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A Tax By Another Name



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Writing in the New York Times yesterday, Yuval Levin made the case for means-testing Social Security and Medicare. As you’d expect from Yuval the case is well made and elegantly thought-through. It’s also, if I may respectfully say so, misguided. Partly as a consequence of the refusal to make consumption take its fair share of the tax load, the US already taxes income on a pretty progressive basis (even more so,  I suspect, if, just for the sake of argument, you excluded the very richest from the equation—highly taxed wage income generally makes up a lower percentage of their total take). Means-testing these two programs would only tighten the screws still further.

As Yuval sees, it this would be done as a part of a grand bargain:

First, give less to the wealthy rather than take more from them.

Fine, in principle, but, in reality, principle would have nothing to do with it. Does anyone think for a moment that the government would stick with the tax-cutting side of the equation (which would in any event exclude state taxation, no small matter in certain parts of the country)  for more than a few years? History would, to put it mildly, suggest exactly the opposite. What’s more, the question of who would fall the wrong side of the means-testing divide is not a question that would just be asked on one occasion. Once it was accepted that such benefits should be universal, their fairly rapid erosion, whether through time (inflation) or deliberate policy is almost certainly guaranteed. People who had never thought they would be classified as wealthy would now find themselves on the wrong end of a means test. To some on the right that might be considered a feature, not a bug, but, electorally, it would be poison, not only now, but forever, with the question of who was or was not entitled to these benefits being a matter of a permanent debate in which fiscal hawks would find themselves winning few friends.

And then, of course, there is the question of the message that (as, in a British context, Mrs. Thatcher always understood) such a change would send, just one more punch thrown at the successful, a later-life preview of the blow to come—with estate tax— after their death.

Yuval notes:

Some on the right might complain that such reforms would punish success. But surely rewarding achievement with government aid is no one’s idea of conservatism.

No, it’s not. But in the real world you have to work with what you have.

None of this is to say that nothing should be done on the expenditure side of the ledger. To take a few examples, should the age of entitlement be increased? Yes, with the caveat that the equation (so far as Medicare is concerned) will become more complicated with Obamacare. Turning to Social Security, should we move to something closer to Sweden’s notional defined-contribution system? Maybe. Returning to the topic of Medicare, there clearly does (as Gov. Daniels pointed out a year or so back) need to be a closer look at what is covered, particularly at the closing stages of life. Medicare should also be (as is argued, amongst many other things, in this fascinating, if sometimes wrong-headed article for Time by Steven Brill, another means-tester of sorts) allowed to negotiate the price it pays for medical equipment and prescription drugs. And so on and on. There is plenty to do, just don’t do means-testing.



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