Entries Tagged as 'Yuval Levin'

New Tax Revenues: The Fiscal Crisis Fix?

David Frum April 14th, 2011 at 4:19 pm 41 Comments

This is part six. Click here to read the entire series.

The fourth element of a conservative response to the fiscal crisis is to pay attention to revenues.

Gov. Mitch Daniels has a funny line about wanting a tax code that looks like somebody designed it on purpose. It’s a project worth considering.

Back in the 1980s, the top rate of tax was pulled down to 28% by the systematic elimination of deductions and credits. Within a decade, the top rate had climbed back to almost 40% – and new credits and deductions proliferated. A bad trade.

If a 25% top rate is wanted – and it certainly seems a good idea to me – isn’t the way to finance it the same way as was done in 1986? If base broadening alone does not do the job (and it will not), then find other revenues in ways that are socially useful: higher taxes on energy to spur efficiency, higher excise taxes on alcohol and corn-based sweeteners, a VAT if need be. (I’m surprised that we have got this far in the debate without any political figure proposing to legalize marijuana and then tax it heavily. I suppose that’s because the legalizers tend to be the same libertarians who oppose all taxes.)

But if you’re looking for a grand bargain, and if you’re a conservative seeking to hold down top tax rates, you don’t want a two-way bargain, Medicare vs. income tax cuts. You want a multi-point bargain that includes revenue increases so keenly desired by liberals that liberals will overlook those revenues’ non-progressiveness.

The fifth element: growth acceleration.

Brink Lindsey makes the important point that the US economy compensated for low per-capita productivity growth in the 1970s and 1980s by adding many more workers to the population. The baby boomers come of age, and American women hugely increased their labor force participation.

Some suggest that the trick can be repeated in the years ahead by increasing immigration even above current very high rates. This seems to me a very bad idea. Remember, the problem that we are trying to address is the fiscal crisis of the state. It is not a very good scheme to address a fiscal crisis by importing millions of very poor people who will need much more state aid than they – and very likely their children and grandchildren – will ever pay in taxes.

What we need to do instead is seek every way over the medium term to restore very high rates of growth of per-person productivity – so that slower population growth can nevertheless still translate into strong economic growth.

For example: There remains important work to do on the trade front. The US still collects surprisingly high tariffs on cheap goods, from tableware to sneakers. Abolish them all.

For example: Traffic congestion represents an important economic cost. Americans in most metropolitan areas waste an hour or more a day traveling to and from work. Al Gore was right back in 2000 to worry about traffic as a political issue, and it needs to return to the agenda again, with special emphasis on road improvements and telecommuting.

Recessions are periods in which firms correct inefficiencies. They can be the same for governments and societies.

Less Welfare Doesn’t Equal Less Government

David Frum April 13th, 2011 at 9:25 am 152 Comments

This is part four. Click here to read the entire series.

Interestingly, it was neoconservative thinkers like Irving Kristol, James Q. Wilson, Daniel Patrick Moynihan, Gertrude Himmelfarb, and others who most searchingly indicted the kind of welfare state presented in Yuval Levin’s argument.

They noted that welfare programs aimed at the poor alone create three kinds of problems:

1) They intensify poverty because they impose huge costs on the exit from poverty.

Imagine a world in which everyone who earns less than $20,000 a year qualifies for Medicaid and nobody who earns more than $20,000 does so. What incentives do we present to the person now earning $19,999? One more dollar, and boom, there go your medical benefits.

This problem can be mitigated by phasing out benefits gradually – but that gets very expensive. (e.g., Today, we have states where people qualify for some Medicaid benefits all the way up to 400% of the poverty level.) Except when times are very flush, governments end up living with a situation in which it becomes simply irrational for poor people to work harder to escape poverty. The barriers to poverty exit are surely one reason that poverty rates have remained stuck at around 13% since 1965 even in boom times.

2) Welfare programs aimed at the poor compel governments to police the behavior of the poor.

