‘Then I was told I could get tax credits, too. I was really shocked at how generous it was but I wasn’t going to turn it down.’

I’m sure British taxpayers will be delighted to learn that Ms. Bird is already planning her next welfare-financed overseas holiday.

Now she says she is planning her next luxury trip for herself and daughter which will be to New Zealand. …She explained: ‘I’m not your regular single mum on benefits who spends it all in McDonald’s and never leaves the town they were born in. ‘I’m changing the image of what it is to be a benefits mum and proving that if you do it the right way, you can have ­anything you want. …’Of course people are negative and many people get very jealous. ‘But I had only been out of Europe once before I went on benefits and now I’ve had the chance to see some incredible things from tropical beaches to the ­skyscrapers of Dubai. ‘I never would have been able to afford it without benefits.’

Gee, doesn’t that warm your heart. She’s a trailblazer, showing other deadbeats how you can live like a jet-setter with other people paying the bills!

Yes, Ms. Bird definitely deserves to be in the Moocher Hal of Fame.

P.S. Since we’re talking about reprehensible welfare moochers, let’s shift from the U.K. to Australia.

It appears that there are lots of Aussie Muslims who want to join the “Terror Wing” of the Moocher Hall of Fame.

Here are some excerpts in a story from the Aussie-based Daily Telegraph.

A federal investigation into the welfare status of Australian foreign fighters, prompted last year by revelations in The Telegraph, shows 96 per cent had been on welfare benefits when they fled to the Middle East. Most had continued to collect payments from Australian taxpayers while training with Islamic State to become terrorists intent on wanting to kill Australians. The investigation has captured the records of 57 Australians who left the country before October last year to fight with the Islamic State. Of that number 55 have been confirmed to have been on welfare payments.

Wow, 96 percent of the identified terrorists who came from Australia were subsidized by taxpayers.

And there are more welfare-fueled terrorists on the way, perhaps recruited by Abdul, who’s been sponging off Australian taxpayers for about two decades.

Since then, an estimated 50 more Australians have ­illegally travelled to the Middle East to join IS, with most believed to have been claiming some form of benefit. A subsequent audit of this group confirmed that most had been at one time in ­receipt of benefits such as Newstart, sickness, youth and carer’s allowances, as well as the Disability Support Pension.

So let’s summarize. Able-bodied young men who are healthy enough to join a fight in the Middle East somehow were somehow so helpless that they needed welfare handouts to survive in Australia.

In reality, of course, these low-life deadbeats surely were capable of working, but they doubtlessly thought it was wonderful that the people they hate were subsidizing their sloth.

All the more reason why policymakers in all nations should reduce the size of the welfare state.

But it’s equally important to decentralize so that local and regional governments are responsible for redistribution programs. Under such an approach, I suspect we’d be far more likely to see the imposition of standards to preclude mooching by able-bodied adults, whether they’re run-of-the-mill moochers or terrorists-in-training.

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Last month, I posted “the cartoon argument” for Social Security reform.

My main goal, as an American, is to achieve this important reform in the United States.

And I’ve tried to bolster the argument by citing lots of hard data, including the fact that “funded” accounts already exist in nations such as Australia, Chile, Sweden, and the Netherlands.

In this spirit, I wrote an article for the most recent issue of Cayman Financial Review, and I looked at the issue from a global perspective. I first explained that demographics are destiny.

It is widely believe that aging populations and falling birth rates represent one of biggest global challenges for long-term economic stability. How can a nation prosper, after all, if there are more and more old people over time and fewer and fewer workers? Don’t these demographic changes put every-growing fiscal burdens on a shrinking workforce to support the elderly, leading to crippling tax burdens and/or enormous levels of debt? In most cases, there are no good answers to those questions. So it is quite likely that many nations will face serious economic and fiscal challenge… Here are some charts showing the age profile of the world’s population in both 1990 and 2100. As you can see, demographic changes are turning population pyramids into population cylinders. …virtually every industrialized nation is undergoing demographic changes that will produce some very painful fiscal consequences.

But not all nations are in trouble.

there are jurisdictions, such as Singapore and Hong Kong that are in reasonably good shape even though their populations rank among the nations with the lowest levels of fertility and longest life expectancies. And other nations, including Sweden, Australia, Switzerland, and the Netherlands, have much smaller long-run challenges than other industrialized countries with similar demographic profiles.

