Saving the Welfare/Warfare State

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“Help Save the American Dream,” said the subject line of the e-mail I received from the Heritage Foundation and signed by its president, Edwin J. Feulner.

By donating as little as $10, I could become a member of the foundation and get a free copy of Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity “to share with other like minded Conservatives.”

Although I am not a conservative, I was nevertheless intrigued because of the first paragraph of the e-mail:

Our Saving the American Dream plan sets a new course for America by cutting spending, reining in the size and scope of the federal government, reducing the deficit and protecting defense – all without raising taxes.

According to the “About the Editors” page, Saving the American Dream was developed as part of the Solutions Initiative and funded by the Peter G. Peterson Foundation. The Peterson Foundation convened organizations with a variety of perspectives to develop plans addressing the nation’s fiscal challenges. Grants were also given to the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, and the Roosevelt Institute Campus Network. The final plans of each organization were presented as part of the Peterson Foundation’s second annual Fiscal Summit in May of 2011.

I agree with what Feulner says in his foreword:

Over time, our national government has become bloated, overextended and unrestrained, oblivious of its core functions, operating far beyond its means and vastly outside of its proper constitutional bounds. Unchecked, the course we are on now will cripple our economy, undermine our prosperity, and lead to fiscal insolvency. By robbing the future of opportunity and freedom, it will destroy the American Dream for future generations.

But this fate does not have to be our future. We can get spending under control, balance the budget, and shrink our debt. We can limit the size of government and set free once again the unlimited genius of Americans to create wealth and jobs. We can turn the tide and change our nation’s course.

Unfortunately, there is very little else in the plan that I can agree with.

Feulner has high hopes for the Heritage plan:

Saving the American Dream is our plan to fix the debt, cut spending and, above all, restore prosperity. It balances the nation’s budget within a decade – and keeps it balanced. It reduces the debt and cuts government in half. It eliminates government-mandated health care and fully funds our national defense. In order to get our fiscal house in order, we must address Social Security, Medicare, and Medicaid, the three so-called entitlement programs which together account for 43 percent of federal spending today. Far too many seniors still lack enough help to avoid poverty. Saving the American Dream therefore does not end these programs; instead it focuses them on those who need them.

Our plan also encourages Americans to become more fiscally responsible themselves. It redesigns our entire tax system into an expenditure tax that will have a single flat rate. This is a structure that will promote savings, therefore benefiting individual Americans, our body politic, and the economy.

This plan substantially reduces the size and scope of the federal government, fundamentally increases the role of the states in choosing their own practices, and brings decision-making closer to the people rather than unelected administrators.

I can already see that the plan is destined to fail and I haven’t even got past the foreword. Perhaps the introduction will change my mind.

Alas, although the introduction to Saving the American Dream gives us more details about the plan, I’m afraid it has only cemented my pessimistic opinion. I agree that “the government is doing things it should not be doing and spending far more than we can afford to pay or should be paying.” I also agree that

to ensure prosperity and growth for ourselves and our children, we must reduce the federal government so that it is closer to its proper size and focus it on performing its core responsibilities. This will mean deep and sustained reductions in federal spending. We must also hold down taxes while reforming our needlessly complex, burdensome, and highly unfair tax system to sharpen incentives and reward saving if we want America to be prosperous once again.

The introduction maintains that “the Heritage plan will solve America’s twin crises of debt and spending with reforms that are consistent with the principles of democratic governance and deeply held American values.” Then follows eight specific things the Heritage plan will achieve:

  1. Balances the federal budget within a decade and keeps it balanced forever at no more than 18.5 percent of GDP.
  2. Reduces the debt to 30 percent of GDP within 25 years and puts it on track to continue falling thereafter.
  3. Cuts the size of the federal government by about half within 25 years.
  4. Stops scheduled tax increases and replaces the complex and unfair tax code with a completely new tax system.
  5. Protects America and its interests around the globe by ensuring full funding for national defense.
  6. Eliminates Obamacare and creates a health care system that is affordable both for the nation and for individuals and families.
  7. Redesigns Social Security and Medicare as sustainable programs that truly protect seniors and will be around for our children and grandchildren.
  8. Provides powerful incentives for working Americans to save and invest so that they will be less dependent on these programs.

Okay, here is the problem. Or should I say problems.

  1. Promises to balance the budget within ten years are absolutely meaningless. Even the Republican spendthrifts in Congress make promises like that.
  2. The Heritage plan will keep the budget “balanced forever”? Even Paul Ryan wouldn’t make a claim like that.
  3. Tying the federal budget to a percentage of GDP is a license for ever-increasing budgets.
  4. Promises to reduce or cut something “within 25 years” are even more ridiculous than balancing the budget within a decade.
  5. Replacing the tax code with a “fairer” tax code instead of getting rid of it altogether is no solution at all.
  6. “Full funding for national defense” means that defense department budget cuts are off the table. It also means that the U.S. empire of troops and bases that encircles the globe will remain intact. It also means that the foreign wars will continue. It also means that an aggressive, reckless, interventionist U.S. foreign policy will continue. It also means that the warfare state will continue. It also means that military Keynesianism will continue.
  7. If the Heritage plan said it “eliminates Obamacare” and that was it, then that would be a good thing. But no, instead of leaving the nation’s healthcare system completely up to the free market that the Heritage Foundation claims to believe in, Saving the American Dream creates a new health care system. And since when is it the job of the government to “ensure that Americans can afford adequate coverage”?
  8. Redesigning Social Security and Medicare instead of phasing them out simply means that Heritage wants to save and redesign the welfare state. After all, as the introduction to Saving the American Dream points out, “The three entitlements – Social Security, Medicare, and Medicaid – account for 43 percent of federal spending.”

