Re-thinking welfare
 

A Plan to Replace the Welfare State
The government should give every American $10,000--and nothing more.

BY CHARLES MURRAY
Sunday, March 26, 2006 12:01 a.m. EST

This much is certain: The welfare state as we know it cannot survive. No serious student of entitlements thinks that we can let federal spending on Social Security, Medicare and Medicaid rise from its current 9% of gross domestic product to the 28% of GDP that it will consume in 2050 if past growth rates continue. The problems facing transfer programs for the poor are less dramatic but, in the long term, no less daunting; the falling value of a strong back and the rising value of brains will eventually create a class society making a mockery of America's ideals unless we come up with something more creative than anything that the current welfare system has to offer.

So major change is inevitable--and Congress seems utterly unwilling to face up to it. Witness the Social Security debate of last year, a case study in political timidity. Like it or not, we have several years to think before Congress can no longer postpone action. Let's use it to start thinking outside the narrow proposals for benefit cuts and tax increases that will be Congress's path of least resistance.

The place to start is a blindingly obvious economic reality that no one seems to notice: This country is awash in money. America is so wealthy that enabling everyone to have a decent standard of living is easy. We cannot do it by fiddling with the entitlement and welfare systems--they constitute a Gordian Knot that cannot be untied. But we can cut the knot. We can scrap the structure of the welfare state.

Instead of sending taxes to Washington, straining them through bureaucracies and converting what remains into a muddle of services, subsidies, in-kind support and cash hedged with restrictions and exceptions, just collect the taxes, divide them up, and send the money back in cash grants to all American adults. Make the grant large enough so that the poor won't be poor, everyone will have enough for a comfortable retirement, and everyone will be able to afford health care. We're rich enough to do it.

Consider retirement. Let's say that we have a 21-year-old man before us who, for whatever reasons, will be unable to accumulate his own retirement fund. We accumulate it for him through a yearly contribution for 45 years until he retires at age 66. We can afford to contribute $2,000 a year and invest it in an index-based stock fund. What is the least he can expect to have when he retires? We are ridiculously conservative, so we first identify the worst compound average growth rate, using constant dollars, for any 45-year period in the history of the stock market (4.3% from 1887-1932). We then assume our 21-year-old will be the unluckiest investor in American history and get just a 4.0% average return. At the end of the 45-year period, he will have about $253,000, with which he could purchase an annuity worth about $20,500 a year.

That's with just a $2,000 annual contribution, equivalent to the Social Security taxes the government gets for a person making only $16,129 a year. The government gets more than twice that amount from someone earning the median income, and more than five times that amount from the millions of people who pay the maximum FICA tax. Giving everyone access to a comfortable retirement income is easy for a country as rich as the U.S.--if we don't insist on doing it through the structure of the welfare state.

Health care is more complicated in its details, but not in its logic. We do not wait until our 21-year-old is 65 and then start paying for his health care. Instead, we go to a health insurance company and tell it that we're prepared to start paying a constant premium now for the rest of the 21-year-old's life. Given that kind of offer, the health insurance company can sell us a health care policy that covers the essentials for somewhere around $3,000. It can be so inexpensive for the same reason that life insurance companies can sell generous life insurance cheaply if people buy it when they're young--the insurance company makes a lot of money from the annual payments before eventually having to write the big benefit checks. Providing access to basic medical care for everyone is easy for a country as rich as the U.S.--if we don't insist on doing it through the structure of the welfare state.

There are many ways of turning these economic potentials into a working system. The one I have devised--I call it simply "the Plan" for want of a catchier label--makes a $10,000 annual grant to all American citizens who are not incarcerated, beginning at age 21, of which $3,000 a year must be used for health care. Everyone gets a monthly check, deposited electronically to a bank account. If we implemented the Plan tomorrow, it would cost about $355 billion more than the current system. The projected costs of the Plan cross the projected costs of the current system in 2011. By 2020, the Plan would cost about half a trillion dollars less per year than conservative projections of the cost of the current system. By 2028, that difference would be a trillion dollars per year.

