It has been said that the Roman Empire declined and eventually crumbled because its people realized they could vote themselves benefits. That is very likely not true: as a classics major in high school I read Cicero and other political writers from that time, and I remember no evidence of a welfare-state like mentality.
What I do remember, though, is how Cicero advises those who want to get into politics: find out who incumbent politicians treat with respect. That is your path to the resources you need in order to get into power.
There is an episode of Kojak, the 1970s cop show classic, with a similar theme. In the episode, titled The Best Judge Money Can Buy, Kojak wants to nail a crooked lawyer, so he puts a tail on him to find out his criminal connections. He sends his men out with exactly those words: find out who he treats with respect. Kojak soon unravels a sleazy web where money, law, crime and politics are closely intertwined. I wonder how they came up with that story?
Some things never change in politics. It has always been about influence and money for those whose hands are on the levers of power. Our Founding Fathers knew this, which is why they decided to shield us from the excesses of government by means of the world’s best constitution. But while they did recognize the greed for power, and while they knew how to quell the urges to elevate men above law, they did not anticipate the morally and fiscally corrupting effect that the welfare state would have on our country. Our Constitution does not have an explicit ban on spending public money on entitlements; the Ninth and Tenth Amendments enumerate government powers, but that only means one thing: if the people do not explicitly permit economic redistribution, government can’t do economic redistribution.
If, on the other hand, we vote ourselves benefits courtesy of taxpayers, government can provide those benefits.
Some constitutional experts will veto this statement and claim that government can only have the powers explicitly given to it in the Constitution. I am not a constitutional expert, but I have yet to find an expert who can answer to this question: if the Constitution solidly enumerates powers and does not permit an enumerated expansion of those powers, then how come our big entitlement programs have not been declared unconstitutional?
Put differently: why is it that Social Security, Medicare, Medicaid, the Earned Income Tax Credit, SNAP/Food Stamps, and so on, are all still operating and spending money? Not to mention the premium subsidies under Obamacare?
The fact of the matter is that we don’t have an explicit constitutional ban on economic redistribution. This is why the Confederacy added one to their version of our Constitution, spelling out that public funds could only be used for national defense, law enforcement and infrastructure. Nothing else.
It is time to have a conversation about a constitutional amendment to ban economic redistribution as a government practice. Our welfare state – the institutional structure that redistributes $4 trillion per year – is inherently fiscally unsustainable. It is rotting out our government, and eventually our country, from the inside. We can remain legally free to pursue happiness as much as we want; once the welfare state’s debt burden comes crashing down on our economy like a ton of bricks, that legal freedom will be about as useful as tits on a bull.
As I explained in my series on structural spending reform, we cannot fix the welfare state by polishing its paint. Nor can we fix it by means of austerity – also known as the Penny Plan – or any other reforms that keep the entitlement promises in place but try to deliver them “more efficiently”. The only way to fix the welfare state is to reform it away.
To see why this behemoth of socialist economic redistribution is inherently unsustainable, consider Figure 1. It reports the balance between benefits and revenue in Social Security, but does it in a way that you usually don’t see. Before we get to the technical details, we need a quick rundown of the finances of the system:
- In 2019, Social Security paid out $888 billion in benefits;
- That same year the system took in just over $770 billion in so-called social insurance receipts (taxes);
- This was the tenth year in a row that Social Security has paid out more in benefits than the program has received from taxpayers;
- The structural imbalance in the system has emerged slowly, being covered by repeated tax hikes.
This last point is crucial. Starting in 1950, the annual average growth rates have shifted from positive to negative – and the shift coincides with Congress breaking with its otherwise biannual habit of raising Social Security taxes. Behold the annual growth rates, averaged per decade:
From 1950 to 1990, Congress raised the Social Security tax 20 times. On average, for 40 years every newly elected Congress passed one increase in the tax. When they were done the rate was six times higher than when they started.
During this era of tax hikes, revenue consistently outpaced benefits. When Congress shifted foot to regulatory changes to the program – getting stingier with benefits – the growth rate in outlays stayed moderate, but not enough for revenue to keep pace. The imbalance is staggering: in the past ten years Social Security has received a total of $6,189 billion in revenue, but the program has paid out $7,161 billion in benefits. That is a cumulative deficit of $972 billion.
This is not a new problem, although it has been exacerbated by the welfare-state caused slowdown in GDP growth. Personal income, the tax base for Social Security, grows very closely in tandem with GDP; when GDP growth is low, so is growth in Social Security tax revenue. But the problem itself is built into the entitlement program and centered around the personal-income growth imbalance I explained in my book Ending the Welfare State, and again briefly in my fifth article on structural spending reforms.
It is also visible in the long-term growth trends of benefits and tax revenue; Figure 1 reports those trends from a common starting point, namely $100. In other words, the red function explains how $100 worth of benefits as grown, according to the actual growth rate of benefits payments. The blue function is a similar representation of revenue from the Social Security tax:
By 2019, benefits had grown 3.3 times faster, since 1950, than revenue had. Social Security currently only has about $87 to pay for $100 worth of benefits.
Medicare is an even more conspicuous example. While Social Security is nominally constructed to pay its own bills (in reality it isn’t, so it doesn’t) the Medicare design is not even based on the pretense that premiums are supposed to fund the program. According to Figure 2, Medicare relies heavily on non-premium revenue in order to even keep together at the seams. The black function reports the share of program outlays that goes toward health-care benefits (currently more than 99 percent) while the red function tells us what share of total program revenue that comes from premiums (a quarter to the dollar in 2019). The comparison is a striking testament to the redistributive design of the program: benefits are not supposed to be paid for by beneficiaries, but by the general taxpayer population. Behold:
Now, here is the trillion-dollar budget deficit question: what happens to a program like Medicare when the growth in tax revenue slows down as a result of long-term economic stagnation? Correct: people still expect the same benefits, and more people will expect those benefits, as many programs are designed for the benefit of poor citizens.
With more people depending more on the welfare state, and fewer people paying less in taxes, what can possibly go wrong?
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