The Heritage plan to “save” Social Security includes a gradual transition to a flat benefit, means-testing eligibility for benefits, raising both the normal and early retirement ages and indexing them to increases in longevity, an a $10,000 annual tax deduction for those who work past their full-benefit retirement age. This is all well and good, but it still doesn’t change the fact that Social Security is an intergenerational, income-transfer, wealth-redistribution welfare program. I have discussed the problem with conservative plans to save Social Security here.

The Heritage plan to “save” Medicare would transform the program from “an open-ended and unsustainable defined-benefit entitlement” program into a “defined-contribution system.” New retirees would receive a “contribution” from the government, “just as federal employees and retirees do today,” to be applied toward Medicare or an existing health insurance plan. Low-income enrollees would receive a full contribution. High-income enrollees would “receive no government contribution and pay full, unsubsidized premiums.” The Medicare eligibility age would gradually rise to 68 over a ten-year period and be indexed to increases in longevity.

But Medicare is not the only government involvement in health care under the Heritage plan. Medicaid (health care for the poor) would continue. A health care tax credit would be made available “to offset the cost of coverage offered through the workplace or to buy insurance outside the workplace.” For those with no income tax liability, “financial assistance for purchasing insurance” will be provided.

Tax reform is always at the forefront of any conservative plan. In this respect, the Heritage plan doesn’t disappoint. The current system would be transformed into “a modern flat tax that taxes individual income only once and replaces all federal income taxes, all payroll taxes, the death tax, and virtually all excises.” A new flat-rate tax of between 25 and 28 percent, designed “to raise a permanent revenue stream of up to 18.5 percent of the economy as measured by GDP,” would be applied to income “after deducting all savings.” It would include deductions for education expenses, charitable giving, and mortgage interest and an earned income and health insurance credit. What is unique about the Heritage flat tax plan is that it would fold “today’s federal payroll taxes financing Social Security and Medicare into the new system.” I have discussed how the Heritage flat tax plan is still a progressive tax and therefore a vast income redistribution and social engineering scheme here.

Other “major spending reforms” in the Heritage plan include reducing “non-defense discretionary spending” (foreign aid, K-12 education, transportation, health research, housing, community development, veterans health care) from the current rate of 4.5 percent of GDP down to 2 percent of GDP “by 2021.” Antipoverty spending is “reformed.” Agriculture and education programs are “structurally reformed.” Amtrak subsidies are “phased out over three years.” Most non-defense discretionary spending would be frozen “at 2008 levels through 2015″ and then capped “at the inflation rate.”

And then there are the usual meaningless government reform clichés:

  • Duplicative programs should be consolidated.
  • Outdated and ineffective programs should be eliminated.
  • Waste, fraud, and abuse should be cleaned up wherever found.

President Obama and the Democrats have said the same things.

Are there any good things in the Heritage plan that would take effect right away instead of years down the road? Lower-priority spending, “such as subsidies to public broadcasting, AmeriCorps, the National Endowment for the Arts, and the National Endowment for the Humanities, is left to the private sector.” I guess this means that government funding would be cut off for these programs. The Heritage plan calls for the elimination of the 18.3 cents-per-gallon federal gas tax and transferring the highway program to the states, federal funding for passenger rail, and “all non-safety functions of the Federal Aviation Administration,” which would be transferred to the private sector along with the air traffic control system.

All in all, the Heritage plan is better than Paul Ryan’s budget, “The Path to Prosperity: A Blueprint for American Renewal,” but how hard is it to do that?

In addition to the problems I see with the Heritage plan that I have pointed out already, I just want to mention three things.

One, why only return government spending to 2008 levels (the last year we had a Republican president)? Doesn’t the Heritage plan even acknowledge that “since 2000, non-defense discretionary outlays have expanded 50 percent faster than inflation,” with spending on anti-poverty programs rising “83 percent faster than inflation”? Why not return spending to the level it was in, let’s say, 1999 or 1989? Even that would, of course, be an obscene level.

Two, the Heritage plan says that “the federal government should focus on performing a limited number of appropriate governmental duties well while empowering state and local governments, which are closer to the people, to address local needs.” The problem is a simple one: It is not the proper role of government to provide retirement or disability benefits, pay for anyone’s health care or insurance, provide housing or agricultural assistance, subsidize anyone’s education, or dole out foreign aid.

And three, it’s not just that the Heritage plan to save the American dream continues the welfare state, it’s that there’s not even mention of a transition of any number of years to its gradual elimination in any number of years. And, of course, the warfare state would be expanded in perpetuity.

Thumbs down to the Heritage Foundation’s Saving the American Dream for saving the welfare/warfare state.

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