Many questions must be asked of a system that substitutes a direct cash grant for the current welfare state. Work disincentives, the comparative risks of market-based solutions versus government guarantees, transition costs, tradeoffs in health coverage, implications for the tax system, and effects on people too young to qualify for the grant all require attention in deciding whether the Plan is feasible and desirable. I think all of the questions have answers, but they are not one-liners; I lay them out in my book.

For now, let me turn to a larger question: Assuming that the technical questions have answers, do we want a system in which the government divests itself of responsibility for the human needs that gave rise to the welfare state in the first place? I think the reasons for answering "yes" go far beyond the Plan's effects on poverty, retirement and health care. Those issues affect comparatively small minorities of the population. The more profound problem facing the world's most advanced societies is how their peoples are to live meaningful lives in an age of plenty and security.
Throughout history until a few decades ago, the meaning of life for almost everyone was linked to the challenge of simple survival. Staying alive required being a contributing part of a community. Staying alive required forming a family and having children to care for you in your old age. The knowledge that sudden death could happen at any moment required attention to spiritual issues. Doing all those things provided deep satisfactions that went beyond survival.

Life in an age of plenty and security requires none of those things. For the great majority of people living in advanced societies, it is easily possible to go through life accompanied by social companions and serial sex partners, having a good time, and dying in old age with no reason to think that one has done anything significant.

If you believe that's all there is--that the purpose of life is to while away the time as pleasantly as possible--then it is reasonable to think that the purpose of government should be to enable people to do so with as little effort as possible. But if you agree with me that to live a human life can have transcendental meaning, then we need to think about how human existence acquires weight and consequence.

For many readers of The Wall Street Journal, the focus of that search for meaning is bound up with vocation--for some, the quest to be rich and famous; for others, the quest to excel in a vocation one loves. But it is an option open to only to a lucky minority. For most people--including many older people who in their youths focused on vocation--life acquires meaning through the stuff of life: the elemental events associated with birth, death, growing up, raising children, paying the rent, dealing with adversity, comforting the bereaved, celebrating success, applauding the good and condemning the bad; coping with life as it exists around us in all its richness. The chief defect of the welfare state from this perspective is not that it is ineffectual in making good on its promises (though it is), nor even that it often exacerbates the very problems it is supposed to solve (though it does). The welfare state is pernicious ultimately because it drains too much of the life from life.

The Plan returns the stuff of life to all of us in many ways, but chiefly through its effects on the core institutions of family and community. One key to thinking about how the Plan does so is the universality of the grant. What matters is not just that a lone individual has $10,000 a year, but that everyone has $10,000 a year and everyone knows that everyone else has that resource. Strategies that are not open to an individual are open to a couple; strategies that are not open to a couple are open to an extended family or, for that matter, to half a dozen friends who pool resources; strategies not open to a small group are open to a neighborhood. The aggregate shift in resources from government to people under the Plan is massive, and possibilities for dealing with human needs through family and community are multiplied exponentially.
The Plan confers personal accountability whether the recipient wants it or not, producing cascading secondary and tertiary effects. A person who asks for help because he has frittered away his monthly check will find people and organizations who will help (America has a history of producing such people and organizations in abundance), but that help can come with expectations and demands that are hard to make of a person who has no income stream. Or contemplate the effects of a known income stream on the young man who impregnates his girlfriend. The first-order effect is that he cannot evade child support--the judge knows where his bank account is. The second-order effect is to create expectations that formerly didn't exist. I call it the Doolittle Effect, after Alfred Doolittle in "My Fair Lady." Recall why he had to get to the church on time.

The Plan confers responsibility for dealing with human needs on all of us, whether we want it or not. Some will see this as a step backward, thinking that it is better to pay one's taxes, give responsibility to the government and be done with it. I think an alternative outlook is wiser: The Plan does not require us all to become part-time social workers. The nation can afford lots of free riders. But Aristotle was right. Virtue is a habit. Virtue does not flourish in the next generation because we tell our children to be honest, compassionate and generous in the abstract. It flourishes because our children practice honesty, compassion and generosity in the same way that they practice a musical instrument or a sport. That happens best when children grow up in a society in which human needs are not consigned to bureaucracies downtown but are part of life around us, met by people around us.