Why are these jurisdictions in stronger shape?

Simply stated, they have personal retirement accounts.

Mandatory pension savings is a key reason why some jurisdictions have mitigated a demographic death squeeze. Whether they rely on occupational pensions, individual accounts, or even central provident funds, the common characteristic is that workers automatically set aside a portion of current income so it can be invested in some sort of retirement vehicle. Over several decades, this results in the accumulation of a substantial nest egg that then is used to provide retirement income.

And there are now about 30 nations that have implemented this critical reform…though that number unfortunately is dwarfed by the number of countries that haven’t modernized their tax-and-transfer schemes.

For advocates of funded pension systems, there is good news and bad news. The good news is that there has been a dramatic increase in jurisdictions that have adopted some form of private retirement system. …the bad news is that mandatory private retirement systems still only cover a small fraction of the world’s workers. The vast majority of workers with retirement plans are compelled to participate in pay-as-you-go government schemes.

Unsurprisingly, I explain why personal retirement accounts are much better for the overall economy.

Economists have been concerned about a triple-whammy caused by traditional tax-and-transfer retirement schemes. First, payroll taxes and other levies discourage labor supply during peak working years. Second, the promise of retirement benefits undermines a very significant incentive to save. Third, the provision of retirement benefits discourages labor supply once a worker reaches retirement age. …Systems based on private savings, by contrast, have very little economic downside. Workers are compelled to save and invest some portion of their income, but all of that money will be correctly seen as deferred compensation. …Perhaps equally important, second-pillar systems boost national savings, which means more funds available to finance productive private-sector investment.

Though I bluntly admit that there will be a significant transition cost.

The…common critique of mandatory retirement savings is that…if younger workers are allowed to shift their payroll taxes into personal accounts, policy makers would need to find lots of money over several decades (trillions of dollars in the American example) to fulfill promises made to existing retirees as well as workers that are too old to get much benefit from personal accounts. This critique is completely accurate. …But here’s the catch. While trillions of dollars are needed to finance the transition to a system of personal accounts, it’s also true that trillions of dollars are needed to bail out the current system. …The real question is figuring out the best way to climb out of that hole. From a long-term fiscal and economic perspective, personal accounts are the more attractive option.

To elaborate, it’s better to somehow find $5 trillion over several decades to finance the shift to personal retirement accounts than it is to somehow find $30 trillion over a longer period of time to bail out the current system.

For more information on personal accounts, you can click here for my video on the topic.

And to learn about Obama’s supposed solution, watch (with horror) this video.

P.S. You can enjoy some previous Social Security cartoons here, here, and here. And we also have a Social Security joke if you appreciate grim humor.

P.P.S. While I’m a very strong advocate of personal retirement accounts (my Ph.D. dissertation was about Australia’s very good system), I’ll be the first to admit that it’s even more important to modernize Medicare and Medicaid.

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The Obama Administration has already announced a bunch of tax increases that will be part of the President’s soon-to-be-released budget.

But, in a remarkable development, the White House has preemptively thrown in the towel and said that it will no longer pursue a proposed tax hike on 529 plans (IRA-type vehicles that allow parents to save for college education without being double taxed).

It’s obviously good news any time a tax hike is very unpopular, but this victory over Obama’s 529 plan has enormous implications.

Simply stated, it underscores a point I’ve been making for a long time about why opposing all tax hikes – particularly levies on the middle class – is critical if we want to have any chance of reforming and restraining the welfare state.

The Washington Examiner explores this development.

Obama’s abandonment of this relatively minor middle class tax-hike proposal suggests that liberals lack the spine to pursue their own long-term vision for America. …They have supported tax hikes on the wealthy to make deficits a bit smaller, but there are not enough wealthy people in America to fill the gap, nor can they be taxed at a high enough rate to pay for all the entitlement and social spending the Democrats want. Thus, Obama Democrats need large middle class tax hikes to sustain their vision for America’s future. Nothing else will work. And so if Obama is too scared to touch the favorite deductions of the middle class — whether it be the mortgage interest deduction or the 529 plan — then he is too scared to make his own long-term worldview a reality.

In other words, so long as we don’t give Washington any new sources of revenue, the left won’t be able to turn the United States into a European-style welfare state.

