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Two ways to solve our fiscal blues boldly

What about deep reforms, such as less subsidy of red states by blue ones, and retargeting poverty programs to the poor?
Senator and scholar Daniel Patrick Moynihan

Senator and scholar Daniel Patrick Moynihan

Are blue states being raided by red?

Are blue states being raided by red?

President Eisenhower famously said, “If you can’t solve a problem, enlarge it.” Let’s try that approach with the current unsolvable problem, the debt crisis.

As it is, the country and the media are locked into a sports metaphor, where what matters is who loses and who gains, who saves face, who prances in the end zone. What if we thought not in terms of the tennis match and more in terms of reform, of lasting good for the country?  Enlarge the problem, in short.

The first way to do this is to push the problem down to the next level, the states, letting them decide whether they want high or low or medium levels of services the federal government cannot afford.

This idea goes back, in modern times, to Sen. Patrick Moynihan, that invaluable intellectual gadfly and U.S. Senator from New York. Like a lot of liberals today, Moynihan got to thinking about how much his state paid in federal taxes, compared to how much it got back in services and federal dollars. It turns out that blue states like Washington and New York subsidize red states, a lot.

That holds true today, and it will only get worse if tax rates go up to help solve the deficit. The Tax Foundation has done a calculation of what would happen if all the Bush tax cuts were to expire on New Year’s Eve, and found that eight of the top 10 states paying the most would be solid Obama-voting states. Maryland tops the list, with an average household sending $7,194 to the feds, getting back much less than that in services.

Moynihan didn’t just lament this situation, but he proposed a solution, once called "the new federalism." Pare the national government’s functions back to things such as national defense that it could do better than the states, cut federal taxes significantly, and leave that money back in the states for them to decide on tax and service levels.  “It is time to trade,” Moynihan suggested in 1998. “Less activism in Washington in return for more revenue at home, for whatever active measures recommend themselves to the state or municipality in question.” This argument is laid out in a recent article by Steven Malanga of the conservative Manhattan Institute, suggesting its strong appeal across the aisle.

Republicans get to slice federal programs and intrusion and beat the drum for states’ rights. Democrats get to tailor programs in liberal states and stop building highways in South Dakota with funds from California.  A similar argument was made by the wag who said the problem with high-speed rail, given the way you get enough votes in Congress, “is that the first line would be built from Omaha to Pierre.”

This same line of argument could be applied at the state level, as Rep. Ross Hunter and others have done. Rep. Reuven Carlyle recently published a map indicating how a handful of rich counties subsidize the bulk of recipient counties. Blue Seattle subsidizes the rest of the state, and relying on state-level programs often means that if you want to widen I-405 you probably have to build a super highway from Dayton to Cheney. Devolving the funding to a more local level, with tax authority, would save money, avoid gridlock in the legislature, and let those counties that believe in government-lite enjoy the experience of having to tax themselves fully for what they want.

Don’t like that solution? I’ve got a second one, equally dramatic. This involves giving more money to the poor, shaving off all the money that, in the name of the poor, is going to the middle class.

The critical study along these lines is a paper, “Restoring a true safety net,” by two George Mason University researchers, David J. Armor and Sonia Sousa.  They argue that the dramatic increase in entitlement programs such as food stamps, Medicaid, and welfare is largely due to spreading these benefits well into the middle class. Some of this was due to stimulus spending under Obama, but the pattern goes back into the George W. Bush administration, before “exploding” in 2008-10.


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Comments:

Posted Wed, Dec 5, 9:48 a.m. Inappropriate

I've come around to the idea that welfare program need to be more narrowly targeted. The time may have come to think about the role of Social Security as well, whether it should be considered a general retirement program or a safety net.

Posted Wed, Dec 5, 10:44 a.m. Inappropriate

If we throw most entitlement and education programs to the states we will have an even less educated, more obese population in red states, listening to fox news and Rush..who will then blame Obama, or a successor for not doing anything about it!

lpatrick

Posted Wed, Dec 5, 12:05 p.m. Inappropriate

" Enlarge the problem, in short."

