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Unleashing Growth and Innovation to Move Beyond the Welfare State

Unleashing Growth and Innovation to Move Beyond the Welfare State

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Newt Gingrich lays out his detailed vision of how we can fundamentally move beyond the welfare state through growth and innovation
Newt Gingrich lays out his detailed vision of how we can fundamentally move beyond the welfare state through growth and innovation

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Unleashing Growth and Innovation to Move Beyond the Welfare State

NEWT 2012 Position Paper Supporting Item No. 4 of the 21st Century Contract with America “[With a personal account system implemented], the Social Security program would be expected to be solvent and to meet its benefit obligations throughout the longrange period 2003 through 2077 and beyond.” -Chief Actuary of Social Security “…one of the things that I am absolutely convinced of is that we have to have work as a centerpiece of any social policy.” -Barack Obama (2008) “If Social Security was shifted to a fully funded system like personal accounts, the concentration of wealth in America would be reduced by half." -Peter Ferrara

Today we are faced with three starkly diverging paths as we address our entitlements crisis, the problems in our health care system, and the suffering of thetens of millions of Americans who live below the poverty line. The first path is the “Fantasy” option: Pretend that everything is working just fine, and that fundamental change is unnecessary. Proponents of this option maintain that Social Security and Medicare will function indefinitely, ignoring that both systems will be insolvent within a matter of years. They favor maintaining the current bureaucratic maze of means-tested welfare programs for low-income

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2 Americans, even though the “welfare empire” has actually ended up keeping more Americans in poverty and only intensified and institutionalized inequality. The second path is the “Austerity” option: Conceding that we will not become as prosperous and secure as we once thought we would, so we should be prepared to settle for less. This means cuts in Social Security benefits, heavier regulation and rationing in health care, and resignation that poverty will forever be a permanent facet of American life. The third path is what this paper will address: securing Americans’ retirement, expanding world-class healthcare for everyone, and lifting millions of Americans out of poverty through growth and innovation. The current system is broken: Schools do not adequately prepare young Americansfor adulthood and the workforce. Americans pay into Social Security their entire lifetimes to receive dismal, inadequate returns. Medicare dramatically limits options for retired Americans. And the welfare empire that has grown since the 1960s isthe greatest engine of inequality of all, trapping millions of Americans in a cycle of poverty. There is a better way. We must fundamentally move beyond the welfare state through growth and innovation. Growth and innovation means securing and strengthening Social Security by empowering Americans to invest in personal savings accounts. This gives Americans ownership over their retirement and the opportunity to unleash the power of the market to have prosperous retirements beyond their most optimistic expectations, while also wiping out all future liabilities in the system. Growth and innovation means liberating the poor from the trap of the Welfare Empire through new programs that are tailored to local communities,that promote work and that incentivize lifelong study. Building on the success of the 1996 welfare reforms, block-granting all federal means tested welfare programs back to the stateswould help millions move from dependency to prosperity while saving taxpayerstrillions. Growth and innovation means rejecting the centralized control and rationing of Obamacare, and creating a broad Patient Power system. When patients are empowered and information is transparent, the cost of healthcare will go down for all, while the quality will go up. This paper will outline a dramatic departure from the status quo. It will be honest about the failures of the current systems. But it will reject the notion that
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3 raising taxes or lowering expectations are appropriate solutions. Through innovation, growth, and tapping the power of market ingenuity, we will chart a new course to security and prosperity for Americans of all income levels. Summary From the years immediately following World War II until recently, federal spending as a percent of GDP has been fairly stable at around 20%. That covers a period approaching two-thirds of a century. This means that through all of the great debates, the political crusades, the battles between left and right, the liberal War on Poverty, the steady rise of the entitlements, and the Reagan revolution federal spending has remained as a roughly consistent share of GDP, growing no faster than our enormously productive economy during this time. That crashing sound you hear is the collapse of this long term grand compromise, which until recently has allowed our economy to continue to soar ahead with world-leading prosperity. Official U.S. government projections have shown for some time now that over the next 30 to 40 years federal spending as a percent of GDP will double to 40% or more. Financing that would ultimately require at least doubling every federal tax. Add in continued state and local spending growing towards 15 percent of GDP, and government in America will consume more than half of the economy. Much more than half in the end, because under that burden GDP growth will collapse, leaving the government share an even higher percentage of a shrunken economy. This would fundamentally transform America into a static, low growth, socialist European-style state. America’s unprecedented prosperity and opportunity, the American Dream, would be gone. President Obama has only accelerated these developments, with federal spending on our current course now targeted to hit 26% of GDP by 2021. The driving factors in the long-term fiscal demise of traditional American prosperity are the nation’s entitlement programs. The multiplying, dead weight burdens not only threaten America’s future solvency and prosperity, they counterproductively fail the poor, low income and senior populations they are supposed to help, and directly contribute to America’s economic decline today. The joint federal/state welfare empire crushes work and the family unit among Americans whose incomes are in the bottom 20%. Obamacare, coupled with the continued mismanagement of Medicaid, and now Medicare—which has been mangled by Obamacare – promise the destruction of the world-leading, top quality health care that has long been fundamental to America’s high standard of living. Obamacare in addition imposes another trillion dollars in
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4 economically counterproductive taxes, plus the job killing employer mandate, effectively another burdensome tax. Social Security, the third major entitlement, promises today’s working people a dismal return on their lifetime of burdensome tax payments, and deprives the economy of mighty rivers of savings and investment that would rocket America’s world-leading prosperity into the 21st century. But there is good news, if we would just think anew. As Peter Ferrara shows in his recent book, America’s Ticking Bankruptcy Bomb1, by modernizing our old fashioned, “tax and redistribute” entitlement programs to rely on 21st century capital, labor and insurance markets instead, we can achieve all of the social goals of these entitlement programs far more effectively, serving seniors and the poor far better, at just a fraction of the current cost of those programs. We can offer a better deal for all Americans at a lower cost. This is the critical point to understand about entitlement reform. Through fundamental structural reforms, and changing the way these safety net programs work and operate, we can actually achieve vastly greater reductions in spending than we could ever hope to achieve simply by trying to cut benefits. That works because of the positive incentives and powerful competition arising from these reforms and their reliance on modern markets. Ultimately, these reforms altogether would reduce federal spending by half or more of what it would be otherwise, solving the long-term fiscal problem. Yet, because these reforms involve fundamental structural changes that actually serve the poor and seniors far better, rather than simply cutting benefits, they are politically feasible. Modernizing the programs to the remarkable benefit of the populations they serve is the political key to unlocking the door to the necessary entitlement reforms. Moreover, such reforms would introduce powerful work and market incentives, driving the programs to contribute to booming economic growth and prosperity, rather than detract from it. These reforms would consequently provide immediate general economic benefits today, creating new jobs, spawning competition for labor that bids up wages and incomes, and reviving traditional American prosperity and the American Dream. This paper will be organized into three parts:
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Peter Ferrara, America’s Ticking Bankruptcy Bomb (New York: HarperCollins, 2011)
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  