Peter Suderman of Reason has a similar assessment. Indeed, the title of his article is “How Obama’s 529 College Tax Plan Debacle Proves the Welfare State is Doomed.”

Here are some relevant passages.

…this is the sort of plan than inevitably follows from the long-term fiscal logic of the welfare state. …the existing welfare state is unaffordable. Either it will have to be cut, or reformed, or paid for—by someone, somehow. The administration and its allies would like to reassure you that the someones who will pay for all of this will be limited to the richest of the rich, but in practice there’s only so much money that can be squeezed out of the extremely wealthy. Which means that eventually, anyone looking for ways to keep the welfare state afloat will have to go after the middle class.

Writing for The Federalist, Robert Tracinski echoes these sentiments.

…this is a desperate move by those who need to finance ever bigger government and are simply going where the money is: the vast American middle class. …There have already been trial balloons about raiding 401(k)s and IRAs. The truly committed leftist looks upon our private savings as a vast reserve of capital unfairly withheld from its proper function of servicing the needs of the state.

By the way, just in case you think Tracinski is exaggerating, just look at how governments in nations such as Poland and Argentina have seized private pension assets.

Returning to the topic at hand, here’s some of what Megan McArdle wrote for Bloomberg.

…the administration has started scraping the bottom of the barrel when seeking out money to fund new programs. …We are simply running out of room to pay for generous new programs with higher taxes on the small handful of people who make many hundreds of thousands of dollars a year. I’m not saying that it’s impossible, politically or otherwise, to further raise their tax rates. I’m just saying that there’s not all that much money there left to get. …politicians will need to reach further down the income ladder in order to fund new spending — indeed, to fund the spending we’ve already done, in the form of entitlement promises. Where will they go for that money? Once you’ve hit your fiscal capacity to tax the rich,  a few big sources of tax revenue are left: 1) A value-added tax.  …2) Raising income taxes on the middle class. …3) Tax the savings of the middle class.

Last but not least, Ramesh Ponnuru of National Review reiterated his view that the welfare state desperately needs tax money from the middle class.

…everyone who has looked at the budget projections for the next few decades understands that, absent a sudden reduction in Americans’ life expectancy or other shocking development, middle-class -benefits are going to have to be cut, middle-class taxes are going to have to be raised, or both. The war between liberals and conservatives over the future of the welfare state is largely a matter of how much of each will be done. …government cannot realistically make up much of its long-term financing gap by raising taxes on the rich. A tax-heavy solution to that gap will eventually have to rely on much higher taxes on the middle class. That’s how they finance large welfare states in other developed countries. European social democracies don’t generally have much higher taxes on corporations or high earners than the United States. The chief difference between their tax policies and ours is that they levy value-added taxes that hit consumption.

Having cited several astute writers, let’s now draw the appropriate conclusion.

Without question, the moral of the story is that anybody who genuinely and seriously favors limited government should be unalterably opposed to any and all tax hikes.

And if you don’t believe all the folks cited above, perhaps because most of them lean to the right, then maybe you’ll be convinced by the fact that many leftists agree that you can’t finance big government without big tax hikes, particularly on the middle class.

The one big difference is that they want those tax hikes because of their support for bigger government.

Which should be added evidence about the importance of resisting all tax increase. Heck, the no-tax-hike pledge is an IQ test for Republicans.  Those that fail – such as Jeb Bush – should not be promoted to positions where they can cause damage.

Here’s what I wrote about this issue earlier this month. I was commenting on proposals for a new energy tax, but my analysis applies to any scheme for more revenue.

…the left understands very well that their spending agenda requires more revenue. That’s why Obama is relentless in urging more revenue. It’s why the leftists at the Paris-based OECD endlessly urge higher taxes in America (even to the point of arguing that tax-financed redistribution is somehow good for growth). And it’s why the DC establishment is so enamored with “bipartisan” tax-hiking budget deals, which inevitably lead to bigger government and more debt. Honoring the no-tax-hike pledge isn’t a sufficient condition to rein in big government, but it sure is a necessary condition. Amazingly, top Democrats even admit that their top political goal is to seduce Republicans into supporting higher taxes.

Let’s close with some thought experiments.

American needs genuine entitlement reform. But how likely is it that we’ll see the right kind of changes to programs such as Medicare and Medicaid if politicians instead manage to impose a value-added tax? What incentive would they have to do the right thing if they instead have the option of constantly increasing the VAT rate, as we’ve seen in Europe?

