Politics & Policy

Free Stuff Isn’t Free

(NR Illustration: Elijah Smith)
Republicans show a complete lack of discipline on spending — and Democrats are worse.

For fiscal conservatives, the Trump presidency has been more than a little disappointing. Yes, much of the tax cutting and deregulation has been a plus, but tariffs have offset part of the tax reduction, and spending has exploded. Trillion-dollar deficits stretch as far as the eye can see. The national debt is expected to hit $28 trillion within a decade. Entitlement reform is off the table. All of which raises the question of whether Democrats are ready to step up and seize the mantle of fiscal responsibility.

Um, no.

In fact, the Democratic platform currently seems to be “free stuff for everybody.” Among the costliest proposals:

Medicare for All: Every major Democratic presidential contender for 2020 has now signed on to some version of Bernie Sanders’s plan for a single-payer government-run health-care system. Setting aside the impact that such a system would have on the quality of care and medical innovation, a recent report from the Mercatus Center warns that Medicare for All would increase federal spending by $32.6 trillion over the next decade. That falls right in the middle of other estimates that put the ten-year cost somewhere between $24 trillion and $37 trillion. As Charles Blahous, one of the report’s authors and a former trustee of the Medicare system, points out, even doubling U.S. tax rates wouldn’t cover the entire cost.

In fairness, advocates of Medicare for All point out that the increase in federal spending would be offset by lower health-care spending elsewhere, such as insurance premiums. They are also hopeful that a government-run system could reduce administrative costs, and that government could impose price controls on pharmaceuticals that would further reduce costs. Some of these savings are clearly magical thinking. For instance, the Sanders plan absurdly assumes that health-care providers would take a 40 percent pay cut. Furthermore, Medicare itself is tens of trillions of dollars in the red, which suggests that prospects for savings should be taken with a bit of skepticism. And many European national health-care systems, such as those in Norway, Sweden, and the U.K., have actually seen health-care costs increase at a faster rate than the U.S. since 2000. As humorist P. J. O’Rourke once noted, “If you think health care is expensive now, just wait until it’s free.”

Economists have long noted that increased federal college assistance largely encourages universities to increase tuitions, setting up a vicious cycle of increased aid followed by more tuition hikes.

Free College for All: Even if one accepts the idea that “free” health care will be somewhat less costly than the worst-case projections, there is no disguising the cost of another Democratic proposal: government-paid college tuition. One plan, championed by Sanders and supported by such prominent Democratic presidential wannabes as Kamala Harris and Elizabeth Warren, would eliminate tuition at all community colleges nationwide and make four-year colleges tuition-free for students from families earning less than $125,000 per year. Any students who still had to take out loans would have his interest rates cut in half at government expense. The cost of this plan to buy the votes of Millennials? $750 billion over the next ten years. Moreover, that is likely an underestimate, since economists have long noted that increased federal college assistance largely encourages universities to increase tuitions, setting up a vicious cycle of increased aid followed by more tuition hikes.

Jobs for All: Backed by presidential contenders Kirsten Gillibrand and Cory Booker as well as Sanders, this proposal would guarantee a government job, paying at least $15 per hour, to any American seeking work. Proponents estimate the cost at just $5.5 trillion over ten years, but outside observers warn that this wildly underestimates the cost of training or retraining unskilled workers. Moreover, the availability of government jobs would force private employers to raise wages, thereby driving up labor costs on the backs of small businesses. Between the taxes or debt needed to pay for government jobs and the impact on labor costs, numerous studies have suggested that government jobs programs can destroy more jobs than they produce.

Free Rent for All: Well, not quite free. The most recent Democratic spending plan, this one by potential presidential candidate and California senator Kamala Harris, would provide a tax credit to subsidize rents for families earning as much as $125,000 per year whose housing costs exceed 30 percent of their income. Proponents suggest that this program would cost a mere $760 billion over ten years, but that undoubtedly underestimates the degree to which landlords will simply hike rents to absorb the new subsidies. Harris also ignores the degree to which high rents are the result of zoning and land-use regulations that are designed to protect the interests of wealthy and middle-class homeowners at the expense of poor renters. Indeed, Harris’s legislation would reward states, like her own California, that have the biggest barriers to building more housing in the form of excessive zoning regulations.

Taking all of these proposals together, Democrats would increase federal spending by around $40 trillion over the next ten years. To put that in perspective, the federal government will take in approximately $3.3 trillion in taxes this year and spend $4.1 trillion.

We are still more than two years out from the next presidential election. As the Democratic campaign turns serious and the bidding war for activist support heats up, we can expect even more promises of free stuff. And, if history is any guide, we can expect President Trump and congressional Republicans to respond with their own bevy of giveaways.

The only problem is that free stuff is never really free — as taxpayers may soon find out.

Michael TannerMr. Tanner is the director of the Cato Institute’s Project on Poverty and Inequality in California and the author of The Inclusive Economy: How to Bring Wealth to America’s Poor.


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