You've lost me. I thought enlarging the problem was the business model of what the wags call "the problems industry." Whereas, what you suggest reads more like the opposite—more accurately delimiting the problem, unless you mean that gamers needing to find replacement employment would grow the unemployment problem?

Two observations:
First, would not it be more accurate to view the geographical divide in terms of urbanized and non— or persons per square mile? Interestingly, King County's new Strategic Climate Action Plan (S-CAP) claims to be first at including consumption, i.e., producing, transporting, merchandizing, and surplussing both here and elsewhere all necessary and discretionary items consumed in the County (its cities included). In Climate Action Plans, of course, dollars, for better or worse, are not the object.

Second, in Angus Burgin's new book, The Great Persuasion, I came across a rather definitive list of Milton Friedman's modest proposals presented without comment— none seemed, nor seems necessary:

1. single flat tax on income, no loopholes, no deductions except double the personal exemption.

2. no taxation of corporations.

3. no estate tax.

4. no tax penalty for marriage

5. state and federal limits on spending.

6. negative income tax or tax credit (no welfare)

7. fewer regulatory agencies, e.g. no FCC or FDA.

8. no minimum wage.

9. less disaster relief that encourages inhabitation of unsafe places.

10. no draft.

11. no restriction on immigration.

12. no foreign aid.

13. unilateral imposition of free trade (reciprocal negotiations too lengthy).

14. no aid to higher education, Public Broadcasting, National Endowment for Arts.

15. a school voucher system.

Presented with any problem, Milton specialized in a "practical" solution that either did away with or enlarged the problem. What we have done is test a great number of them, left those conclusions unstated, and still loudly debate most of the rest with little or no knowledge of their origins.

afreeman

Posted Wed, Dec 5, 5:42 p.m. Inappropriate

David, good ideas but, as we now know, a tough sell. Parts of what you describe sounds like the unpublicized portion of Mitt Romney's remarks on social economics including the "47%".

kieth

Posted Wed, Dec 5, 9:13 p.m. Inappropriate

Federal poverty level is insanely low. Compare against what is poor in our area.

http://aspe.hhs.gov/poverty/12poverty.shtml

http://www.kingcounty.gov/socialservices/Housing/ServicesAndPrograms/Programs/HousingDevelopment/~/media/socialServices/housing/documents/CD_HR/Income%20Limits%20and%20Misc%20HCD%20Docs/2010_HUD_Income_and_Affordable_rents_and_prices.ashx

While I refuse to consider those above 50% of median as 'poor' I think good argument can be made to support those below 30% of median with a safety net, especially if it means working and providing the kinds of services we all need.

Posted Thu, Dec 6, 12:25 a.m. Inappropriate

Let me be clearer. Yes push the pain upward, not downward ehn it comes to housing and shelter. Any subsidies, incentives or other for people above 50% of median income totally screws up the market.

But, Cash in Pockets for food, healthcare and childcare to people who are struggling seems to me to be a good way to help the economic engine we all need.

Besides how artificially low the fed poverty level is, consider working divorced non-custodial parent who pays child support and cannot include the kids in their household. Their actual income after that is lower than any government form will show.