Step 1: New American Prosperity through Social Security Personal Accounts Step 2: Fundamentally Reforming The Welfare Empire Step 3: Health Care Reform: Obamacare versus Patient Power

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6 Step 1: New American Prosperity through Social Security Personal Accounts Where We Are Today Just over a decade following Social Security’s creation in 1935, the largest population boom in American history commenced without warning. The first of the Baby Boomers, who were born between 1946 and 1964, will reach the official eligibility age for Medicare next year, and for Social Security in 2013. For years, economists in the federal government have maintained that Social Security would not be able to sustain the influx of new retirees without jarring, jobkilling payroll tax increases. The system is already beginning to show cracks. In 2010, Social Security costs outnumbered revenues for the first time since 1983, when Ronald Reagan made bold reforms to sustain the program. The official projections are bleak: the government’s “intermediate assumption” scenario finds that deficits will be a fact of life until 2037, when the trust fund will be completely drained. Following this, all benefits will have to be paid from revenues, which will require a massive tax hike – likely doubling the current 15.3% combined Medicare and Social Security rate to almost 30%. Under the official worst-case scenario, the trust funds will be bankrupt by 2029, and the payroll tax rate might have to be tripled to over 40% in order to meet benefits of future retirees. The fundamentals of Social Security have operated virtually unchanged for nearly 80 years. The model has remained completely isolated from the benefits of the free market, with no innovation or investment to speak of. It is simply a “tax and redistribution system: the federal government collects payroll tax revenues from current-day workers, and immediately uses the revenues to pay benefits to currentday retirees. The system ran surpluses between 1983 and 2010, but even then, about 90% of revenues were immediately paid out within a year to retirees. The surpluses went directly into the Social Security Trust Fund. But do not let the name mislead you: these funds were not secure. The Social Security surpluses were “lent” to other parts of the federal government, and in return for internal, federal “IOUs” for the Trust Fund. In theory, these IOUs must be repaid when more money is needed to pay benefits. In practice, the only way that the federal government would be able to honor the IOUs would be to either slash spending or raise taxes. Therefore, the these
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7 IOUs are rightly considered liabilities of the federal government, counted as part of the Gross Federal Debt subject to the debt limit. This pay-as-you go system is the most inefficient way to guarantee security to future generations of retirees. The returns are low, inadequate, and well below historical market performance, which translates into lower benefits. Even if young workers manage to realize all of their promised Social Security benefits upon retirement, the best they can hope for is a real rate of return of around 1-1.5%.2 For many future retirees, the future rate of return will actually be negative if nothing is done to reform the system. Imagine putting money into a bank account, but instead of receiving interest, you have to continuously pay to keep your money safe there. This is the stark reality of the current state and trajectory of Social Security. A Vision for Saving Social Security There is a better way, proven to work in the real world. Workers could be empowered with the option to save and invest what they and their employers would otherwise pay into Social Security into personal savings accounts. Studies show that at standard, long term, market investment returns, for an average income, twoearner couple, over a career the accounts would accumulate to several hundred thousand dollars, even close to a million dollars or more, depending on exactly how much of their taxes are paid into the accounts. Even lower income workers could accumulate close to half a million over their careers.3 Those accumulated funds would pay all workers of all income levels much higher benefits than Social Security even promises, let alone what it could pay. Retirees would each be free to choose to leave any portion of these funds to their families at death. Another virtue of these personal savings accounts is that with workers financing their own benefits through their own savings and investment, they can be free to voluntarily choose their own retirement age. Moreover, they would have market incentives to choose on their own to delay their own retirement ages as long as possible, because the longer they wait the more they would accumulate in their accounts, and the higher benefits those accounts could pay.

2 3

Ferrara, America’s Ticking Bankruptcy Bomb Ferrara, America’s Ticking Bankruptcy Bomb
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8 As a result, millions of workers with less physically taxing jobs would choose on their own to delay their retirement well into their 70s, a result that could never be imposed politically. But other workers whose jobs required heavy physical labor or who for other physical reasons could not work past their early 60s could retire then. With planning, they or their employers could make additional contributions to the accounts over the years to finance more benefits in that earlier retirement. This is a far superior solution to the question of the retirement age than politics imposing one, uniform, unworkable retirement age on all. Personal Savings Accounts: A Proven Track Record of Success Chile: The Trailblazer of the Personal Account Just as Chile led the way in designing traditional social security, it also would end up as the first country to tap the power of the market to correct the grave problems of its original system. By 1980, Chile’s workers and employers were paying over a quarter of their salaries toward payroll taxes, but the system faced mounting deficits and potential insolvency. Led by a group of young free-market economists, including many who had trained under Milton Friedman at the University of Chicago, the government in Santiago proposed the first national-level personal account system in the world. This new system would end up being successful beyond anyone’s most optimistic dreams. On May 1, 1981, every Chilean in the workforce was given an option: Remain in the traditional social security system, or transition to a personal account system. Under a personal account system, the burdensome payroll taxes would be waived, and in its place every worker would contribute 10% of his monthly salary into an account. Anyone who entered the workforce after this date had to opt for the new system. These accounts were not abstract entities that could be modified, manipulated, or wiped away by some politician or bureaucrat. Rather, the Chilean workers who opted for the new system enjoyed full property rights over these accounts – the accounts were theirs, not the government’s. The government’s role is instead to solicit and approve private-sector management firms, which create and manage investment funds for these new personal accounts. Chileans are given the choice to invest in about twenty different funds managed by experienced private-sector firms, called AFPs (Administradora de

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9 Fondos de Pensiones).4 These AFPs include a diverse array of firms, from globallyrecognized investment houses to local firms affiliated with labor unions.5 The Chilean government regulates these funds to ensure that portfolios are properly diversified and safe, though some funds carry higher risk than others; some are heavier on stocks, others on bonds, etc. In addition to this regulation, there are a number of built-in safeguards required by law. All funds are required to provide a minimum return on personal account investments. Furthermore, the government provides a guarantee that every Chilean retiree who opts for the personal account will earn at least about 40% of his average wages, which is slightly more than Social Security pays average income workers in the U.S.6 If the personal account for any individual were to fall below this 40% level, the government will cut this person a check from general revenues to make up the difference. In the three decades since instituting this guarantee, the government has not had to make a single payment on the guarantee – even in the midst of the worst financial crisis since the Great Depression. The Chilean system is driven by consumer choice. Workers do not need to be experts at investing in order to make informed decisions – every Chilean has access to world-class investment management companies. Workers can switch between funds quickly and easily, so the management firms have incentives to compete for customers and build the most attractive portfolios. The AFPs are separate legal entities from the funds that they manage, so even if a particular management firm suffers difficulties, the personal accounts are shielded.7 If necessary, the government will step in and reallocate the personal accounts to other AFPs based on consumer preferences – though this option has not been exercised once in three decades of the new system.8 Chileans also enjoy options about how to receive their returns once they reach retirement age. They can opt for an annuity that pays out a determined amount from their personal account every year. Alternatively, retired Chileans can withdraw from their accounts as needed (these withdrawals are subject to some restrictions based on the life expectancy of the worker and the needs of eligible

