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Sep 6, 2006
11 Min read time
Ending the welfare state as we know it.
Charles Murray is the E.F. Hutton of social policy: when he talks, people listen. His 1984 classic Losing Ground is the authoritative statement about the perverse incentives and negative effects of welfare. Losing Ground immediately became the handbook of the Reagan revolutionaries and, most importantly, the basis of welfare reform a dozen years later. So when Murray proposes something, we pay attention—even if he declares it to be politically infeasible, as he has his newest policy idea, outlined in his latest book, In Our Hands: A Plan to Replace the Welfare State. He is being modest—too modest, since his imprimatur alone makes the idea politically possible.
Murray’s new New Deal would replace all safety-net programs with a flat $10,000 annual per-person grant. Murray does away with welfare (that is,Temporary Assistance to Needy Families), food stamps, Medicaid and Medicare, and even Social Security. He also dumps agricultural subsidies and other forms of corporate assistance. Instead, every American age 21 and older would receive $10,000 a year, of which $3,000 would have to be spent on health insurance. When a person’s income from other sources exceeded $50,000, his or her grant would be cut back to $5,000. But that is the only reduction. In other words, Bill Gates gets his check, too. Murray is offering a truly universal benefit—even more comprehensive than Social Security, which can exclude those who have not spent much time in the formal labor market. His only requirement is that the recipient maintain a bank account.
A guaranteed minimum income à la social-democratic Sweden? Universal health insurance through mandatory enrollment? This is clearly not your father’s American Enterprise Institute. What Murray is offering is a variant of the “universal basic income” proposal that has been advanced over the past 20 years by a number of leftist academics, most prominently the Belgian political theorist Philippe van Parijs. (See, for example, the Boston Review book What’s Wrong with a Free Lunch? . In a similar spirit, but with different mechanics, Bruce Ackerman and Anne Alstott proposed a substantial one-time grant rather than annual income in The Stakeholder Society .) This basic-income movement has been holding annual conferences, trying to introduce legislation (the most recent effort was a bill brought to the House by Representative Bob Filner, D-CA) and generally beating the drums—all to little avail, at least in the United States. But all that may change now that Murray is on board.
As the saying goes, if you can’t beat ’em, join ’em. Murray claims that he has given up trying to eliminate the welfare state, so instead he is focusing his efforts on reforming it. Though Murray does not mention universal basic income, he does trace his proposal to the “negative income tax” scheme advanced by Milton Friedman, the intellectual dean of the right, in the 1940s. In fact, Nixon proposed a similar idea—the Family Assistance Plan—in 1972 as a way to co-opt the proposals of the McGovern campaign. So why are we not like Sweden, with a universal guaranteed income? Because liberal democrats in Congress wanted the allowance to be higher and objected to the work requirements in the Nixon plan. (To be fair, some conservatives opposed it as well.) Instead, we got some experiments with a negative income tax. The results—increased marital dissolution, decreased labor-force participation, and longer spells of unemployment—seemed to prove the Right’s case for it. That ended the debate over universal income support for a good 30 years. So now we’ve come back to the future, so to speak. Charles Murray, who used the negative-income-tax experiments in Losing Ground (and, in fact, the current volume) to discredit the welfare state, is now advocating for one. So what should we make of Murray’s proposal?
If everyone in the world belonged to a single generation, I would say that “the Plan” (as Murray calls his proposal) sounds wonderful. But we do not live in such a world. We live in a world with children. And it is poor children who, under the plan, may seriously suffer.
Start with what it costs to raise a child. Each mother would receive $583 a month and health insurance from age 21 till death. That takes care of the Medicare issue. But what about her children? I pay about $400 per month in health-insurance premiums for my family, and my employer matches that amount, a total of almost $10,000 a year. So the cost for parents is remarkably higher than the $3,000 Murray has allotted. And remember, without Medicare, the money has to be stretched to cover health expenses in old age. So it couldn’t possibly cover children too. Children are the second most expensive group of health-care users.
Another non-trivial detail: In order to get the figure of $3,000, Murray has instituted a $2,500 deductible. This essentially means that families without other resources will be able to see a doctor in a catastrophe but not for routine problems and prevention.
And then, of course, there is the issue of high-quality child care: a single parent who goes to work full-time is likely to spend his or her entire grant on child care. Even at three dollars an hour, care for one child will cost $120 per week, or about $500 per month, and if the parent has a low-wage job, his or her marginal tax rate becomes pretty steep even with one child, let alone two.
Janet Currie proposes one possible solution to this dilemma in her new book, The Invisible Safety Net: instead of giving cash to adults, bolster in-kind benefits for children, such as CHIP, WIC, food stamps, and day-care assistance. While we can never completely control intra-household allocations—for example, food stamps can be sold for about 60 cents on the dollar on Brooklyn’s Atlantic Avenue—such non-cash assistance does have the advantage of reaching out to children instead of offering an unconditional reward to all adults.
Still, I appreciate the arguments that Murray makes regarding the inefficiencies of such programs. Democrats have too long been the party of programs more than the party of people. As my first amendments to Murray’s plan, I would eliminate all paternalistic programs for children except two: preschool and children’s health insurance.
Will these generous adjustments create the same old perverse incentives for poor single people to have babies? Certainly the argument could be made that anything that lowers the cost of having children will increase the demand for them. However, we must keep in mind that while children’s health-care costs are substantial, they still form but a fraction of the total costs. And whereas income support and tax policy increased the supply of children by providing additional income to parents for the birth of each child, in this scenario the grant does not correlate to the number of children.
