The Corner

Mitch Daniels and Social Security


You can find some excerpts here of the recent New York Times interview with Indiana’s impressive governor Mitch Daniels. It’s all worth reading, but this (on means-testing Social Security and Medicare) caught my eye:

It’s a very cynical calculation that had always been made, that you had to have everybody in it. Why? So that nobody could ever change it, not ’cause there’s any justice in that. I always say, “Why do we send a pension check to Warren Buffett?”…

Well, the answer to that is that Warren Buffett is not the question. A billionaire is obviously not the most typical example of who is likely to be means-tested under any scheme tough enough to make a difference. Quite how means testing would actually work is obviously something that’s still up for debate, but it’s difficult to avoid the suspicion that it would end up operating as yet another disincentive (in a tax system already full of them) to save, which is about the the last thing this country needs. That was the reason why, when wrestling with the British budget in the 1980s, Mrs. Thatcher was unwilling to means test retirement/old age health-care benefits. Means-testing such entitlements, she rightly realized, was a levy on thrift.


What she did do was radically reduce income tax rates, while hiking taxes on consumption (there was a dramatic increase in VAT, which these days would probably make the Iron Lady a “socialist” to some) and (by changes in the indexation rules) cutting the real value of the state pension over time. All three moves made sense then and they make sense now.So far as the last of these three is concerned, increasing the age at which people can draw Social Security can be seen as a modest step in the right direction, and, judging by the longer NYT interview with the governor, he’s also looking at the question of indexation. That’s good.


And this too is well worth pondering:

[Daniels] also thinks that people should save money when they choose less expensive Medicare treatments and lose money when they choose more expensive ones. Progressives, he said, believe in letting experts decide which treatments the government will cover. He wants individuals to decide what care they will get. Today, people understandably push for the most expensive treatments because they don’t pay the bill. He would prefer that if you and your family choose to spend tens of thousands of dollars on your final weeks of life, you understand that “the inheritance you will leave to your kids is going to be wiped out, cut in half or something.” Either way, he acknowledged, the choice is “impossibly difficult.”

True, which is exactly why you leave it to the individual to decide.

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