Jose Pinera, “The Success of Chile’s Privatized Social Security,” Cato Policy Report, Vol. XVIII, Number 4, Cato Institute, Washington, DC, August, 1995. 5 Jose Pinera, “Empowering Workers: The Privatization of Social Security in Chile,” The Cato Journal 15.2-3 (1997). 6Pinera, The Success of Chile’s Privatized Social Security;Pinera, Empowering Workers. 7 Id.; Pinera, Empowering Workers 8Pinera, The Success of Chile’s Privatized Social Security.
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10 dependents). Upon the death of the account-holder, the account can be passed to the retiree’s family or other designated heirs. What about existing workers who had already been paying taxes into the traditional social security system, then opted for the new personal account system? Their payments into the traditional system were secured. Each was given “recognition bonds” reflecting the taxes that they had already paid. These bonds were set up to accrue interest so that by retirement age, they would be equal in value to the benefits that these workers had earned through payroll taxes into the traditional system. The Astounding Power of Choice in Chile The new personal savings accounts were hardly a tough sell to Chileans fed up with the old system. By the end of May 1981, a quarter of the workforce had decided to transition to the new system. Within a year and a half, a whopping 93% of workers had opted to become investors instead of pensioners.9 At the time of the transition, the biggest advocates of reform anticipated a 4% real annual return on the accounts, an upbeat though still modest goal.10 For the average worker, this would translate into annual retirement benefits equal to about 70% of pre-retirement income. For reference, our Social Security system pays out an average of about 40% of pre-retirement income in monthly benefits. Even the biggest proponents were proven overly pessimistic. Workers pay 10% of wages into the system for retirement benefits. The real rate of return averaged an astounding 10.2% by 2004.11 Payroll taxes were half as much, but benefits grew to twice as much: With such a strong rate of return, Chileans were on par to retire with almost 80% of their average late-career income. Meanwhile, economic growth accelerated and unemployment dropped through the 1980s as Chileans saved more and paid lower taxes under the new system. By 2001, two decades after the initial reforms, the total accumulated funds in all of Chile’s savings accounts equaled 70% of GDP.12

9Pinera,

Empowering Workers; Jose Pinera, Retiring in Chile, Transform the Americas, www.transformamericas.org, 2001. 10 Jose Pinera, Retiring in Chile. 11 Research Department, The Chilean AFP Association, “The AFP System Myths and Realities,”, August, 2004, p. 4 12Pinera, Retiring in Chile.
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11 The Chilean model spread throughout Latin America, with Peru, Colombia, Mexico, Bolivia, and El Salvador also adopting variations of the personal savings system. Although these have been implemented with varying degrees of competency and success, the building blocks of reform are in place, and these nations are well on their way to achieving the Chilean ideal. Even Great Britain and Australia have taken notice, and have implemented their own personal accounts systems there.1314 An idea that could never work in America? Well, it already has. And in a few very unlikely places. Personal Accounts in America: The Success Story in Galveston Until 1983, a loophole in federal law governing Social Security allowed state and local government employees to opt-out of the traditional program. In 1981, employees in Galveston County, Texas decided to take their retirement into their own hands, and voted to ditch Social Security for a new defined-contribution plan. Under this unique plan in Galveston (which was subsequently adopted by a few neighboring counties in 1982), payroll taxes were dropped, and 9.737% of the employees’ salaries was put into this private account ever year. Houston-based First Financial Benefits bank houses these accounts, and lends out the funds to well-regarded investment firms in exchange for a guaranteed minimum interest rate for the employees’ accounts. Since 1981, the average rate of return has been between 7.5% and 8% for the account-holders, resulting in benefits much higher than traditional Social Security. In fact, the projected benefits at just a 5% real return were twice or more what Social Security promises:15 --A lower middle income worker retiring at age 65 would get $1,007 per month from Social Security, but $1,920 from the defined contribution plan.

13Pinera,

Empowering Workers; Jose Pinera, Toward A World of Worker Capitalists, Transform the Americas, www.transformamericas.com, April, 2000. 14 The World Bank, Averting the Old-Age Crisis (Oxford: Oxford University Press, 1994); Peter J. Ferrara and Michael Tanner, A New Deal for Social Security (Washington, DC: Cato Institute, 1998), Chapter 1: The Worldwide Revolution in Social Security, pp. 1-11. 15 Testimony of Don Kibbedeaux before the Senate Committee on Finance, Subcommittee on Securities, April 30, 1996; Merrill Mathews, “No Risky Scheme: Retirement Savings Accounts That Are Personal and Safe,” Institute for Policy Innovation, Policy Report No. 163, January, 2002.
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12 --A higher middle income worker averaging about $51,000 per year in income retiring at age 65 would get $1,540 per month from Social Security, but $3,846 per month from the defined contribution plan. --A low income worker retiring at 62 would get $547 per month from Social Security, but $1,035 per month from the defined contribution plan. But a later study using the actual, higher investment results under the plan concluded that workers participating in the Galveston plan for their entire careers would retire with benefits over three times as large as those promised by Social Security.16 For example, a career low-income worker earning $20,000 per year would receive retirement benefits of about $2,740 per month from the Galveston Plan, compared to $775 per month from Social Security. These plans were so attractive that the federal government ended the optout provision in 1983, fearing that too many taxpayers nationwide would flee traditional Social Security for the dynamic new system. Galveston employees, however, were grandfathered in and still enjoy this system today. The Galveston experience mirrors that of Chile: A system that transfers control of retirement decisions from bureaucrats to workers, and ultimately yields much higher returns than traditional Social Security could ever provide. Thrift Savings Plans: Another American Model that Already Works Federal employees have also long enjoyed a form of a personal account system, which has been immensely popular and financially successful. The Thrift Savings Plan (TSP) is available to federal employees not as a substitute for Social Security, but for supplemental retirement savings on top of Social Security. Three and a half million federal employees have invested into the TSP system, which today has $158 billion in total investments. The federal employee may invest up to 5% of his salary into a personal account, and the government employer contributes up to 5%, meaning that up to 10% of an employee’s salary in any given year may be set aside. The employee has a choice of six designated investment funds that carry varying levels of risk, and can switch between funds as he or she chooses. Upon retirement, the employee may draw on funds from this