Or what are the odds of good Social Security reform if politicians enact some sort of energy tax. Why improve America’s retirement system, after all, if they have a new source of revenue and they have the option of continuously tweaking the rate upwards to prop up the current system?

What are the chances of getting a good spending cap, something akin to the Swiss debt brake, if politicians succeed in getting some sort of financial transactions tax? Why deal with the problem of excessive government if there’s a new revenue source that can be periodically increased.

The left certainly understand that new revenue is necessary for their agenda. But does the right grasp the obvious implications?

This post already is very long, so I’m going to stop here. But those who are interested in more information should check out the postscripts below.

P.S. Some folks argue that Bill Clinton’s 1993 tax hike is “evidence” that higher taxes can lead to deficit reduction rather than higher spending, but Clinton’s own Office of Management and Budget produced data in early 1995 showing that assertion is false.

P.P.S. In my lifetime, there’s been a Democratic President with sensible views on tax policy.

P.P.P.S. It’s theoretically possible to put together a good fiscal deal involving more revenue, but only in the sense that it’s theoretically possible that I’ll be offered a $5-million contract to play for the Yankees next year.

P.P.P.P.S. The only exception to my no-tax-hike views is that I’m willing to allow higher taxes that are targeted solely on people who endorse higher taxes.

P.P.P.P.P.S. It’s nice to see that lots of people now agree with my starve-the-beast hypothesis. Even if some of them (including Republicans!) learn the wrong lesson and endorse higher taxes for the explicit purpose of financing bigger government.

P.P.P.P.P.P.S. Cartoonists have a good understanding of the tax-hike issue.

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The modern welfare state is a disaster. But rather than go into lengthy details, let’s simply look at some very powerful images (click for enlarged view).

Probably the most damning evidence is that the poverty rate in America was steadily falling after World War II. But then Lyndon Johnson declared a “war on poverty” and got Washington more involved in the business of income redistribution. So what happened? The poverty rate stopped falling.

But it’s also sobering to see how much money is being spent on income-redistribution programs. Taxpayers at the federal, state, and local level are coughing up more than $1 trillion every year to subsidize poverty. To give an idea of how much inefficiency and waste permeates the system, this is enough to give every poor household $60,000.

Poor people are among the biggest victims of the welfare state. Redistribution programs create a dependency trap because of very high implicit tax rates on productive behavior. Simply stated, handouts are so generous that poor people who enter the labor force generally will have lower living standards than those who remain wards of the state.

 So what’s the solution to this mess?

Fortunately, we have a case study that points us in a productive direction.

The Bill Clinton-era welfare reforms, pushed through by Republicans in Congress, were a big success. Here are some excerpts from an article written by an expert at the Brooking Institution.

Between 1994 and 2004, the caseload declined about 60 percent, a decline that is without precedent. The percentage of U.S. children on welfare is now lower than it has been since at least 1970. …More than 40 studies conducted by states since 1996 show that about 60 percent of the adults leaving welfare are employed at any given moment and that, over a period of several months, about 80 percent hold at least one job. …Again, these sweeping changes are unprecedented. …Equally important, with earnings leading the way, the total income of these low-income families increased by more than 25 percent over the period (in constant dollars). Not surprisingly, between 1994 and 2000, child poverty fell every year and reached levels not seen since 1978. In addition, by 2000, the poverty rate of black children was the lowest it had ever been.

This is an older article from 2006, so there was obviously some movement in the wrong direction after the recent recession.

Nonetheless, the big message from welfare reform in the 1990s is that blank-check welfare entitlements are greatly inferior to a federalism-based approach that allows states to innovate and experiment to see what works best.

That’s the good news.

The bad news is that the Clinton welfare reforms only addressed a minor part of the welfare state. Moreover, the Obama Administration has undermined some of the modest progress that was achieved in the 1990s.

So we need a new offensive to deal with the broader deficiencies of the current system, which is a disaster for both taxpayers and poor people.

But if we use Clinton’s welfare reforms as a model, there is considerable progress that can be achieved. Diana Furchtgott-Roth of Economics 21 has a new study on precisely this topic.

She identifies some of the major redistribution programs in Washington.

