Ending the Welfare State

Congress finally acted to raise the debt ceiling. It did so by forcing an agreement with President Obama that forestalled any tax increases and made a half-hearted effort to cut spending. No, not now; sometime in the future and please don’t bother them with the details because they are awfully busy congratulating themselves on what a great and magnificent job they did.

There must be parallel universes operating here. There is Washington, D.C. and then there is the real world. While Congress and Mr. Obama were preening for the cameras, the real world spoke to their accomplishments. The stock market dropped 698.63 points for the week. After the close of business on Friday, Standard & Poor’s reduced the government’s AAA rating to AA+ and on Monday the stock market dropped another 634.76 points. Investors, including IRAs, pension plans, and individual shareholders have lost over $1.5 Trillion dollars in less time than it took for Mr. Obama and Congress to agree to a $1.2 Trillion reduction in spending increase over the next ten years.

The primary causes for the Standard & Poor’s reduction in our credit rating is two-fold: First, there is the belief that Mr. Obama and the Congress did not make any real progress in bringing deficit spending and a growing national debt under control. In fact, the Standard and Poor’s August 5, report stated:

“The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

And second, as noted in Monday’s Wall Street Journal:

“S&P officials, meanwhile, took to a rare Saturday conference call and the Sunday morning political talks shows to establish their bona fides, defending their analysis and saying that the prolonged and near-disastrous conclusion of the debt-ceiling talks called into question Washington’s ability to function.”

And then, while the real world waited for action, for leadership, for an answer – hell, just recognition of the problem, what did we get? We got the same thing we have gotten for four months – finger pointing. The most annoying was from Mr. Obama and his administration as they attacked Standard & Poor’s. The politics of personal destruction remain alive and well in this Administration that would much rather attack the messenger than deal with the message.

The most vicious was from a parade of liberal pundits and Democrat officials who – in chorus – savaged the tea party movement as “terrorists”, “cannibals”, and “suicide-bombers.” There wasn’t a brain or original thought amongst them as they claimed that the tea party movement and the Republicans were hell bent on deliberately destroying the economy. All capped by the serial morons who opined that the tea party movement is doing this because Mr. Obama is a black man. (Rep. Gabriel Gifford (D-AZ) must be moved to tears by the hypocrisy of those who demanded a more civil debate in the aftermath of her shooting by a deranged gunman in Tucson.)

And the Republicans were no better as they repeated their mantra that Mr. Obama failed to provide any leadership and that he is ill equipped to be President. While I tend to agree with that view it is irrelevant in this time of crises. We are stuck with Mr. Obama for the time being and posturing for the 2012 election is doing nothing to solve the underlying problem.

And the problem is – simply stated – the welfare state is not a sustainable economic model. If the nation continues to pursue the welfare state either intentionally or by default through inaction then we are guaranteed to take our place along side the ailing European nations. The fact that Russia and China, each of whom suffered decades of economic deprivation due to the failures of socialism, now lecture the United States on its growing addiction to debt should be an embarrassment to Mr. Obama and Congressional leaders.

As noted in Monday’s Wall Street Journal:

“In a scathing editorial on Saturday, China’s state-run Xinhua news agency called the downgrade ‘an overdue bill that America has to pay for its own debt addiction and the short-sighted political wrangling in Washington.’”

Russia’s president-in-waiting, Vladmir Putin, routinely refers to Americans as parasites. A Reuters’s article on August 1 quoted Putin as saying:

“They [Americans] are living beyond their means and shifting a part of the weight of their problems to the world economy. They are living like parasites off the global economy and their monopoly of the dollar.”

Despite the fervent belief of Mr. Obama and the Democrat Party that redistribution of wealth is more important than creation of wealth, that model has failed everywhere it has been tried. For the United States to restore its credit rating and its prominence as an economic leader it must rein in the welfare model to a smaller model that is sustainable in a healthy economic environment. It is impossible for this government or any government to be all things to all people.

Modifying the welfare system to a sustainable model does not mean that we are a cruel or uncaring nation. It simply means that unless the model is sustainable all will be reduced to a common suffering. And modifying the welfare state also means that you address the welfare issue in all of its iterations – corporate, private, and those actually in need.