Yuval Levin’s 5th principle argues: “we should reduce the reach of the administrative state, paring back all but essential regulations and protections and adopting over time an ethic of keeping the playing field level rather than micromanaging market forces, and of preferring set rules (in regulation, in monetary policy, and elsewhere) to administrative discretion.” Hear, hear. [Bolding added.]

Yet programs for the poor-only demand higher levels of administrative discretion. It’s easy to determine who qualifies for Social Security old-age pensions, not so easy to determine who qualifies for the Earned Income Tax Credit. Since qualification is uncertain, fraud is tempting – and fraud must be policed.

3) Welfare programs for the poor alone induce the poor to think of themselves as a community apart from the rest of society. It’s not just a matter of dependency, which is a severe and inescapable cost of any government program. (See e.g. the American grain farmer.) Worse is the development of alienated subcultures and anti-social folkways: the adversary culture as it has been called.

For these reasons and others, Irving Kristol always favorably contrasted Social Security and Medicare to means-tested programs for the poor.

More to come…

The Welfare State Goes Bust

David Frum April 12th, 2011 at 4:46 pm 75 Comments

This is part three. Click here to read the entire series.

I doubt that Yuval Levin would disagree with very much of what I wrote in the second post in this series. I expect that most Republican politicians and voters would agree too, in actions if not in words.

Republicans have repeatedly voted to extend unemployment insurance. Paul Ryan’s plan preserves Social Security. Yuval Levin’s own 5 principles for reform contemplate a healthcare system in which “the poor and the old would still have heavily subsidized coverage and much of the middle class would still have moderately subsidized coverage.”

So is this perhaps just a discussion of more vs. less? In the 1990s, federal spending as a share of GDP was reduced below 20% of national income. The crisis and the Obama response have pushed spending up to 25%. Could we translate Yuval Levin’s essay as a call to return to the old proportion?

Yes and no. Yes he’s certainly calling for spending less. (In that, I agree with him – although I doubt we’ll get back below 20% anytime soon).

But Yuval Levin is engaged in something more than hype when he says that his plan goes “beyond the welfare state.” Here’s the key line:

essentially all government benefits — including benefits for the elderly — should be means-tested …. Americans below 55 or so …  should expect public help only if they are in need once they retire. Means-testing should, to the extent possible, be designed to avoid discouraging saving and work. And private retirement savings should be strongly encouraged and incentivized, so that people who have the means would build private nest eggs with less reliance on government.

In other words: You might get some degree of state help if you need it. But you had better not count on it. And it will be delivered in ways that will open larger and larger differences between those who receive state aid and those who do not. In short: Medicaid for the old.

In other words, what we are contemplating here is not the end of the “welfare state” as most Americans use the term, a state that aids poor people. What is contemplated is the end of social insurance, at least as it applies to healthcare for retirees: a state to which all contribute on more or less equal terms and from which all draw benefits on more or less equal terms.

More to come…

What Worries Americans: Big Govt or the Economy?

David Frum April 12th, 2011 at 11:25 am 50 Comments

This is part two. Click here to read the entire series.

Yuval Levin founds his case against the welfare state on this description of the national mood:

It is becoming increasingly clear that we in America are living through a period of transition. One chapter of our national life is closing, and another is about to begin. We can sense this in the tense volatility of our electoral politics, as dramatic “change elections” follow closely upon one another. We can feel it in the unseemly mood of decline that has infected our public life — leaving our usually cheerful nation fretful about global competition and unsure if the next generation will be able to live as well as the present one. Perhaps above all, we can discern it in an overwhelming sense of exhaustion emanating from many of our public institutions — our creaking mid-century transportation infrastructure, our overburdened regulatory agencies struggling to keep pace with a dynamic economy, our massive entitlement system edging toward insolvency.

But these are mostly symptoms of our mounting unease. The most significant cause runs deeper. We have the feeling that profound and unsettling change is afoot because the vision that has dominated our political imagination for a century — the vision of the social-democratic welfare state — is drained and growing bankrupt, and it is not yet clear just what will take its place.