This paper examines the evolution of major U.S. welfare programs since 1998—shortly after the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), the 1996 federal welfare reform signed into law by President Clinton, went into effect. The paper chronicles the average amount of aid provided, as well as length of time on public assistance, focusing on the following programs: SNAP; Temporary Aid to Needy Families, or TANF (established by PRWORA); Medicaid; and Section 8 Housing Choice Vouchers (HCV).

And she points out these programs are an expensive failure, but proposes a way to address the problem.

…while the U.S. economy has since improved, participation in such programs has generally not declined. This paper concludes that there is ample scope for states to reform welfare, and it proposes two substantial changes: (1) cap welfare spending at the rate of inflation and the number of Americans in poverty; and (2) allow states to direct savings from welfare programs to other budget functions. …this paper finds that federal savings through 2013 would, after accounting for inflation and the number of Americans in poverty, total $1.3 trillion had welfare funding remained at 1998 levels.

The key is federalism.

States should have the freedom to experiment to see what policies are most effective. Under such conditions, successful states would serve as models for other states—and, possibly, models for further federal welfare reform. Indeed, successful welfare reforms have already been observed in North Carolina, New York, Indiana, and Rhode Island. …Providing states increased flexibility to adjust resource levels between welfare programs offers numerous advantages. For instance, states with low food prices but high housing costs might shift resources from SNAP to housing programs. In addition, states could divert funding from existing programs to new ones, such as community-based programs that prove successful.

Her bottom line is that the status quo is a failure.

Antipoverty programs should be judged by how successfully they help lift people out of poverty. By this measure, the country’s welfare programs performed poorly during the Great Recession and its aftermath: welfare costs and eligibility have, as this paper has documented, largely expanded, with few gains in poverty reduction. …The status quo is plainly unacceptable. New solutions, not more funding, are the answer. …empower states to choose welfare policies that best serve their most vulnerable families, as well as those that best fit their political demands.

An excellent study and a very sound proposal.

Though I would make one very important modification.

It’s clearly a step in the right direction if the federal government turns all income-redistribution programs into a block grant so that states can decide how to allocate the money and address poverty.

But the long-run goal should be to eliminate any role for Washington, even as a provider of block grants.

In an ideal world, the block grant should be immediately capped and then gradually phased out. Let state and local governments decide how to tax and spend in this arena.

P.S. Some folks on the right want to replace the current welfare state with a government-guaranteed minimum income. But that approach is very inferior to genuine federalism.

P.P.S. The bureaucrats at the OECD (subsidized by our tax dollars) are pushing a new definition of poverty that is really a stalking horse for more income redistribution.

P.P.P.S. In the spirit of political correctness, here’s the modern version of the Little Red Hen and the modern version of the fable about the ant and the grasshopper.

P.P.P.P.S. For American readers, click here to see the extent to which your state makes welfare more attractive than work.

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Four years ago, I put together some New Year’s Day Resolutions for the GOP.

Three years ago, I made some policy predictions for the new year.

But since I obviously don’t control Republicans and since I freely admit that economists are lousy forecasters, let’s do something more practical to start 2015.

Let’s simply look at three very important things that may happen this year and what they might mean.

1. Will the Republican Senate support genuine entitlement reform?

One of the best things to happen in recent years is that House Republicans embraced genuine entitlement reform. For the past four years, they have approved budget resolutions that assumed well-designed structural changes to both Medicare and Medicaid.

There were no real changes in policy, of course, because the Senate was controlled by Harry Reid. And I’m not expecting any meaningful reforms in 2015 or 2016 because Obama has a veto pen.

But if the Republican-controlled Senate later this year approves a budget resolution with the right kind of Medicare and Medicaid reform, that would send a very positive signal.

It would mean that they are willing to explicitly embrace the types of policies that are desperately needed to avert long-run fiscal crisis in America.

I don’t even care if the House and Senate have a conference committee and proceed with actual legislation. As I noted above, Obama would use his veto pen to block anything good from becoming law anyhow.

My bottom line is simple. If GOPers in both the House and Senate officially embrace the right kind of entitlement reform, then all that’s needed is a decent President after the 2016 elections (which, of course, presents an entirely different challenge).

2. Will there be another fiscal crisis in Greece (and perhaps elsewhere in Europe)?

The European fiscal crisis has not gone away. Yes, a few governments have actually been forced to cut spending, but they’ve also raised taxes and hindered the ability of the private sector to generate economic recovery.