Following is a list of needed changes to the welfare state. It is neither exhaustive nor unique. Many of these suggestions have appeared in the Bowles-Simpson report, while others have been formulated in public and private debates:

1. Eliminate corporate welfare. That means the elimination of special tax considerations for oil and gas producers, hedge fund managers and others. It also means elimination of direct subsidies and tax subsidies for wind and solar generators, biofuels, ethanol, and other nascent but uneconomic energy suppliers. Add crop subsidies and other agricultural support mechanisms.
2. Eliminate tax benefits for foreign investments and allow repatriation of profits earned on foreign investments by treating such profits as capital gains. (This might be referred to as eliminating the Obama/Immelt tax break.)
3. Confine mortgage interest deductions to primary homes.
4. Repeal Obamacare. Everyday we continue to learn that Mr. Obama, former Speaker Pelosi and Sen. Reid lied about every financial aspect of the plan. The only “savings” in healthcare costs comes from reducing Medicare benefits by $500 Billion and that reduction, like all other Medicare reductions, will evaporate when Congress is actually called upon to enact it.
5. Eliminate all welfare payments, in its myriad of forms and programs, to those who are not legally in the United States. That includes Medicaid payments and access to emergency room care under the Emergency Medical Treatment and Active Labor (EMTALA)
6. Restrict unemployment benefits to those actually seeking work. Recipients should be able to pursue jobs equivalent to their previous employment during the first twenty-six weeks but thereafter should be required to accept any job offered. Work or starve is a significant incentive.
7. Increase the eligibility age for Social Security. Starting with those age 50 or younger increase the full eligibility age by one year, for those 45 and younger by two years, for those 40 and under by three years, and for those 35 and under by four years. Further adjustments for those 30 and under should be considered as longevity increases. The same increases should be applied to early eligibility at reduced benefits.
8. Means test cost of living increases in Social Security benefits for those 50 and under as they become eligible.
9. Means test contributions for Medicare. Based on that means testing, those who can afford it should pay double the contribution rate as those who cannot.
10. I am a believer that every participant in society should pay some level of taxes. To do otherwise is to immunize those participants from the consequences of their actions. To that end, Bill O’Reilly raised an interesting notion of providing a national sales tax limited solely to fund Medicare. Only a sales tax would accomplish that participation.
11. Eliminate the earned income tax credit – it is a pernicious form of welfare that gives the impression that the recipient is actually earning income. If an increase in welfare payments is required let it be direct and measurable. If the level of income subject to tax is too low, then increase it.
12. Eliminate the entire Department of Energy and every one of its programs that suck up tax dollars without addressing rationally the very purpose for which it was created – energy independence. (Pie in the sky dreams of a landscape crowded with windmills and solar panels is foolish and deceives the public into thinking that it is a realistic and achievable solution. The nation’s energy producers will do a better and more efficient job of achieving energy independence.)
13. Eliminate the entire Department of Education. Education is the responsibility of state and local governments – not the federal government. I might feel differently about this if there was any evidence that the public education system had improved in any fashion. Just the opposite, however, it true. Since the creation, staffing and funding of the Department of Education academic achievement has declined vis-à-vis the rest of the industrialized nations. If there is an economic imbalance between states, use block grants.
14. Roll back new regulations to those in place at the end of 2008. A recent report from the Heritage Foundation indicates that Mr. Obama has added an additional $83 Billion in annual costs to the economy through new regulations.

The only way to overcome the current fiscal mess is to promote economic expansion. The Keynesian model suggests that government spending is the primary engine for spurring that expansion. Mr. Obama and the Democrat controlled Congress have proven, once again, that Keynesian theory doesn’t work. That does not mean that there isn’t a role for government spending. Acceleration of expenditures for capital improvements can be an aid. However, Mr. Obama spent the stimulus money on recurring expenses – including raises for public employees and rewards for his political constituencies – which simply raised the baseline for future expenditures. Unfortunately, whatever “head room” there was for a stimulus has been spent and wasted and any further stimulus will only increase the underlying problem – spending in excess of revenue.