Newt Gingrich has proposed the most cutting-edge solution to our fiscal crisis.
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No other reform would do so much to promote equality of wealth among the American people, not through the economically counterproductive redistribution of existing wealth, but through the creation of new wealth more equally owned. Indeed, based on studies by Harvard Professor Martin Feldstein, full personal accounts would reduce the concentration of wealth in America by one half.
The personal accounts would also funnel mighty rivers of savings and investment into the economy today, promoting economic growth and more jobs and higher wages for working people now. That would also promote more equality.
Block Grant Welfare Back to the States
Gingrich’s entitlement reform proposals also include block granting all remaining federal means-tested entitlement programs back to the states, following the model of the enormously successful 1996 reforms of the old New Deal era AFDC program, spearheaded by Gingrich when he was Speaker of the House. These programs are estimated to cost taxpayers $10 trillion over the next 10 years alone.
If any liberal reform had been as wildly successful as those 1996 welfare reforms, every schoolchild in America would have been forced to memorize the details by now. Those reforms involved the ultimate welfare policy dream of President Reagan and his long time welfare guru Robert Carleson, as explained in Carleson’s recent posthumously published book Government Is the Problem: Memoirs of Ronald Reagan’s Welfare Reformer. I worked directly for Carleson in the Reagan White House.
The reform returned the share of federal spending on the program to each state in the form of a “block grant” to be used in a new welfare program redesigned by the state based on mandatory work for the able bodied. Federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more. The key to the 1996 reforms was that the new block grants to each state were finite, not matching, so the federal funding did not vary with the amount the state spent. If a state’s new program cost more, the state had to pay the extra costs itself. If the program cost less, the state could keep the savings.
With these transformed incentives, the old AFDC rolls were reduced by two-thirds nationwide, even more in states that pushed work most aggressively. As a result, in real dollars total federal and state spending on the program by 2006 was down 31 percent from AFDC spending in 1995, and down by more than half of what it would have been under prior trends. Welfare spending could never be cut by 50 percent merely by trying to cut benefits.
At the same time, because of the resulting increased work by former welfare dependents, the poor benefitted as well. Child poverty declined every year, falling by 2000 to levels not seen since 1978, as Ron Haskins of the Brookings Institution reports in his 2006 book evaluating the 1996 welfare reforms, Work Over Welfare. “[B]y 2000 the poverty rate of black children was the lowest it had ever been. The percentage of families in deep poverty, defined as half the poverty level…also declined until 2000, falling about 35% during the period,” Haskins adds. The incomes of the poor formerly dependent on AFDC rose by 25%, now paid by their private employers in the labor market, rather than taxpayers.
Gingrich proposes to extend these same block grant reforms to all other 184 means tested federal welfare programs, including Medicaid, Food Stamps, 27 low income housing programs, 30 employment and training programs, 34 social services programs, another dozen food and nutrition programs, another 22 low income health programs, and 24 low income child care programs, among others. This would amount to sending welfare back to the states, achieving the complete dream of Reagan and Carleson in restoring the original federalism and state control over welfare. It also follows the spirit of the Tea Party movement in restoring power to the states and gaining control over government spending, deficits, and debt.
If the results are anything like those for the 1996 reforms, the total savings for taxpayers would be enormous, and the poor would be much better off. With the states experimenting and competing to put the able bodied to work, instead of taxpayers paying the bottom 20 percent of income earners not to work as today, private employers would be paying them to work, and contribute to the economy.
Repeal and Replace Obamacare
Gingrich’s proposed entitlement reforms include as well repealing and replacing Obamacare with Patient Power, as long advanced by John Goodman of the National Center for Policy Analysis.
The classic example of such policy is Health Savings Accounts (HSAs), which were also first recognized in federal law when Gingrich was Speaker. The concept behind HSAs is to start with an insurance policy with a high annual deductible, which reduces the cost of the insurance substantially. The savings are then kept in the HSA to pay expenses below the deductible. Generally, after one healthy year with little or no medical expenses, the patient by the second year would have more than enough in the account to cover all expenses below the deductible.
This transforms the incentives of third party payment. For all but catastrophic health expenses, the patient is essentially using his own money for health care. Whatever he doesn’t spend he can keep. So the patient will try to avoid unnecessary care, and look for less expensive care and alternatives for what he does need.
In turn, since patients would now be concerned about costs, doctors, hospitals and other providers would now compete to control costs, as well as maximize quality, as in all normal markets. This competition would become more intense and effective the more widespread HSAs and similar incentives become. These incentives would flow all the way through to the developers of new technologies. Since both patients and health providers are now concerned with costs, technology innovators would now have incentives to develop technologies that reduce costs, as well as improve quality.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
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It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
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H/T to National Review Online