And the spending cuts in most cases haven’t been sufficient to balance budgets, so debt continues to grow (in some cases, there have been dramatic increases in general government net liabilities).

Sounds like a recipe for further crisis, right? Yes and no.

Yes, there should be more crisis because debt levels today are higher than they were five years ago. But no, there hasn’t been more crisis because direct bailouts (by the IMF) and indirect bailouts (by the ECB) have propped up the fiscal regimes of various European nations.

At some point, though, won’t this house of cards collapse? Perhaps triggered by election victories for anti-establishment parties (such as Syriza in Greece or Podemos in Spain)?

While I’m leery of making predictions, at some point I assume there will be an implosion.

What happens after that will be very interesting. Will it trigger bad policies, such as centralized, European-wide fiscal decision-making? Or departures from the euro, which would enable nations to replace misguided debt-financed government spending with misguided monetary policy-financed government spending?

Or might turmoil lead to good policy, which both politicians and voters sobering up and realizing that there must be limits on the overall burden of government spending?

3. If the Supreme Court rules correctly in King v. Burwell, will federal and state lawmakers react correctly?

The Supreme Court has agreed to decide a very important case about whether Obamacare subsidies are available to people who get policies from a federal exchange.

Since the law explicitly states that subsidies are only available through state exchanges (as one of the law’s designers openly admitted), it seems like this should be a slam-dunk decision.

But given what happened back in 2012, when Chief Justice Roberts put politics above the Constitution, it’s anybody’s guess what will happen with King v Burwell.

Just for the sake of argument, however, let’s assume the Supreme Court decides the case correctly. That would mean a quick end to Obamacare subsidies in the dozens of states that refused to set up exchanges.

Sounds like a victory, right?

I surely hope so, but I’m worried that politicians in Washington might then decide to amend the law to officially extend subsidies to policies purchased through a federal exchange. Or politicians in state capitals may decide to set up exchanges so that their citizens can stay attached to the public teat.

In other words, a proper decision by the Supreme Court would only be a good outcome if national and state lawmakers used it as a springboard to push for repeal of the remaining parts of Obamacare.

If, on the other hand, a good decision leads to bad changes, then there will be zero progress. Indeed, it would be a big psychological defeat since it would represent a triumph of handouts over reform.

I guess I’m vaguely optimistic that good things will happen simply because we’ve already seen lots of states turn down “free” federal money to expand Medicaid.

P.S. Let’s close with some unexpected praise for Thomas Piketty. I’m generally not a fan of Monsieur Piketty since his policies would cripple growth (hurting poor people, along with everyone else).

But let’s now look at what France 24 is reporting.

France’s influential economist Thomas Piketty, author of “Capital in the 21st Century”, on Thursday refused to accept the country’s highest award, the Legion d’honneur… “I refuse this nomination because I do not think it is the government’s role to decide who is honourable,” Piketty told AFP.

It’s quite possible, perhaps even likely, that Piketty is merely posturing. But I heartily applaud his statement about the role of government.

Just as I applauded President Hollande when he did something right, even if it was only for political reasons.

But let’s not lose sight of the fact that Piketty is still a crank. His supposedly path-breaking research is based on a theory that is so nonsensical that it has the support of only about 3 percent of economists.

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We have some good news to share.

A government has just announced that it is going to end the unfair practice of giving government bureaucrats pension benefits that are far greater than those available for workers in the economy’s productive sector.

Can you guess which jurisdiction took this important step, notwithstanding the greed, political sophistication, and power of government bureaucracies?

Is it the federal government in Washington, which provides bureaucrats with much higher levels of overall compensation than workers in the private sector?

Is it Ireland, which a few years ago actually cut bureaucrat salaries by more than 13 percent?

Is it California, which is infamous for over-compensated bureaucrats?

Is it Denmark, which has the world’s most expensive bureaucracy?

Is it Italy, which has some of the most coddled government bureaucrats in the world?

Is it New Jersey, where it’s possible for a bureaucrat to have six government jobs at the same time?

Is it the Cayman Islands, which actually contemplated the imposition of an income tax to finance its bloated bureaucracy?

Is it Portugal, which overpays bureaucrats more than any other nation?

Those jurisdictions are all be good guesses. Or, to be more accurate, that’s a good list of jurisdictions where reform is desperately needed.

But all those guesses are wrong. The nation that is ending special pension privileges for government bureaucrats is the People’s Republic of China.