Testimony of Don Kibbedeaux before the Senate Committee on Finance, Subcommittee on Securities, April 30, 1996.
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13 personal account to purchase an annuity, which pays an annual sum on top of normal Social Security. If an employee invested 10% of his salary in this program throughout his entire career, the supplementary TSP payments alone would dwarf traditional Social Security. This model has been an astounding success for federal employees – let’s free everyone to channel the power of the markets to enjoy a more secure retirement. Personal Accounts: Weathering the Financial Crisis with Minimal Losses But didn’t the financial crisis prove that such personal savings and investment for retirement is a bad idea, as President Obama claims, mocking the idea of personal accounts? To counter that criticism, Peter Ferrara joined with William G. Shipman, former principle with State Street Global Advisors, perhaps the largest private pension investment management firm in the world, to conduct a study of the impact of the financial crisis on lifetime savings and investment. Their results were published in the Wall Street Journal on October 27, 2010.17 They examined the case of a hypothetical senior retiring at the end of 2009 at age 66, who had the freedom to choose personal accounts when he entered the work force back in 1965 at the age of 21. Paying what he and his employer would otherwise pay into Social Security into the personal account instead, he took the riskiest possible path of investing his entire portfolio in the stock market for his 45year working career. How would he have fared in the financial crisis, as compared to Social Security? Ferrara and Shipman called their hypothetical worker Joe the Plumber. While working, he earned the average income each year for full time male workers. His wife Mary, same age, also earned the average income each year for full time females. She invested in the same personal account with Joe, an indexed portfolio of 90% large-cap stocks and 10% small-cap stocks, earning the exact returns reported each year since 1965. This average income couple would have reached retirement at the end of 2009 with accumulated account funds, after administrative costs, of $855,175, almost millionaires. Indeed, they were millionaires, but the financial crisis lost them 37 percent of their account funds the year before they retired. This can be considered effectively a worst-case scenario, as the couple retired just one year after
William G. Shipman and Peter Ferrara, “Private Social Security Accounts: Still a Good Idea,” Wall Street Journal, October 27, 2010, p. A17.
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14 the worst 10-year stock market performance in American history, from 1999 to 2008. Yet, their account would still be sufficient to pay them about 75% more than Social Security promises them, increased annually for inflation just like Social Security. These calculations are consistent with the experience of the already existing, real world versions of personal accounts. Chile’s personal account system survived the financial crisis with no bankruptcies in the personal account investment funds. Indeed, not a single dollar had to be paid out on the guarantee backing the accounts, as the lifetime of savings and investment in the accounts still provided benefits greatly exceeding what the old system had promised. Under the Galveston plan, returns on the accounts declined for a couple of years during the financial crisis, but no one lost their retirement funds, with all still enjoying much higher benefits than Social Security. Moreover, the returns have since recovered. Similarly, the personal accounts enjoyed by federal workers in the federal Thrift Savings Plan (TSP) suffered declining returns for a couple of years, but the accounts have since recovered those losses, as documented on the website of the TSP. President Obama’s argument implies that lifetime savings and investment to support retirement benefits is not a good idea, because such investment entails market risk. Yet, despite the financial crisis, every state and local government pension fund, every corporate pension plan, the federal employee retirement plans, and the successful personal account system in Chile, copied now by other countries around the world, continue to be based precisely on capital investment to finance the expected retirement benefits. The experience discussed above proves President Obama wrong. That is why real market savings and investment continues to be universally recognized as the most efficient and only responsible means of providing for future retirement benefits, outside the far-left bubble inhabited by President Obama and his core base of ideological supporters. What Would a Personal Savings Account System Look Like? Ryan-Sununu: Model Legislation for Personal Savings Accounts In 2005, Congressman Paul Ryan (R-WI) and Senator John Sununu (R-NH) introduced comprehensive legislation providing for such a personal accounts option
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15 for Americans. This legislation was bold and important enough that the Chief Actuary of Social Security, who provides estimates and analyses for benefit programs, offered to “score” – or make projections about – the impact of the bill. The bill provided for no changes of any sort for those already retired, or anywhere near retirement. They would continue to receive all of their promised Social Security benefits in full without any change from current law. But workers up to age 55 were empowered with the freedom to choose to save and invest in the accounts just half the Social Security payroll tax, roughly the amount of the employee share of the tax. Ryan-Sununu empowers American workers to designate a private investment firm to manage their retirement savings. Investment firms that want to participate in the new personal account system would apply to the Department of Treasury for approval. If approved, the fund would be added to a list of authorized funds in which Americans can choose to invest their personal savings accounts. Here’s how the investment funds will work:   The federal government would regulate these funds to ensure that portfolios are highly diversified and professionally managed. Consumer choice will drive the program. Funds can be tailored to meet different financial objectives, and the private firms will compete for customers. As long as the portfolios meet baseline legal requirements, fund managers will be able to offer products that invest in a diverse array of stocks, bonds and other investments. Information about the financial objectives, management team, and past performance of the management funds will be completely transparent and easily available to all personal account owners. Even Americans who have limited expertise in investment would be able to make informed decisions about which professionals will manage their money. Empowered by information and research, account owners will be able to shift their savings accounts between funds quickly and rapidly to maximize their benefits. As in the Chilean model, the funds would be legally separate entities from the management companies. In the event that the management company encounters financial trouble, the personal accounts will be completely protected, and owners will be able to shift their money to another management team.

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16  National organizations such as labor unions and the AARP could collaborate with investment firms to create products for their members. Organizations could tailor investment plans to meet the needs and goals of their constituencies. For example, mining unions, whose members tend to retire earlier than the national average, could offer plans that focus on early retirement options. Other groups that represent primarily white-collar workers could model plans built for workers who do not intend to retire until their 70s.