Simply put, the Plan gives us back the action. Institutions and individuals alike thrive to the extent that they have important jobs to do and know that the responsibility to do them is on their heads. For decades, the welfare state has said to us, "We'll take care of that." As a result, we have watched some of our sources of life's most important satisfactions lose vitality. At the same time, we have learned how incompetent--how helpless--government is when "taking care of that" means dealing with complex human needs. The solution is not to tinker with the welfare state. The solution is to put responsibility for our lives back in our hands--ours as individuals, ours as families, and ours as communities.

Uh-Oh, the plan would seem to infringe on the power base of many of our esteemed politicians. Do you think they'd be for it?

Our last Liberal Chief Exec., RMN, seriously considered proposing a minimum income paid to all US citizens, which I believe was to have been tied to COLAs in perpetuity.

Here's my 'worst case' projection.

It's an interesting idea but how do you motivate people to move up and out of a guaranteed income? I'm guessing there are folks who are struggling to maintain a low-level job right now who would gladly drop it if somebody gave them an indexed $10K. The jobs occupied by Americans at the entry-level labor positions would no longer interest Americans opening even more positions to illegal aliens. Etc.

Having said all of that, I find it an intriguing idea and agree with the author that our current system is untenable in the long-run and demagogues run-amuck will prevent any meaningful reform. To me, that's the time to look for something radical to try. This maybe one, though complete destruction is still my favorite.

Z, I had forgotten about Nixon's suggestion. IIRC, though he didn't get the whole enchilada he did get the Earned Income Credit on the bottom and the AMT on the top.

Bot

That's a very interesting writeup but it doesn't seem very rational.

First I would like to point out that the Welfare system wouldn't be in the mess it's in if we didn't ship our manufacturing jobs overseas. We have gone from a manufacturing/industrial nation to a service industry nation. lower pay base = lower tax base. Somebody needs to wake up and realise Free Trade does not work.

Back to the topic. Why is there a limit to the FICA tax? Get rid of that and you double your money.
Second that whole dialog runs on the asumption that everyone on welfare/medicare/medicaid is able to work. How do you account for the millions of people on disability or too sick to work? Many people will never in their whole life be able to pay into any system. Should we abandon our sick, disabled and elderly?

Third This system calls for money to be sent to the government for disbersment. that in itself is a recipe for disaster. If the government or insurance industry gets it's hands on any money you can be sure it will NOT be used to help the poor.

And it also raises the question of why we can spend billions of dollars overseas. And I'm not just talking about the wars. How come we can't spend the money to meet the basic needs of the American people?

Danny

The ceiling is raised every year.

Look to France if you want an answer to what your protectionist economic strategies will produce.

forcibly/coecrcively removing from one individual the fruits of his labor to give to another is theft and immoral no matter who does the removing.

Mr. Murray writes that providing basic health care is easy as long as we don't do it through the structure of the welfare state. I don't know about that - I know a lot of people who can't afford to buy health care for their children at the current prices. And while the care in this country is very good when it comes to treating serious illnesses such as cancer, I think we are something like #24 among industrialized nations when it comes to our rank as determined by the normal indicators.

It is important to keep some sort of a private health insurance system in place, but I think a single payer system for certain basic needs would be a good idea. The fact is that we are already paying for uninsured people and would actually save money by covering them.

It's true that our current 'entitlement' system is not working, and we need to resolve either to fund it or do something else. Unfortunately, serious changes will never be politically viable until we face some sort of crisis.

If we started giving everyone $10,000 per year I bet you'd see a population explosion...

Worthwhile ideas. However, the government has a long track record of poor implementation of social services.