Yes, you read correctly. A communist-run nation is implementing this pro-market reform. Here are some of the details from CNTV.

China will reform its public sector pension system to reduce disparity between the public and private sectors, Vice-Premier Ma Kai said Tuesday… Under China’s dual pension system, civil servants and employees in state agencies do not need to pay for their pensions — the government provides full support for them. But employees of private enterprises have to pay 8 percent of their salary to a pension account. After retirement, private urban employees usually get a pension equal to about half of their final salary, but civil servants get much more without making any financial contribution. …now the reform is coming. The aim is to build a system for Party, government and public institution staff that is similar to the one used by the private sector. This move will affect around 37 million people: 7 million civil servants and 30 million public institution staff.

Wow, bureaucrats will have to live under the same rules as folks in the private sector.

What a radical concept! Maybe we could even try it in the United States at some point.

By the way, one additional indirect feature of the story is worth a mention. China actually has the beginnings of a private Social Security system.

Because the system is still developing, I don’t put it on my list of nations with private Social Security (though it is on the Social Security Administration’s list), but the goal is to slowly but surely shift to a funded system.

Assuming that actually happens, China could mitigate the fiscal consequences of a very large demographic crisis caused by that nation’s barbaric one-child policy.

In any event, China’s at least moving in the right direction (see here, here, and here for more information), which is more than can be said for the United States.

P.S. While China has moved in the right direction in recent decades, it still gets a relatively low score from Economic Freedom of the World. Which helps to explain why I think it’s silly for people to fear the supposed Chinese Tiger.

P.P.S. If you want to see far more striking examples of Chinese people being successful, check out Hong Kong and Taiwan.

P.P.P.S. Though at least some Chinese government officials have a very perceptive understanding of the European welfare state.

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I’ve been fretting for a long time that poorly designed entitlement programs are going to turn America into a decrepit welfare state.

Medicare obviously is a big part of the problem, but the fraud-riddled Medicaid program may be even worse.

The program is a nightmare for both federal taxpayers and state taxpayers.

In an article for the Daily Caller, John Graham of the Independent Institute has some very grim analysis of the fiscal black hole otherwise known as Medicaid.

In 2014, total Medicaid spending is projected to grow 12.8 percent because Obamacare has added about 8 million dependents. A large minority of states have chosen to increase residents’ eligibility for Medicaid by expanding coverage to adults making up to 138 percent of the federal poverty level. Unfortunately, more states are likely to expand this welfare program. This is expected to result in a massive increase in the number of Medicaid dependents: From 73 million in 2013 to 93 million in 2024. Medicaid spending is expected to grow by 6.7 percent in 2015, and 8.6 percent in 2016. For 2016 to 2023, spending growth is projected to be 6.8 percent per year on average. This comprises a massive increase in welfare dependency and burden on taxpayers.

But the actual numbers may be worse than these projections.

…official estimates often low-ball actual experience. This is because it is hard to grapple with how clever states are at leveraging federal dollars. …The incentive lies in Medicaid’s perverse financing merry-go-round. In a rich state like California, for example, the federal government (pre-Obamacare) spent 50 cents on the dollar for adult dependents. So, if California spent 50 cents, it automatically drew 50 cents from the U.S. Treasury. And most states had a bigger multiplier. Which state politician can resist a deal like that? …The situation will deteriorate because Obamacare’s Medicaid expansion significantly increases states’ perverse incentives to game Medicaid financing. …Newly eligible Medicaid beneficiaries will be fully financed by the federal government for 2014 through 2016. Then, it slides down until the federal government funds 90 percent of their costs starting in 2020, with the states footing 10 percent. Recall the cunning with which states developed ways to abuse federal taxpayers when they could only double their money from Uncle Sam. The new normal is that they will be able to get nine times their money!

By the way, these numbers would be even worse if it wasn’t for the fact that many states refused the lure of “free” federal money to expand Medicaid.

So what’s the solution? Graham suggests federalism is the answer.

A reform in the right direction would be to get rid of the federal match in favor of a block grant, based on a simple measurement of the population in each state, and precisely define a limited federal commitment.

He’s exactly right, at least in the short run.

Let’s copy the success of welfare reform and turn over a fixed amount of money – along with concomitant authority and responsibility – to state governments and let them figure out the best way of delivering health care to lower-income populations.