How would benefits work for those Americans already in the workforce who decide to transition into the new personal account system? For those in the workforce today, benefits at retirement will be a hybrid of benefits that were accrued by paying payroll taxes into the old Social Security system, and benefits payable from the personal accounts. The ratio depends on the point in their career at which the worker opted into the personal account system. Let’s take a worker who is 45 years old. He is about halfway through his professional career, and decides he is going to opt into the new system and shift his payroll taxes from traditional Social Security into the personal accounts option. In retirement, this worker by law will get all of the benefits he accrued by paying payroll taxes into the traditional system for the first half of his career. In addition, he would receive all of the benefits that he earned by setting aside money in his personal account after age 45 – plus all of the investment returns on this personal account. With standard, historical investment returns on the personal savings account, the benefits he accrues in the second part of his career will well outpace those he would have accrued by staying in the traditional Social Security system. Simply put, one does not have to be at the beginning of his career to enjoy the vast returns of a personal savings account. But lets say a teenager just beginning his first part-time job decides to enter the personal account program. From day one, he is setting aside a portion of his monthly salary into a personal savings account, and the interest is being compounded. At a reasonable return rate of 4% per year over 55 years in the workforce, the personal account will end up paying well over what the traditional Social Security plan would in retirement. Thus, regardless of when an individual enters the savings account system, the program is designed so that he can take full advantage of market returns and ultimately receive retirement benefits that far outpace those promised by the current system.
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The Safety Net Remains Intact A key safeguard implemented in the Chilean system also is created under Ryan-Sununu: The government guarantees that all workers with personal accounts will receive at least as much in retirement as they would under the current Social Security system. If someone with a personal account retires with benefits lower than those offered by the current system, the Treasury will send them a check to make up the difference. Thus, there is a legal government obligation that – in a worst case scenario – a retiree will be able to enjoy benefits at least as good as they would under the traditional Social Security system. However, in 30 years, the Chilean government has never had to act on this guarantee and undertake a single “bailout.” Because the government authorizes and regulates all investment funds, it is able to manage the risk of the personal accounts. This provides a key check on excessively high-risk investing, and all but ensures that the returns accrued in the personal accounts are more than adequate for retirement. Personal Savings Accounts Remain Optional It is absolutely critical to note that any reforms to Social Security will make personal savings accounts optional, not required. If you like the existing system, nobody will prevent you from remaining in it. If you do want to transition to a personal account but are leery of the stock markets, you can keep your contributions in a regular savings account and accrue regular interest. And even those who decide they want to invest in stock-heavy, government-approved investment funds will still have a guaranteed minimum benefit when they retire, as required by law. Ryan-Sununu: Trillions in Savings, Trillions in Economic Growth The Chief Actuary of Social Security took the Ryan-Sununu proposal seriously, and offered thorough analysis of the legislation.18 Its most important finding: The benefits of personal savings accounts are so attractive, than nearly 100% of workers would choose the personal accounts in place of traditional Social Security, as in Chile. This process would wipe out the $15
Estimated Financial Effects of the “Social Security Personal Savings and Prosperity Act of 2004,” July 14, 2004, Office of the Actuary, Social Security Administration.
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18 trillion in unfunded liabilities and make Social Security solvent – without any tax increases.19 The Chief Actuary found that the personal accounts in the Ryan-Sununu bill would achieve full solvency for Social Security, completely eliminating Social Security deficits over time without any benefit cuts or tax increases. The Chief Actuary stated, “the Social Security program would be expected to be solvent and to meet its benefit obligations throughout the long-range period 2003 through 2077 and beyond.”20 This results because so much of Social Security’s benefit obligations are ultimately shifted to the accounts, while the employer share of the tax remains in place. Moreover, as we have already discussed, at standard, long term market investment returns, the accounts would produce substantially more in benefits for working people across the board than Social Security now promises, let alone what it can pay. The Ryan-Sununu bill provides for workers to put only half the total Social Security payroll tax into the accounts. That is because private market investment is so productive that with only half as much paid in workers would still get much better benefits, as we saw in Chile. In fact, at just standard, market investment returns, workers with the Ryan-Sununu accounts would get on average about twice the benefits.21 But this only accounts for half of the payroll tax. The other half of the payroll tax – that paid by employers – is still being levied in full, and the continued revenues from this part of the tax begin to build. Eventually, the surpluses from this tax exceed the cost of benefits for those who remain in the traditional Social Security system. Instead of tax increases, over time the accounts would lead to major payroll tax cuts. Ultimately, the surplus in the Social Security trust fund will become large enough that, under this legislation, a payroll tax cut is automatically triggered. The analysis provided by the Chief Actuary shows that eventually, the success of the personal accounts will result in the total payroll tax rate – employee plus employer contribution – being reduced from today’s 12.4% to 4.2%. The revenues raised from this 4.2% will be enough to finance survivors and disability benefits. Employers and

Estimated Financial Effects of the “Social Security Personal Savings and Prosperity Act of 2004,” July 14, 2004, Office of the Actuary, Social Security Administration. 20 Estimated Financial Effects of the “Social Security Personal Savings and Prosperity Act of 2004”, July 19, 2004, Office of the Chief Actuary, Social Security Administration. 21 Thomas Giovanetti, “Social Security Personal Savings and Prosperity,” IPI Ideas No. 28, Institute for Policy Innovation, July 2004.
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19 employees would still be paying more than 4.2% into the retirement system, but these would now be in the form of personal savings account contributions. The current unfunded liability of Social Security is over $15 trillion. Under the Ryan-Sununu plan, the pay-as-you go Social Security system gradually transforms into an investment-oriented, fully funded savings model that will bring in returns to future retirees well above the value of traditional benefits. As retirement savings gradually transition from a static system controlled by bureaucrats into a system where each American owns his or her retirement savings directly, the liabilities on the federal government’s balance sheet will begin to evaporate. Thus, over time, this $15 trillion liability will near zero – the largest reduction of government debt in history. The accounts are not government-controlled, susceptible to the manipulation by some politician or Washington bureaucrat. Just like IRAs and 401(k)s, these accounts are owned and directly controlled by American workers. As workers begin to redirect the employee share of their payroll taxes away from government coffers and into their own personal savings account, this portion ceases to be a “tax” at all. Americans are no longer paying taxes to the government that are put directly toward funding the present-day benefits of other people. Rather, they are keeping the money derived from the employee share of the payroll tax as their own personal asset, and are entitled to any accumulated investment returns as well. The Chief Actuary of Social Security also projected that after just 15 years under the Ryan-Sununu system, American workers would have accumulated $7.8 trillion in today’s dollars, adjusting for inflation. After 25 years, this number balloons to $16 trillion, in today’s dollars – bigger than the entire US economy in 2011. Any American who opts for the savings account model immediately acquires a substantial ownership stake in American enterprise. The perception that stock or mutual fund ownership is merely the domain of the affluent will be obliterated, as tens of millions of Americans would then an interest in the investments in their personal accounts succeeding. As the economy grows, more Americans from all income levels will share in the country’s prosperity. In fact, Harvard’s Martin Feldstein points out that if Social Security were shifted to a fully funded personal account system, the concentration of wealth in America would be reduced by half22 Thus, the creation of new wealth and prosperity shared by the entire population –
Martin Feldstein, “Social Security and the Distribution of Wealth.” Journal of the American Statistical Association, Vol. 71, No. 356, Dec., 1976, pp. 800-807.
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20 not government-imposed redistribution—is the key to more Americans enjoying the American dream. Furthermore, unlike traditional Social Security benefits that only are enjoyed by the retiree and their spouse, personal savings accounts create wealth that can be passed on from generation to generation. A generation from now, it could be the norm in the United States for children and grandchildren to inherit a substantial sum in the form of personal savings accounts. These inheritances could provide the financial foundation for a college education, a new business, a home, or a new investment. The new wealth created by these accounts will drive the entire American economy forward. More capital investment means more jobs and higher wages for American workers. More money passed from generation to generation will keep our housing market steadily growing. Harvard economist Martin Feldstein estimates that switching from the current Social Security system to a fully funded investment system, such as a personal savings account system, would generate between $10 and 20 trillion in increased economic activity.23 Therefore, at substantial savings for the taxpayer, Social Security can be saved and fortified, and a new personal savings account system will be a catalyst, not a drag, on economic growth shared by all Americans. A Second Model: The McCotter Bill for Personal Social Security Savings Accounts In September, Rep. Thaddeus McCotter (R-MI) introduced a bill that builds on the strengths of Ryan-Sununu, but also contains some key distinctions. The most obvious difference is how the programs are funded. Under the Ryan plan, in order to offset payroll tax revenues now going into personal savings accounts, Social Security benefits to current retirees are funded from general revenues – that is, from personal and business income taxes. Under the McCotter plan, the contributions to the personal savings accounts are made from general revenues, and payroll taxes still flow directly and fully into Social Security payments.

