Here is a true, empirical, universal generalization: Citizens in large and complex societies become dissatisfied when their government seizes and transfers wealth to prospective voters. Such allocations are partially, sometimes entirely, based on political calculations. Whatever the claims and justifications, over time benefits tend to flow toward the wealthy and politically powerful. And also to the destitute and disadvantaged, people whose votes can be harvested with promises of entitlement and welfare payments.
Alert, intelligent people realize this transfer system is corrupting, rigged, inefficient, and grossly dysfunctional. It has corrosive effects on the ethics of the wealthy as they game the system and take from others via crony capitalism. However, the families of rural poor, intercity minorities, and reservation Indians suffer more. The incentives of the welfare system foster the breakup and non-formation of families and erode the work ethic. Perverse incentives abound.
This pathological collage seems unsustainable. That is why reforms emerge, initially as outrageous proposals such as Milton Friedman's "negative income tax" idea of 1962.
Charles Murray refined Friedman's suggestion a decade ago with his Book, In Our Hands: A Plan to Replace the Welfare State. Charles reintroduced his idea in the Wall Street Journal's Weekend Review (front page) on June 4 of this year. Charles' proposal seems ever more attractive as problems metastasize.
I believe this is an extremely important topic. It is one deserving serious consideration, especially by people concerned with the well being of the nation's poor.
The material below is my 2006 review of Charles book. It ends with this:
"Read the book. It's radical, practical, and caring toward those most in need of support."
Charles has worked to counter poverty since in the Peace Corps four decades ago. With a Harvard B.A. and MIT Ph.D. in political science, he is one of America’s best policy analysts. He has learned that governments, even in a nation as rich as ours, cannot institutionalize compassion.
America spends more than a trillion dollars per year on welfare. Yet, approximately one in seven of our citizens are mired in poverty -- although we define it generously indeed. This sorry condition remains roughly constant, independent of funds appropriated. Murray claims only government can be so wasteful, with such manifestly perverse results, for so long, and he’s right. Political bureaucracies become insensitive to their designated beneficiaries and are grossly inefficient. (Consider Katrina.)
Murray understands the relentless nature of demographic forces. America’s actuarial debt would require staggering tax increases to meet today’s promises made by politicians. According to the U.S. Government Accountability Office, Medicare, Medicaid, and other “non-discretionary” charges would require at least a doubling of taxes by 2040. “Economic growth is essential, but we will not be able to simply grow our way out of the problem. The numbers speak loudly: our projected fiscal gap is simply too great.... Tough choices are inevitable, and the sooner we act the better.”
Why are we in this mess? The answer is simple and straightforward. Politicians have strong incentives to promise current benefits while postponing and ignoring future costs. In effect, they impose burdens upon and give unsustainable promises to our children and grandchildren. And the poor among us suffer now.
But here’s an iron law: Things that can’t go on won’t. Our current system of transfer payments can’t and won’t. We will either have a major reform such as Murray suggests or the imposition of a European-style stealth tax such as the “value added tax” or VAT.
He proposes we scrap all governmental welfare and pass a constitutional amendment to prohibit all new welfare schemes. We then give all citizens over 21 and not incarcerated $10,000 per year for life. The sum would be deposited in a bank account with $3,000 allocated to health insurance and an additional sum to retirement accounts. This goes to every citizen, though the wealthy are taxed on the benefit for they surely won’t need it. Under extremely conservative assumptions about return on investments, his plan will cost taxpayers less than our current arrangements by 2011 and save half a trillion dollars per year by 2020.
Murray understands the problem of the underclass: “The fact that no able-bodied person needs to live in poverty doesn’t mean that no one will live in poverty. Some people behave in ways that ensure they will live in squalor, will not have enough money to buy food, or will be evicted for not paying rent.... The Plan ends involuntary poverty.” His concern is with the deserving poor, not miscreants.
Charles has an extraordinary ability to probe the subtle workings of incentives. Consider the problem of unmarried males who avoid responsibility for their children. With DNA testing, fatherhood can be determined. Under his plan the state pays child support and deducts the amount from the father’s $10,000 Plan income. If fathers are under 21, the sum accumulates. Incentives are clear.
Why not double taxes? Bruce Bartlett advocated a VAT in National Review and at Cato where he proclaimed: “[T]he VAT lends itself to dealing with our long-term budget problem because it can be raised a little bit at a time.” However, as President Reagan noted in 1985, “A value-added tax actually gives a government a chance to blindfold the people and grow in stature and size.” That is precisely why politicians find it so attractive.
Charles Murray offers an alternative, a “thought experiment” that will first be rejected. He is not naïve and knows this plan will initially be dismissed -- and not only by those who want people dependent on politically crafted governmental transfers from productive citizens.
Read the book. It’s radical, practical, and caring toward those most in need of support.