In the long run, of course, I’d like to phase out the block grant so that states are responsible for both collecting the money and providing the services.

But before we get to the point of adopting health care policies for an ideal libertarian society, we first have to stop the bleeding (or, to be more accurate, hemorrhaging) and stabilize the program.

And that’s why I fully agree that the federalism approach, in the form of block grants, is the right policy.

Here’s my video on the topic.

And since I’m sharing videos, I can’t resist commenting on the latest “Gruber-gate” scandal. The MIT professor and Obamacare insider (he got $400,000 of taxpayer money to help design the plan) has become an embarrassment for the left because he has been caught on tape saying that the legislation relied on deception. He even said that proponents of Obamacare took advantage of the “stupidity” of American voters.

You can watch the most well-know example by clicking here. But he also denigrated supposedly “stupid” Americans in this video.

I want to defend one small component of Gruber’s statement.

But I want to be completely clear that I’m not defending his elitist disdain for ordinary Americans. Indeed, I don’t think voters are stupid. Instead, to the extent they’re uninformed, it’s the result of serial dishonesty from Washington or because they’ve decided it’s not worth their time to pay attention to the crowd in DC (the “rational ignorance” hypothesis).

The part of Gruber’s statement that has merit is that he’s talking about the fact that there’s a big loophole in the tax code for fringe benefits. To be more specific, tens of millions of Americans get part of their compensation in the form of fringe benefits such as health insurance. Yet while workers are taxed on their “cash” income, they are not taxed on their “fringe benefit” income (a policy sometimes called the “healthcare exclusion”).

And this has created, over time, a very inefficient system of over-insurance.

To understand why this system doesn’t make sense, just think about your homeowner’s insurance or auto insurance. Those policies, unlike health insurance, work reasonably well and costs remain relatively stable. Why is there a big difference?

The difference is that employee income that is diverted to health insurance avoids both income tax and payroll tax, so there is a significant monetary incentive for gold-plated plans. And these plans often include insurance coverage for ordinary medical expenses, which contributes to the problem of third-party payer.

No wonder health insurance is so costly. After all, imagine what would happen to the price of your homeowner’s insurance if it had to cover the cost of a new couch? Or repainting the hallway? Or what about the cost of your auto policy if it covered the cost to fill up with gas or get an oil change?

We instinctively recognize that this would be insanely inefficient and expensive, yet that’s how our health insurance system operates thanks to a giant tax preference.

So Gruber was right to say it’s a problem. And I’ve even said that addressing the exclusion is a very tiny silver lining in the awful dark cloud of Obamacare.

But now that I’ve bent over backwards to say something nice, now let me point out that Gruber (and Obama and other statists) didn’t have the right solution. Yes, they wanted to cut back on the tax exclusion, but only because they wanted to use the money for other purposes (such as subsidies that also exacerbate the third-party payer problem).

The right approach, by contrast, is to phase out the healthcare exclusion and use every penny of revenue to “pay for” lower tax rates. That way you get a win-win situation for the economy. A more rational, market-based healthcare system and a less punitive tax code for productive behavior.

Now that we’ve addressed a serious point, let’s laugh about the fact that Gruber’s comments have created a big headache for the White House. We’ll start with this Steve Kelley cartoon.

And here’s Gary Varvel’s take on the honesty of the Obama White House on the topic of health care.

Last but not least, Lisa Benson optimistically suggests that the serial dishonesty of Obamacare supporters may be undone by the Supreme Court.

Which would be poetic justice, since Professor Gruber also was caught on tape – over and over again – stating that Obamacare only allowed subsidies for people getting insurance policies through state-based exchanges.

And now the Supreme Court will decide whether those subsidies, notwithstanding statutory language, can be provided via the federal exchange.

Though I’m not holding my breath since certain Justices on the Court already have demonstrated that they’re willing to put politics above the law.

P.S. Just in case I wasn’t sufficiently clear, good tax reform also is good health reform. That was one of the points I made in my tax reform speech at the Heritage Foundation and I suspect I’ll continue making that argument until we win or I’m dead (and I don’t want to take odds on which happens first).

P.P.S. On a more upbeat note, the House of Representatives approved budgets in 2011, 2012, 2013, and 2014 that assume Medicaid gets block-granted to the states. So that reform may actually happen while I’m still breathing.

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