23Presidential

address to the American Economics Association, Martin Feldstein, "The Missing Piece in Policy Analysis," American Economic Review 86, no. 2 (May 1996), p. 12.
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21 This is a slight technical difference, but important because it meets the AARP’s requirement that plans must not divert payroll tax revenues away from benefits for current retirees. Additionally, the McCotter bill specifically requires that the funding mechanism for the new personal savings accounts must be cost-neutral. The general revenues that flow into the new personal savings accounts must be offset by savings in other parts of the federal budget. Some of these savings explicitly involve entitlement reforms mentioned in other parts of this paper, such as block-granting federal means tested welfare programs. Further distinctions under McCotter’s bill are that only Americans under age 50 can opt for the personal savings accounts, and each can contribute an amount into personal accounts equal to up to half of their payroll tax. For workers who contribute the maximum through their entire careers, half of their benefits would come from the personal savings accounts, while the other half would still come from the traditional Social Security system. More and more workers will begin to finance a portion of their retirements through the personal accounts. As payroll tax revenues continue to flow in full, enormous Social Security surpluses will begin to accumulate. The Social Security surpluses will be directed back into general revenues, and eventually will become substantial enough to fund all future personal account contributions. The Chief Actuary’s score found that, just as under Ryan-Sununu, eventually nearly 100% of workers will voluntarily opt for the new system, and all future deficits would be eliminated.24 Again, this would be done without raising taxes or cutting benefits. The Actuary also found that that the savings and investments from the personal accounts would replace $8.555 trillion in future government spending, and the spending reductions made to finance the account would add up to at least another $3.75 trillion in savings. This is a savings of $12 trillion – arguably the largest reduction in net government spending in history. How to Finance the Transition From the Old System to Personal Accounts One major question remains: How does the government finance the transition from a one-size-fits-all Social Security program to one that gives Americans an option for a personal savings account?

24

Office of the Chief Actuary, SSA, www.ssa.gov/oact/solvency/TMcCotter_20110912.pdf
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22 As it stands, Social Security operates on a pay-as-you-go basis, so payroll taxes from current workers go immediately towards benefits for current retirees. So if current workers switch to the personal account option, how will we pay for the benefits for retirees today? The Ryan-Sununu Plan and the McCotter Plan address these issues slightly differently: Ryan-Sununu uses money from the general fund (that is, revenues from personal and corporate income tax) for benefits for existing retirees; McCotter continues to use payroll taxes to fund benefits for existing retirees, and redirects money from the general fund into personal accounts for existing workers. Either way, we should not regard this transition funding as a “cost.” Rather, regard the funding as a down payment on the new personal accounts system whose future returns will more than offset any short-term costs. The personal accounts are actually just a politically sophisticated means of shifting from the current, completely non-invested, tax and redistribution, Social Security system, to a fully funded system based on savings and investment, which should be readily recognized as the complete, responsible, desirable solution to the issue of Social Security. This transition financing can all be more than covered by the reduced government spending resulting from the other entitlement reforms discussed in this paper. With the transition financed entirely by such reduced spending, the personal accounts would produce entirely a massive contribution to national savings and investment. The Ryan Roadmap demonstrated the workability of this approach, the comprehensive legislation introduced by now House Budget Committee Chairman Paul Ryan. That proposed legislation includes personal accounts for Social Security, fundamental reform of Medicare and Medicaid, general health care reform, tax reform, and other budget reforms. CBO officially scored the Roadmap as achieving full solvency for Social Security and for Medicare, and balancing the federal budget indefinitely into the future, completely eliminating all long-term federal deficits. This is all done with no tax increases. The costs of transitioning out of the oldfashioned Social Security system are more than offset by these spending reductions. The legislation recently introduced by Rep. McCotter takes this same approach, financing a future reduction in government spending of $8.5 trillion through personal accounts with at least $3.75 trillion in spending cuts during the transition. The Gingrich Vision for Reform
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23 Reform should begin with legislation along the lines of the Ryan-Sununu and the McCotter bills. After the initial reform, the account option could then be further expanded to allow substitution of private life insurance for Social Security survivors’ benefits, and private disability insurance for Social Security disability benefits. This could be accomplished with another 2.3% of wages, as in Chile, coming out of the employer share of the tax. Eventually, the accounts could be expanded to cover the payroll taxes for Medicare, another 2.9% of wages, with the saved funds financing monthly annuity benefits used to purchase private health insurance in retirement. The personal accounts would then encompass an option for 11.4% of wages altogether, about one-fourth less than the current 15.3% payroll tax. Employers and their workers would be free to choose to contribute additional funds to their personal accounts to fund earlier retirement and/or even higher benefits. With the accounts then paying for all of the benefits currently financed by the payroll tax, that tax would eventually be phased out altogether. Workers would instead be paying into the family wealth engine of their own personal savings, investment and insurance accounts. The fatal fallacy persists that it would be politically easier to cut benefits than to enact structural reforms like personal accounts. For all of the reasons discussed above, a populist, grassroots alliance can be generated to support personal accounts, which is the one Social Security reform idea ever to gain support by large majorities in the polls. The alternative is to cut a deal with the Washington establishment that will slash Social Security returns and benefits for working people, at the price of agreeing to a tax increase for “balance.” This would be politically crippling for any governing coalition that agreed to it.