Here's a fresh idea! Ask the government to do much less and the able-bodied can become more self-sufficient. The reduction in taxes would provide us more choices with our resources, including the purchase of decent health insurance.

That would be great if the government would actually keep it's commitment to education. I don't know about everyone else but I know a few teachers and they all tell me the same thing. The "No Child Left Behind" theory is leaving a lot of children behind.

Maybe some kind of tax incentive for children with passing grades?
Like you don't get the child deduction if the child is failing in school. and maybe a bigger credit if the child does better than average.
Or maybe "You don't get your food stamps until your brat kid gets his grades up".

Ok JK on the last one but that would be a system the Govt. could hardly screw up.

Danny

Max Borders: Joining us today we have Charles Murray, author of the new book, "In Our Hands: A Plan to Replace the Welfare State." Welcome, Charles.

Charles Murray: Good morning.

Borders: You've studied social safety nets for most of your career. What has the welfare entitlement state done to this country?

Murray: Well you have effects on two levels. One involves the effects of social programs intended to help the poor and the disadvantaged. And that was the topic of a book I wrote 20 odd years ago called Losing Ground, which said essentially we made things worse for the very people we were trying to help.

There is, however, another whole set of effects of the welfare state in the form of Social Security and Medicaid and other kinds of programs which take money from one American and give it to another American (whom the government has decided needs the money more). Whether it's taking it from a young person to give to a retiree, or whether it's taking it from a secretary in Alabama to give to a corporation that is getting a special favor from the government, all of these transfers -- and that's what they are: money from individual Americans to other individuals or to corporations -- seem to me to be a classic example of shipping money to Washington, seeing large amounts of it be wasted and go down the drain, and then it gets shipped out of Washington in much reduced form for dubious purposes.

And what "In Our Hands" is all about, ultimately, is saying: stop that. Just, if you're going to collect all this money, give it back to people as money and let them run their lives as they see fit.

Borders: And at the same time you eliminate the considerable degree of bureaucratic interference and, for that matter, the bureaucracy itself.

Murray: Yes, that's a topic I actually don't even mention in the book. I have not calculated the number of government officials who would be put out of work by my plan, but I'm sure it numbers in the hundreds of thousands.

Now the reason I didn't put it in the book is very simple: that's not the main point. It would be very nice to have these people engaged in productive lives instead of unproductive ones, but it's not the real purpose.

The real purpose could be perhaps summarized like this:

We start with a country that is the richest country in the world, with most of its people having lots of money (compared to any historical standard), ample money to provide for their own retirements, medical care, and the rest of it. On top of this national wealth, we then add more than $1 trillion to help people provide for comfortable retirement and medical care, and so forth. And guess what? We still have millions of people without comfortable retirements, without adequate medical care. And only a government can spend that much money that ineffectually.

The alternative I suggest is give every adult American, age 21 and older, $10,000 a year. And let them run with it.

Borders: So $10,000 for every single American? As soon as you turn 21 you start getting this money?

Murray: That's right. And there are a couple of key points to be made here because some folks will be thinking of past attempts at negative income taxes which provided a floor under income and certain experimental programs. And this is different. This is not a floor. This is not a case of, "if you make less than $10,000 a year we will top up your income to $10,000." This is $10,000 period. And so if you're making $10,000 a year, your net is $20,000. If you're making $20,000 a year, your net is $30,000.

There are some complications down the road, but they aren't very important. I'll just mention them real quickly.

At $25,000 of earned income you start to pay a surtax on the grant, and that reaches a maximum of half the grant. So at $50,000 you only have a net of $5,000 from the grant. The reason for that is pretty simple -- that you want to give upper income people something for all the money they're putting into taxes right now to provide for their own medical care and retirement, and they get that net of $5,000. And I argue it's a better deal than what they're getting now.

But the other main point is that the surtax doesn't kick in until $25,000 of earned income. So the negative work incentives are pretty small.

Borders: Do you know of any other countries that have tried anything like this? Or is this entirely new?