Supposing the first paragraph to be a valid description, is the second paragraph the most plausible explanation? I’ve met plenty of anxious people over the past three years. Many were beyond anxious: terrified and desperate. And what was the cause of their “unease”? Not the impending bankruptcy of Medicare. I know people who have seen their family incomes drop 80% or 90% over the past 3 years. I’m not going to mention names here, but if I did, I’d venture that Yuval Levin would recognize some of them. I know people who have been out of work for months. I don’t personally know anybody who has been foreclosed upon, but that is the accident of living in an area lightly touched by the mortgage disaster. So if somebody asked me, “What is the most significant cause of our mounting national unease?” I’d answer: “We have the feeling that profound and unsettling change is afoot because we are living through the worst economic downturn since World War II.”

And once you say that, your mind travels in a very different direction from that indicated by Yuval Levin’s essay, or at least my mind does.

Where did this crisis come from? Why was it not prevented? How can we minimize the suffering consequent to the crisis? How can we accelerate recovery from the crisis?

Perhaps I am speaking only for myself, but when I ponder those questions, I come to feel that the libertarian ideal championed these days by so many conservatives has become at least as drained as the social democratic idea.

I don’t believe that Yuval Levin, whom I know to be a compassionate person, deplores the existence of unemployment insurance and the ability of Congress to extend insurance payments during a serious crisis.

Are we sorry that the stimulus plan included aid to assist the unemployed with their COBRA payments to continue their health insurance?

Do we condemn food stamps?

Is it a national weakness that the now-substantial government/education/health/military sectors of the economy continued to provide some source of stable demand, unlike the situation in 1931?

When we think of the most immediately urgent failures of government, do we really think of the failure of government to adequately fund the Medicare needs in the next decade – or of the failure of government to act to prevent systematic misrepresentations by rating agencies in the past decade?

Do we truly regret that the Federal Reserve had discretionary power to create new money after October 2008? Wouldn’t it make more sense to regret that the Federal Reserve did not use its discretionary power to crack down on predatory lending activity in 2003?

If anything, as we review the record of the past three years, I’m moved to revise my own opinions of a lifetime and adapt the words of Yuval Levin’s mentor, Irving Kristol to say: “two cheers for the welfare state.”

Ryan Budget: Compassionate Conservatism Goes Kaput

David Frum April 12th, 2011 at 2:03 am 63 Comments

This is part one. Click here to read the entire series.

Don’t miss Yuval Levin’s piece in the current National Affairs, “Beyond the Welfare State.”

The piece is interesting and important for many reasons, but not least because of its author’s background: a prominent Bush domestic policy staffer, Levin has spent a lot of time pondering the question: “What is/was compassionate conservatism?”

Based on his new essay, the answer seems to be: compassionate conservatism is kaput.

Instead of the old emphasis on government aid to faith-based charities – government tax support for the poor – and the expansion of government health insurance for the elderly, Levin’s new vision endorses the Paul Ryan idea of radical reductions in government’s social insurance function.

“Beyond the Welfare State” urges a new approach to conservative domestic policy based on 5 key ideas:

1) Lower and flatter tax rates – likely meaning a further tax cut from today’s top rate, along the lines proposed by the Ryan budget plan, with elimination of most deductions, credits, and tax expenditures.

2) Means-testing of all government programs, including retirement security for those under-55s. Again this follows the ideas in the Ryan budget plan, whereby most under 55s will over time lose their claim on most government assistance.

3) Means-tested subsidies to support health insurance for those who cannot afford the full cost, within a marketplace regulated by the states.

4) Radical reductions in domestic discretionary spending.

5) Radical reductions in the administrative power of the state – including its monetary policies, which would adhere instead to fixed and predictable rules.

Levin acknowledges that this program will be politically unpalatable:

It will require extraordinary sacrifices from today’s young Americans, who will need to continue paying the taxes necessary to support the retirements of their parents and grandparents while denying themselves the same level of benefits so their children and grandchildren can thrive.

And since these “extraordinary sacrifices” are joined to a tax cut for high-bracket taxpayers, it’s not difficult to imagine how the plan might meet resistance.

But let’s leave the politics aside and consider the merits:

What to think about such a program as the basis for a new kind of conservatism? What would it accomplish, where would it put us?