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24 Step 2: Fundamentally Reforming The Welfare Empire The term “welfare state” is inadequate to describe America’s means-tested welfare complex targeted to the poor. What we have is a welfare empire involving perhaps 185 joint federal/state means tested welfare programs, including Medicaid, Food Stamps, 27 low income housing programs, 30 employment and training programs, 34 social services programs, another dozen food and nutrition programs, another 22 low income health programs, and 24 low income child care programs, among others. Federal and state governments spend close to a trillion dollars a year just on these means tested welfare programs25, not counting Social Security and Medicare. That is roughly $17,000 per person in poverty, over $50,000 for a family of three living in poverty. The Census Bureau estimates that our current welfare spending totals four times what would be necessary just to give all of the poor the cash to bring them up to the poverty line.26 Charles Murray wrote a whole book, In These Hands, documenting that we spend far more than enough to completely eliminate all poverty in America.27 This dramatic overspending leaves wide scope for reforms that would be far more effective in reducing poverty, while still saving taxpayers a fortune. President Lyndon Johnson launched the “War on Poverty” with a series of landmark bills in 1964 and 1965. These initiatives marked the beginning the modern phase of the American welfare state, as a number of services for low-income Americans that had previously been provided by states, communities and charitable organizations all of a sudden became institutionalized in federal programs. The price tag has been staggering: Between 1965 and 2008, the federal government spent about $16 trillion (in 2008 dollars) on means-tested programs for low-income Americans. Have this massive cost served to raise tens of millions out of poverty? Hardly.

Robert Rector, Katherine Bradley, and Rachel Sheffield, “Obama to Spend $10.3 Trillion on Welfare: Uncovering the Full Cost of Means-Tested Welfare or Aid to the Poor,” The Heritage Foundation, 2009, http://www.heritage.org/Research/Reports/2009/09/Obamato-Spend-103-Trillion-on-Welfare-Uncovering-the-Full-Cost-of-Means-Tested-Welfare-orAid-to-the-Poor 26Ibid, pp. 15-16. 27 Charles Murray, In Our Hands, A Plan to Replace the Welfare State (Washington, DC: American Enterprise Institute, 2006)
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25 The massive economic growth in the two decades immediately following the Depression and World War II created wealth that was shared by many income groups. The national poverty rate fell from 32% in 1950, to 22.4% in 1959, to 12.1% in 1969, just as War on Poverty programs were beginning to take effect. However, since 1969, the poverty rate has actually risen. 41 years and nearly $16 trillion later, the poverty rate now stands at 15.1% (2010), three percentage points higher than at the outset of Johnson’s grand initiative.28

Poverty Rate Since "War on Poverty" Began: 1966-2010
% of Americans Living Below Poverty Line 16.0 15.0 14.0 13.0 12.0 11.0 10.0 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Year

The War on Poverty: Why Did it Fail? The explanation for the failure of the War on Poverty is rooted in two fatal design flaws: the welfare programs actually removed incentives for low-income Americans to work, and the guidelines of a number of the federal programs actually made it a disadvantage to live in a two-parent household.

28U.S.

Bureau of the Census, Current Population Survey, Annual Social and Economic Supplements.http://www.census.gov/hhes/www/poverty/data/historical/people.html
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26 With fewer low-income Americans working, and their family structures disintegrating, its no surprise that we’ve made little progress combatting poverty over the last four decades. Let’s first look at work incentives. In the years immediately prior to Johnson Administration, nearly two-thirds of households in the bottom income quintile were headed by someone who worked. Thirty years later, this number had fallen by half: In 1991, only about a third of those heading the lowest-income households were working, and only a third of those working were working full time. How did this happen? It certainly was not because of a lack of jobs. During the Reagan years alone, American businesses created nearly 20 million new jobs, and the unemployment rate hovered around 5% by the late 1980s. Rather, it was rooted in the way that Washington had structured these new welfare programs. The federal government offered benefits that were wide-ranging and lucrative, though there were only weak, and sometimes non-existent requirements for recipients to attempt to find work in order to qualify for benefits. In fact, many of these benefits were available only to those who were underemployed or unemployed. If a low-income American entered the workforce, he would immediately lose many of his federal welfare benefits, and on top of that, he would have to start paying payroll and income taxes. As it turned out, for a number of individuals, entering full-time employment became too “expensive” compared to staying at home and collecting benefits – this phenomenon came to be called the “welfare trap.” So millions of low-income Americans weighed the costs and benefits of working full-time, versus the costs and benefits of remaining out of the workforce, and simply decided it was a better deal to substantially reduce or eliminate their work effort altogether. The Welfare Empire and Family Breakdown On top of this, many of the War on Poverty programs perversely and unintentionally incentivized family breakdown and having children out of wedlock. The cause of this also comes back to the demographic requirements one must satisfy to qualify for these benefits.

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27 Generally speaking, War on Poverty welfare programs were designed primarily for families with children. If you were able-bodied and have no dependents, you were typically on your own, as most welfare programs are closed to you and you are expected to support yourself. Therefore, it became advantageous under these programs to have children, which is not necessarily a bad thing in itself. However, the results became disastrous when coupled with a second rule: if the mother was married to a husband who made more than a certain amount of income, the family’s benefits were lost. In tandem, these two requirements created a situation where having a child out of wedlock became the surest way to generous government benefits. Robert Rector of the Heritage Foundation puts it bluntly: “Welfare…converts the low-income working husband from a necessary breadwinner into a net financial handicap. It transformed marriage from a legal institution designed to protect and nurture children into an institution that financially penalizes nearly all low-income parents who enter into it.”29 Inevitably, American families broke down. At the beginning of the War on Poverty, the 7% of babies were born to unmarried parents. Today, nearly two in five children are born out of wedlock. This tragedy has hit the African-American community the hardest. At the outset of the War on Poverty, well over half of African-American babies were born to two-parent families. As welfare programs that penalized two-parent families began to take effect, this rate plummeted. In 1965, the rate of births out of wedlock for African-Americans was 28%. It skyrocketed to 49% in 1975, to 65% in 1990, to about 70% today. The disaster is not limited to one community. The Caucasian out-of-wedlock birth rate was one in 25 in 1965; it is one in four today. And for white Americans lacking a high school degree, about half of babies are born out of wedlock today. Poverty and having children out of wedlock go hand in hand. According to the 2010 US Census, the poverty rate for married couples with children was 8.8%, compared to 40.7% for female-headed households with children. The relative rates for Caucasian families were similar: Two-parent households had a poverty rate of 8.4%, while households with unmarried mothers had a poverty rate of 37.8%. In