Murray: The idea is a direct descendant of Milton Friedman's proposal for negative income tax. George Stigler sometimes gets the credit for that. But George Stigler himself says it was suggested to him by Milton Friedman back in the early 1940's. So it's a direct descendent of that idea, considerably revised, but on a much bigger scale and doing much more. I'm not using this just to cure poverty. I'm using this money to take the place of Social Security and Medicare and Medicaid and all the rest of those kinds of things.

Borders: I take it that your system, to get the $10,000 per year, we would have essentially to abolish all other entitlements and transfers.

Murray: That's absolutely essential. It's not on top of an existing system of payments; it is instead of.

Perhaps I should tell the listeners and readers how I really start at the very beginning of the book with the ground rules. The ground rule that reminds me of an old joke that involves three people stuck at the bottom of a deep hole, and they are supposed to figure out ways to escape. And I forget who the first two people are, but the third person is an economist, and when it comes his turn to propose his solution to escape he says, "First, we assume a ladder."

The economists say "first, we assume a free market"; "first, we assume frictionless prices," and so forth. And so I will be the first to acknowledge to my readers that I am not under the illusion that Congressmen are going to read this book and say, "by George, this is it and we're going to enact it." I am trying to enter into the debate a radical new way of doing business that is going to take a while to sink in to the political consciousness enough to have a chance to be considered seriously.

But that's one ground rule. My readers have to say, "OK, we understand this is not politically feasible right now." But the ground rule facing me is that I have to be practical about it. I have to say, this would work -- not just in theory. If this were implemented, it would really do all the good things I say it would do in the 21st century United States. So that's one aspect of thinking about what I'm proposing.

In that light, I start out the first chapter by saying there would have to be a constitutional amendment. And I am not confident to frame that in legal language, but I can tell you the sense of it. And the sense of it is that -- hence forth -- no government program shall be used to transfer money directly from individuals or groups to other individuals and groups. You know, the programs that are legitimate for the government are ones that provide authentic public goods -- such as police protection, the court system, and national defense. The one exception to all of this shall be the grant -- the $10,000 -- that starts out at $10,000 a year on the opening of the program. And other than that, no transfers at all. And that includes corporate welfare and agricultural subsidies and all the rest. At the local, state, as well as federal level.

Borders: You don't really mention the cost savings when the bureaucracies would go away, but I think that is an important underlying point.

Murray: Well, I'm saying throughout the book that this plan is revenue neutral. So this is not promising people big tax cuts. What I do is take the current projected costs of the current system, which have been done by the Congressional Budget Office and many others, and in all cases I use very conservative estimates of how much the cost of the current system is going to be in the out years. And then I have very detailed calculations of the cost of "the Plan," as I call it. And it would be that the cost of the plan and the cost of the projected current system cross in 2011.


Right now, the plan I propose is more expensive than the current system. As of 2011, costs would be equal. And let's fact it, there's no chance it's going to be implemented before 2011. And by 2020, the projected costs of the plan are about half a trillion dollars a year less than the projected costs for the current savings. So there are savings in the out years.



More at http://www.tcsdaily.com/article.aspx?id=032806A

That's an interesting idea but the last statement is totally false. Our government can screw anything up if paid enough to do it.

But....

You couldn't pay teachers enough to be honest. This pay-for-grades plan would lead to bribes, beatings, and no real improvement in the kids educations.

I'm a proponent to helping people out. But I am also enough of a realist to admit two things;

1. Many people who are smarter than I, and educated in the field, can't come up with a better system, so why should I try.

2. There will always be cheats. But until it no longer becomes more important to get the food stamps to Betty R. Needsthemtolive than to take them from John Q. Deadbeat, there will be no reform.

I don't like the sound of the gov doing income redistribution. I hate to say it but unless some major changes happen very soon we will soon find ourselves in a class structure similer to the late 19th century.

On the bright side if you are smart and work the system you will make a fortune. The downside is if history is any indicator 90% of the population will not do this.

The gov just can't be trusted with money, their needs to be a way to get things like social security into private hands.

Now you've done it.....


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