Posted Thu, Dec 6, 6:39 p.m. Inappropriate

David, I'm afraid you're bombing from 30,000 feet. The federal poverty level is extremely low; experts have long said it needs to be adjusted. So states that allow non-disabled people, mostly children, to receive Medicaid coverage up to 200% of poverty aren't being terribly generous -- these folks wouldn't be able to afford health coverage without Medicaid. Under the Affordable Care Act, states have the option of expanding Medicaid for adults without children up to 138% of poverty. What is that, something like $15,000 a year. You try buying your own private health insurance living on an income like that. Same with the sliding-scale ACA subsidies to buy private coverage in the new insurance exchanges, to 400% of poverty. So a family of four earning $50K or $60K a year gets a partial subsidy. There's a good reason for that, because a family without employer-provided coverage in that income range is not going to be able to afford the $10K or $15K a year to buy decent coverage. The problem isn't that the government subsidies are overly generous, it's that U.S. health care is too insanely expensive. Let's tackle the problem at its source and do what experts know we need to do, what other advanced countries have done, to bring U.S. per capita health care spending done to the levels of other advanced countries. As to letting states make all these decisions, I'm sorry but we're all Americans and I think it's unconscionable to allow Americans in places like Texas and Mississippi to live with as pathetic a safety net as elected officials in those states provide. Just as we couldn't and wouldn't allow those state officials to decide how much civil rights their residents are entitled to. This is deficit hawk nonsense.

Posted Fri, Dec 7, 4:09 a.m. Inappropriate

Ending the free trade treaties would fix the deficit.

Texas Governor Perry cut the budget for Texas Wildland Fire Fighters; so, then this last year there were huge fires in Texas; so the Federal Government had to pay for fighting the Texas fires. I think the Texas Government figured it was safe to cut the Texas fire fighters; because they knew the Federal Government would pay to fight fires if they got bad. The Red States cut their government services knowing that the Feds will pick up the slack. The Red State politicians get to rail against the Federal Government, cut taxes for those in their state, claim that they are fiscal geniuses, and then when the chips are down gain Federal money. We are subsidizing states, who's politicians cynically take into account the Federal Government saving them in order to espouse conservative principles. If Perry had not known that the Federal Government would fight Texas fires, Perry would not have cut the Texas Wildland fire fighters.

The Red States play both ends against the middle. More care should be taken by the Federal Government in subsidizing the Red States. Texas should be billed for the Federal fire fighters, since Texas did not care to pay for its' own.

That is just one example. The Red States crow about low taxes and then have their hand out to the Federal Government to pay for services.

I agree with the article in regards to limiting subsidy to Red States in order to force the Red States to pay their own way. Right now, they do not pay their own way, and freeload off of us on purpose.

jhande

Posted Fri, Dec 7, 2:27 p.m. Inappropriate

130% of the federal poverty level is about $1,260/month for an individual. A studio apartment in Seattle (where the jobs are) costs about $800/month now, not counting utilities, food, transportation to the job, and enough clothing to keep that job. That doesn't include health insurance, which many jobs don't provide now.

It's really necessary to bring the financial picture down to individuals or families, not figuring how many millions or billions can be saved by screwing the poor any worse than they're being screwed now.

sarah90

Posted Thu, Dec 13, 10:47 a.m. Inappropriate

I argue that poverty levels need to be adjusted to different areas and their costs of living. Also, remember that the poverty level means an eligible person or family is able to get various means-tested programs, such as Medicaid, food stamps, earned-income tax credit, etc., all of which can add up to a fair amount. But my main point is that we need to get more for people truly in poverty, not smuggle in a welfare program for a much broader population. Politicians like to broaden benefits, but the result is unsustainable politically and takes money from the truly poor.

Posted Fri, Dec 7, 7:14 p.m. Inappropriate

sarah90, thank you, that's what I meant by saying David Brewster was bombing from 30,000 feet. Pundits and reporters need to come down from their nice upper-middle class heights and spend a lot more time talking to Americans with median incomes.

Posted Fri, Dec 14, 2:49 p.m. Inappropriate

David, the real problem is this - in the U.S. We have been operating under the principle of privatizing the economic benefits and socializing the costs which has resulted in a bloated government. There is a blind faith that the benefits of such a model will trickle down to the masses. That might have worked in the distant past when we had unions and strong laws protecting the middle class, but that is no longer the case. It's time to fix the system not start hacking at social programs which are the only means to soften the blow of unfettered capitalism. It's time for billionaires to start paying taxes - sounds harsh, I know. And I'm not talking about a wimpy 15% tax rate either. We need to be taxing them at least at a 40% rate like they do in the rest of the civilized world.

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