Conservatives can win on entitlement reform.
Fundamental, structural, entitlement reforms, proven to work in the real world, would provide far better benefits for seniors and the poor, while slashing future entitlement spending. Indeed, over the long run, such reforms could reduce federal spending by half as a percent of GDP.
“Structural” reform means changing the way the programs operate. As I explain below, future federal spending would be reduced far more through such structural reforms than by trying to cut future benefits for seniors and the poor (which will never be politically feasible anyway).
Such reforms involve changing the incentives resulting from entitlements, to promote productive behavior rather than counterproductive behavior. Instead of incentives not to work, modern entitlement reforms would provide powerful incentives for the poor to work, and get ahead. Instead of incentives for family breakup and bearing children out of wedlock, modern entitlement reforms would provide powerful incentives for family formation and bearing children only within marriage.
The new modern entitlements work far better because, instead of old-fashioned, counterproductive, tax and redistribution, they rely on modern capital and labor markets to provide most of the benefits (dramatically reducing future federal spending in the process). They involve pro-growth incentives for the poor to work, and working people to save and invest for retirement, contributing to economic growth and prosperity for all, rather than dragging the economy down through tax and redistribution. Call it the “supply side” safety net.
Conservatives can win promoting such modern, supply-side, entitlement reform, with broad, enthusiastic, majority public support. They may even be able to start enacting some of the reforms in the next four years. But at a minimum, they can start public education and organization now to promote such reform, and lay the groundwork for winning future elections on this basis. And this is how conservatives and Republicans should discuss entitlement reform in the upcoming debt limit/government shutdown battles with President Obama and the Democrats.
Block Grant Welfare to the
Conservatives already achieved enormous success with fundamental, structural reform of one federal entitlement program – the old, New Deal, Aid to Families with Dependent Children (AFDC) program. That reform was ultimately enacted in 1996 with broad, bipartisan majorities, and even signed by a Democrat President.
Under the reform, the share of federal spending for AFDC was provided to each state in the form of a “block grant.” Each state then used those funds to finance a redesigned welfare program based on a work requirement 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. That transformed the incentives for the state bureaucrats administering the programs to get people out to work, rather than promote dependency.
The reformed program was renamed Temporary Assistance to Needy Families (TANF). These reforms implemented the ultimate welfare policy goals of former President Reagan and his long-time top welfare policy advisor Robert Carleson.
Exactly contrary to the predictions of liberal opponents, the reform was immensely successful. The old AFDC rolls declined by two-thirds nationwide, even more in states that pushed work most aggressively: Wyoming (97%), Idaho (90%), Florida (89%), Louisiana (89%), Illinois (89%), Georgia (89%), North Carolina (87%), Oklahoma (85%), Wisconsin (84%), Texas (84%), Mississippi (84%). As a result, in real dollars total federal and state spending on TANF by 2006 had declined 31% from AFDC spending in 1995, falling by more than half of what it would have been under prior trends.
Yet, the incomes of the families formerly on the program rose by 25%, and poverty among those families plummeted, because of the increased work by the former welfare dependents.
The same reforms can and should be extended to all of the remaining, nearly 200, federal means-tested welfare programs, including the biggest ones such as Medicaid and food stamps. That would achieve the ultimate dream of Reagan and Carleson, sending welfare back to the states.
The best estimate of the total current cost of all federal, means-tested, welfare programs is more than $10 trillion over the next 10 years. All of that would ideally be sent back to the states. Extrapolating from the AFDC experience, the savings from maximally extending such reforms would amount at least to $4 trillion in the first 10 years alone, and maybe much more depending on state policies. CBO estimated that the 10 year savings from block granting Medicaid alone as House Budget Committee Chairman Paul Ryan proposed in his 2013 budget would be nearly $1 trillion.
Yet, again based on the experience with the 1996 reform, work and incomes among the dependent poor would rise sharply, and poverty would plummet. As a result, instead of taxpayers paying the bottom 20% of income earners not to work, as today, private employers would pay the bottom 20% to work, and contribute to the economy. The states could even transform the whole welfare system into a work safety net, providing benefits only in return for work first.
Patient Power Instead of
Obamacare just blindly added to the excessive entitlement burden, creating or expanding 3 entitlement programs. That includes expanding Medicaid to nearly 100 million Americans by 2021, according to CBO.
Yet, because Medicaid pays doctors and hospitals only 60% or less of costs for their health services, the poor, particularly the most sick, face grave difficulties in obtaining timely and essential health care through Medicaid, and suffer worse health outcomes as a result. Medicaid would work far better for the poor if it were sent back to the states through block grants as above, and the states granted the poor vouchers they could use to pay for private insurance coverage of their choice. Private insurance has to pay doctors and hospitals enough to assure timely and effective care, or else customers would flee elsewhere.
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.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?
H/T to National Review Online