This raises a fundamental theoretical question of how a society should view children. Are they a private good, provided by and for the parents who bring them into this world? If so, maybe we should abandon them to their parents on the grounds of efficiency, if not morality. Or are they—as the economist Nancy Folbre argues—a public good? In other words, do couples without children subsidize couples with children? Or does the free ride work the other way around, with the childless out spending their time and money on cocktails and vacations, being supported, over the long run, by those who do the care for and invest in children, the future workers and taxpayers?
There is not a single answer to this question. In subsistence economies, such as those in sub-Saharan Africa, the answer is clear: Children are a private good and a public burden. Population pressures and poverty combine to create a Malthusian steady-state equilibrium where having more children makes individual families better off and the environment and community worse off, with populations that double every 20 to 25 years. Children are clearly private goods in Malawi, since the division of labor occurs within the household and there is no social safety net. Surviving children collect firewood (which becomes a more and more onerous task as increased populations cut down more and more trees), walk miles to gather drinking water, and plant and harvest crops. And, of course, in the absence of any safety net, they are also a parent’s insurance against old age. Intergenerational transfers flow from children to parents.
But our society—with or without Murray’s plan—is different. With a social safety net and a high division of labor and interdependence across the whole of society—and not just within our clans—children are more realistically seen as a public good. Intergenerational transfers have reversed: now adult children are typically the net recipients rather than the source. In fact, I would argue that this reversal is one of the categorical distinctions between the developing world and the developed world. In a modern society with a pronounced division of labor, children are a public good, and I worry that we are abandoning them with his plan.
However, Murray writes that government need not worry about the abandonment of children. In his view, by eliminating government bureaucracy and the safety net, the plan will lead to the reinvigoration of American civic life—whose decline he traces to the advent of the modern welfare state. This view is a tad too optimistic, I am afraid. America is a lot richer than it was in the early 1900s. But it is also different in quite a number of other ways. The political scientist Theda Skocpol has shown us that today we are actually much more likely to join an organization and donate money, but we are less willing to donate our time. This is not a result of the welfare state. It is a result of our time becoming more valuable—the paradox of that increased wealth that Murray celebrates.
Moreover, we must also remember that social policy is not just about mutual aid. It is also about equal opportunity. When we keep this in mind, and simultaneously shift the lens of policy from an income framework to an asset paradigm, matters appear more complicated. In the United States we have a relatively strong norm of equality of opportunity: as long as the rules of the game are the same for everyone, we readily accept differential outcomes. And when we think about social policy from this perspective, it is merely acting as insurance, providing a basic level of survival and dignity to those who end up on the losing end of a fair game.
But when we shift our attention to wealth, as opposed to earnings, we find that parents’ net worth is a powerful predictor of children’s long-term socioeconomic success. In fact, my analysis in Being Black, Living in the Red shows that it is the single most powerful predictor of the next generation’s outcomes. In other words, the fancy house, the car, the 401(k), the securities portfolio—the unequal rewards of one generation—warp the rules of the game for the next.
So I propose another amendment to the Murray plan, a version of the proposal for an asset entitlement at birth—similar to Tony Blair’s Baby Bonds program in Britain, but (like the Ackerman-Alstott plan) with some real financial heft. In my version, we would extend the plan to cover zero-year-olds through a one-time grant. That is, at birth, each child in America would receive a $10,000 payment held in trust in a private account invested in U.S. corporate securities (big business should appreciate this influx of cash to the private equity market). Parents would manage the fund until the child turned 18. After that, the child would manage it, as he or she would a 401(k) account. The key is that neither the parents nor the child could withdraw from the account, except for one of the following three occasions: a college or graduate education, a down payment on a home, and retirement at age 70. The account would be a private, but with forced savings. We could even allow people to defer a portion of their Murray grant into this fund with the same favorable tax conditions that professionals in the high-wage sector get for their IRAs and 401(k)s. Now we are talking about a real “ownership society.”
Along the same lines, we would need to extend the $10,000 annual payment to 18-year-olds in order to help pay for college when they need it. There are also important political reasons for lowering the minimum age. Welfare forms part of a political compact of rights and responsibilities between a polity and the state. Citizenship has its duties—such as paying taxes, submitting to military drafts, and serving on juries—and its corresponding benefits—police protection, election of representatives, and social insurance. Unless we are about to raise the age of conscription and jury duty to 21, we should lower the grant age to 18.
So how could we pay for child care, children’s health insurance, and an asset policy? How about eliminating the home-mortgage interest deduction, a policy that encourages consumption and discourages savings? We could also reinstate the estate tax, and tax capital gains and dividend income at the same marginal rate as earnings. If that does not provide enough revenue, there are still more sources: raising the cap on payroll taxes from $92,000 to twice that amount. Still not enough? How about a national value-added tax—something that conservatives have advocated to tip the balance further toward investment from consumption (and which is defensible in a world where state sales-tax receipts have fallen because of e-commerce exemptions). Too regressive for liberals? Offer a standard rebate to those with incomes below $50,000, who presumably spend most of their income on necessities. Still not enough? There’s always gasoline taxes, getting out of Iraq, canceling weapons programs, and a number of other money-savers—and with Murray’s support on the right flank, anything is possible.
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