Magazine | October 14, 2019, Issue

Elizabeth Warren’s Entitlement Plans Are Money for Nothing

(Pixabay)
Expensive policies with no rationale

An old knock on liberals was that they had a “program for every problem.” As part of his attempt to redefine liberalism, President Bill Clinton explicitly repudiated the idea in one of his State of the Union addresses. Senator Elizabeth Warren’s unofficial campaign motto, “I’ve got a plan for that,” would seem at first glance to be an embrace of the old caricature.

But that would be giving her too much credit. Her plans for federal entitlement programs show that she is willing to propose enormous changes to government policy that are not plausibly related to any pressing national problem.

The central feature of Warren’s Social Security plan is $200 in extra monthly benefits for every recipient. Cost-of-living adjustments would be made more generous, too. To pay for this largesse she would raise taxes. The payroll taxes that are supposed to finance Social Security currently apply to the first $133,000 in wages. Warren would impose those taxes on wages above $250,000, too, and on the investment income of the highest-earning 2 percent of households. She touts economist Mark Zandi’s estimate that these new taxes would pay for the extra benefits and extend the life of Social Security’s trust fund for 20 years.

Warren appreciates that Social Security’s immense popularity isn’t based just on its giving checks to scores of millions of people. It is based as well on the fiction that recipients have “earned” their benefits. In truth recipients have been receiving checks that are generally well in excess of what they paid in taxes to the program. Warren deploys the rhetoric of earned benefits — her post announcing her plan uses the word “earned” eight times — even as her plan undermines it. The vast majority of people would see higher benefits without having done anything to earn them, while a few people would pay a lot more to get the same increase as everyone else.

Zandi projects that the plan will modestly expand the economy in the long run by increasing national saving: The federal budget improves because taxes rise more than spending does, and at the same time high earners save more to adjust to their new tax bills. Interest rates therefore fall and investment rises. But it’s possible the effects would not be quite so pleasant.

The budget analysts at Penn Wharton have looked at a different proposal to expand Social Security benefits and use higher taxes to pay for them and improve the program’s solvency, the Social Security 2100 bill backed by most House Democrats. They found that it would shrink the economy. Most people would have less reason to save, since they could count on higher retirement benefits from the government, while the new taxes would discourage work, saving, and investment and otherwise distort economic activity. The basic analysis applies to Warren’s plan, too. Its new taxes would be substantial: The top tax rate would jump from 37 percent to 51.8 percent, not counting state and local taxes. It would be the largest increase in the top rate since the 1930s.

We would have adopted a top tax rate comparable to those in western and northern Europe not to buy better infrastructure, or to make Medicare solvent. We would have done it in order to give an across-the-board benefit increase to a group that is doing better than everyone else. The elderly are less likely to be in poverty than younger Americans and more likely to say they have financial security. And even were this not the case for the group as a whole, raising taxes on Bill Gates in order to give him $2,400 more each year when he retires would not be a sensible use of government power. Warren’s Social Security proposal is purely and simply an exercise in vote-buying — which is also why it contains extra money for a subset of public-sector workers, a payoff with no possible justification beyond Democratic coalition politics.

The proposal would raise government spending by about $2 trillion over ten years, according to a back-of-the-envelope calculation by Manhattan Institute fiscal-policy scholar Brian Riedl. That’s a small number only in comparison with the comparable figure for her health-care plan. On that issue, she has opted to copy Bernie Sanders: “I’m with Bernie,” she said when asked where she stood at the first debate among the Democratic presidential candidates.

Senator Sanders’s “Medicare for All” plan would have everyone in the United States, including illegal immigrants, get their health benefits directly from the government. Coverage would be more extensive than what Medicare currently provides (vision and dental benefits would be included), and without any of the deductibles, co-pays, and premiums that Medicare currently involves. Sanders himself estimates that it would mean $30–40 trillion in additional government spending over the next decade. The private health insurance on which most Americans now rely would be illegal. The more than 20 million senior citizens in private Medicare Advantage plans would be placed in the new, fully government-run program, too.

Sanders is forthright in saying that taxes will have to rise to finance this plan, and not just for the rich. He has not, however, fully detailed which taxes would rise and by how much. He has also insisted that most people would see their total costs fall: The premiums and other health-care expenses they would no longer be directly paying would exceed the new taxes. Other countries, he points out, have been able to run national health-care systems while spending less money per person than the U.S. does.

What Sanders and Warren have proposed is, however, more generous than other countries’ systems, which often include out-of-pocket costs for patients or don’t cover some categories of care. When governments require patients to pay for a larger fraction of services, it does not just reduce the taxpayer’s share; it also restrains total expenses, since patients have some incentive to economize.

Perhaps more important, no other country has socialized and then attempted to downsize a health-care system as large as ours. Supporters of the Sanders-Warren plan have pointed to a conservative scholar’s low-end estimate of its cost to argue that it would reduce total spending on health care. But that estimate assumed that the government would be able to force health-care providers to accept a 40 percent cut in pay. Nothing in the history of federal spending on health care suggests this is possible. If anything like it happened, it would surely lead to reductions in the number of providers, increases in wait times, and the like.

Warren takes a different tack from Sanders when she is asked about whether middle-class taxes would rise to pay for the health-care plan. She neither admits nor denies it. She dodges the question while insisting that total middle-class costs will fall because the system will no longer have to accommodate insurer profits or administrative costs. (“Doctors won’t have to hire people to fill out crazy forms” is how she put it at the last Democratic debate.)

Rival candidates, including Joe Biden and Pete Buttigieg, are starting to call her out for not being up-front about taxes. She would have to raise them a lot — and she is already counting on tax increases on the wealthy to pay for those expanded Social Security benefits, not to mention a new child-care program, and on and on. The argument that eliminating insurers will cut total costs is also dubious. Chris Pope, another Manhattan Institute analyst, points out that insurer profits, taxes, and administrative costs add up to only 14 percent of health spending. The administrative costs pay for, and the profits incentivize, insurer behavior that cuts total costs. Thus private insurers in Medicare Advantage have lower total costs, and more extensive coverage, than traditional Medicare plans.

Warren dismisses both the political and the substantive arguments against abolishing private insurers on the ground that people may love their doctors but nobody loves their insurance company. In surveys, though, most people say they are satisfied with their coverage and don’t want to be forced to change it.

It is also worth asking a question that has not come up in much of the discussion of “Medicare for All”: Why should nearly 200 million people have to be evicted from insurance plans they mostly like? What is the point of all this unsought disruption? A government monopoly over health insurance has of course been a cherished goal of the Left for decades. But what is the pressing problem in American life circa 2019 — less than a decade after the last disputatious government-imposed reconfiguration of health care — that it is meant to solve?

If the problem is that there are still too few people with insurance coverage, we could solve it at vastly lower expense and disruption. If Americans want to make illegal immigrants eligible for Medicaid, or for subsidies to participate in the Obamacare exchanges, Congress could just pass a law to that effect and cover a big chunk of the uninsured. If the problem is excessive total costs, then Medicare for All is more reasonably considered a way to exacerbate than to solve it. Warren and Sanders are barely trying to make an argument otherwise.

It would be an enormous effort for the sake of an ideological shibboleth. Warren has a lot of plans, but some of the biggest and boldest of them have no rationale — unless, that is, massive expansions of government are desirable in themselves.

This article appears as “Money for Nothing” in the October 14, 2019, print edition of National Review.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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