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Beyond the welfare state

at 10:26 AM ET, 06/06/2011

Over my vacation, I got some time to read Yuval Levin’s essay “Beyond the Welfare State.” The essay follows a relatively familiar structure: Liberals are very, very wrong — “the left ... is far too committed to the old vision to accept its fate and contemplate alternatives” — and conservatives are the country’s only hope. It’s a build-up that readies you for a truly radical reimagining of the American welfare state. But then Levin gets to the prescriptive portion of his essay, and things get, well, a little Obamaesque. Consider his three major recommendations:

It would begin with a simple and predictable tax system, with a broad base and low rates, free of most of today’s deductions and exclusions. The only three worth keeping in the individual tax code are the tax exemption for retirement savings (which are far preferable to universal cash benefits to retirees), a unified child tax credit (to encourage parenthood and to offset the mistreatment of parents in the tax code), and the charitable-giving deduction (since a reduction in government’s role in social welfare must be met with an increase in the role of civil society, which should be encouraged). These three exemptions are directed precisely to the needs of a modern society, and to addressing the three broad failings of the social-democratic welfare state. The corporate tax code should similarly be dramatically broadened and flattened to encourage growth, which must be the foremost goal of economic policy.

And here’s Obama: “So tonight, I’m asking Democrats and Republicans to simplify the system. Get rid of the loopholes. Level the playing field. And use the savings to lower the corporate tax rate for the first time in 25 years. ... In fact, the best thing we could do on taxes for all Americans is to simplify the individual tax code. This will be a tough job, but members of both parties have expressed interest in doing this, and I am prepared to join them.”

Which brings us to Levin’s second recommendation:

Essentially all government benefits — including benefits for the elderly — should be means-tested so that those in greater need receive more help and those who are not needy do not become dependent on public support. Most retirees would still receive some public benefits (and the poorest could well get more than they do now), but the design of our welfare programs would avoid creating the misimpression that they are savings programs. People who are already retired or nearly so today should be exempted from such means-testing, as they have planned for decades around the existing system; Americans below 55 or so, however, should expect public help only if they are in need once they retire. Means-testing should, to the extent possible, be designed to avoid discouraging saving and work. And private retirement savings should be strongly encouraged and incentivized, so that people who have the means would build private nest eggs with less reliance on government.

It is possible, and perhaps even inevitable, that when liberals say “means-testing,” they mean something different than conservatives. But at its base, means-testing simply means that the rich get less or pay more than the poor. Its opposite is universalism, in which everyone contributes a relatively equal amount and receives relatively equal benefits. Social Security is a fairly universal program. Medicaid is a means-tested program. And the current trends in Democratic policymaking favor means-testing, not universalism.

The Affordable Care Act is one example. It is the least universalist universal health-care reform any president has proposed. Unlike the plans put forward by Truman and Johnson and Nixon and Clinton, the government’s subsidies go only to the poor, and the insurance arrangements of the rich — and even the middle class — are mostly unchanged. In addition, new taxes are levied on the wealthy to help pay for the plan, including a sharp increase in the Medicare payroll tax for those making more than $200,000.

Similarly, the Social Security reform proposed by the Center for American Progress explicitly move the program in a means-tested direction: the top third of the income distribution gets less, and pays more, than they would under the status quo, while the poorest of the poor and the oldest of the old get more while paying less.

What’s next, Levin?

Third, we should advance a consumer-based health-care system — backed with fixed, means-tested premium supports — in which individuals purchase their own insurance in a free market regulated largely by the states. Such a system would, over time, replace today’s tax exclusion for employer-based coverage (which would be converted into a flat universal tax credit for the purchase of insurance) as well as Medicare and Medicaid (which would become add-ons to that credit based on wealth, age, and health — again leaving today’s retirees or near-retirees with today’s benefits). This would create a single continuous system in which the poor and the old would still have heavily subsidized coverage and much of the middle class would still have moderately subsidized coverage, but everyone would make real purchasing decisions and keep the same insurance as his circumstances changed. This approach would seek to let people be active consumers, rather than passive recipients of benefits — which would be good both for the federal budget (since consumer pressure in a free market keeps costs down far better than price controls) and for the character of our nation.

I know that Yuval Levin has many criticisms of the Affordable Care Act. But much of this reads like a straightforward description of the law. “Means-tested premium supports”? Check. That’s what the subsidies are. “A free market regulated largely by the states”? Check. The key markets in the bill — the exchanges — are regulated by the states. “Such a system would, over time, replace today’s tax exclusion for employer-based coverage”? Yep. That’s the explicit intent of the excise tax, which eats away at the tax break for employer-provided insurance. “Let people be active consumers”? That’s exactly what the exchanges are meant to accomplish. The major difference is that the Affordable Care Act doesn’t roll Medicare and Medicaid into the exchanges, though that’s something that many of the law’s advocates — myself included — would eventually like to see happen.

My point is not that Levin is secretly vying to be budget director if Obama wins a second term. It’s that he set out to write an essay radically reimagining the welfare state and sharply outlining the intellectual exhaustion of modern liberals (“The reactionary party, the Democratic Party, its head in the sand and its mind adrift in false nostalgia, insists that nothing is wrong,” etc.) and, when he reached the part where he had to get specific, strung together a series of recommendations that Peter Orszag or Larry Summers could have written in a memo to Barack Obama — and, in fact, perhaps did write in a memo to Barack Obama.

One of the theme of this blog is that if you actually look at the policy proposals of the two parties, Democrats and Republicans support many of the same ideas in theory, even thought the forces of partisanship and incentives of elections make it impossible for them to support the same ideas in practice. So I don’t expect Levin to be teaming up with the Center for American Progress anytime soon. But here, in an essay published in a conservative journal and aimed at a conservative readership, it certainly seems as if he could.

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