Robert Rector, “Strategies for Welfare Reform,” May 1, 1992, Heritage Foundation, http://www.heritage.org/research/lecture/strategies-for-welfare-reform
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28 African Americans, the household poverty rate is 12% when both parents are present; it nears 50% when the family is led by a single mother.30 A tragic effect of this is that having children out of wedlock begets more poverty. Children raised in single-parent households are seven times more likely to become welfare recipients once they reach adulthood. The cycle of poverty becomes stifling, yet the government continues to incentivize much of the behavior that prevents low-income Americans from breaking free. Returning to pre-War on Poverty marriage patters would be a key step in alleviating modern day poverty. According to Rector, “if poor women who give birth outside of marriage were married to the fathers of their children, two-thirds would immediately be lifted out of poverty. Roughly 80 percent of all long-term poverty occurs in single-parent homes.”31 Winning the War on Poverty: The Success of the 1996 Welfare Reform But an historic turning point in welfare policy was achieved with the enormously successful 1996 reforms of the old Aid to Families with Dependent Children (AFDC) program. Those reforms, spearheaded by then-Speaker of the House Newt Gingrich, implemented the ultimate welfare policies favored by President Reagan and his long time welfare adviser Robert Carleson, as explained in Carleson’s recent posthumously-published book Government Is The Problem: Memoirs of Ronald Reagan’s Welfare Reformer.32 The reform returned the share of federal spending on the AFDC program to each state in the form of a “block grant” to be used in a new welfare program redesigned by the state based on mandatory work for the able bodied. Federal funding for AFDC previously was based on a matching formula, with the federal government giving more to each state the more it spent on the program, effectively paying the states to spend more. The key to the 1996 reforms was that the new block grants to each state were finite, not matching, so the federal funding did not vary with the amount the state spent. If a state’s new program cost more, the state

US Census Bureau, Poverty Historical Tables, http://www.census.gov/hhes/www/poverty/data/historical/families.html 31 Robert Rector, “Married Fathers: America’s Best Weapon Against Poverty,” Heritage Foundation WebMemo, June 16, 2010, http://www.heritage.org/research/reports/2010/06/married-fathers-americas-greatestweapon-against-child-poverty 32 Susan A. Carleson and Hans A. Zeiger, Government Is the Problem: Memoirs of Ronald Reagan’s Welfare Reformer (Alexandria, VA: American Civil Rights Union, 2009)
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29 had to pay the extra costs itself. If the program cost less, the state could keep the savings. To give the states broad flexibility in designing the new replacement program, the entitlement status of AFDC was repealed. As a result, federal mandates imposed on the states were eliminated, with one remaining adopted in the legislation: a requirement for able-bodied individuals to work in order to receive federal aid. The reformed program was renamed Temporary Assistance to Needy Families (TANF). The liberal veterans of the Great Society lashed out at the new reforms. New York Senator Daniel Patrick Moynihan billed the legislation as “"the most brutal act of social policy since Reconstruction,” and an Urban Institute report predicted that within years, over a million children would be pushed into poverty.33 These predictions could not have been further from the truth, and welfare reform was a historic success. The rolls for the old AFDC program were reduced by two-thirds across the country. States that were most aggressive in implementing strong work requirements saw rolls dropping even more dramatically: Wyoming (97%), Idaho (90%), Florida (89%), Louisiana (89%), Illinois (89%), Georgia (89%), North Carolina (87%), Oklahoma (85%), Wisconsin (84%), Texas (84%), Mississippi (84%). A decade after the reforms in 1996, the percent of the population receiving cash welfare under the TANF system had fallen to 0.1% in Wyoming, 0.2% in Idaho, 0.5% in Florida, 0.6% in Georgia, Louisiana, North Carolina, and Oklahoma, and 0.7% in Arkansas, Colorado, Illinois, Nevada, Texas and Wisconsin.34 Nationwide, the percentage of American children on AFDC/TANF was reduced from 14.1% in 1994 to 4.7% in 2006.35 At the same time, because of the resulting increased work by former welfare dependents, the incomes of the families formerly on the program rose by 25%, and poverty among those families plummeted. By 2001, nearly three million children had been lifted out of poverty. Within five years of the passage of the bipartisan reforms, child poverty had dropped by nearly a quarter, child poverty in singleparent households reached an all-time low, and nearly two-thirds of those who left

Statement of Robert Rector to House Ways and Means Committee, July 19, 2006, http://www.heritage.org/research/testimony/the-impact-of-welfare-reform 34 U.S. House of Representatives, Ways and Means Committee, 2008 Green Book, Section 7, Temporary Assistance for Needy Families; Gary MacDougal, Kate Campaigne, and Dana Wendall, Welfare Reform After 10 Years: A State-by-State Analysis, (Chicago: Heartland Institute, 2009). 35 Ron Haskins, Work Over Welfare (Washington, DC, Brookings Institution, 2006)
33

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30 welfare were gainfully employed.36 Ron Haskins of the Brookings Institution reports, “[B]y 2000 the poverty rate of black children was the lowest it had ever been.”37 As a result, total federal and state spending on welfare in constant dollars dropped 31% between 1995 (under the AFDC program) and 2006 (under TANF), and down by more than half of what it would have been under prior trends. Even President Obama, who was opposed to welfare reform at the time, now acknowledges it as a historic reform that lifted millions from poverty. When asked at the Saddleback Church debate in 2008 about the most significant policy position that he has changed his mind on, he replied: I think that a good example would be the issue of welfare reform, where I always believed that welfare had to be changed. I was much more concerned ten years ago when President Clinton initially signed the bill that this could have disastrous results. I worked in the Illinois legislature to make sure that we were providing childcare and health care, other support services for the women who were going to be kicked off the roles after a certain time. It had - it worked better than, I think, a lot of people anticipated. And, you know, one of the things that I am absolutely convinced of is that we have to have work as a centerpiece of any social policy.38 This illustrates the entitlement reform theme that through fundamental structural reforms we can achieve the social goals of those programs far more effectively, ultimately serving seniors and the poor far better, at just a fraction of the costs of the current old-fashioned programs. Expanding the Lessons of 1996 to Dozens of Other Means-Tested Programs There is a path forward that will liberate millions more Americans from poverty. The question is whether we will continue to rely on the failing and destructive structures of the welfare empire, or we will innovate our way to a new

36 37

Ron Haskins, Work Over Welfare Ron Haskins, Work Over Welfare

38“Full

transcript of Pastor Rick Warren's Saddleback Forum with John McCain and Barack Obama,” Los Angeles Times. http://latimesblogs.latimes.com/washington/2008/08/fulltrandcript.html

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31 system that promotes growth, implements smart policies that require work, and ultimately creates more wealth and opportunity for everyone. The 1996 legislation was an unprecedented success, but there are many other areas of the welfare state that are ripe for reform. The same reforms can and should be extended to all of the remaining 184 federal means tested welfare programs (See Appendix A). The federal welfare bureaucracy would be substantially pared down as control of these initiatives is handed back to the states. It also follows the spirit of the Tenth Amendment in restoring power to the states. Instead of “one size fits all” federal programs, state and local officials will be liberated to innovate and tailor the programs so they are best suited for the needs of their communities. States would then be free to each completely redesign welfare for their state. But if they would provide assistance to the able bodied only in return for work first, they can completely eliminate the work disincentives of welfare. Moreover, the minimum wage, plus the Earned Income Tax Credit (EITC), plus the Child Tax Credit are enough by themselves to bring every family out of poverty with full time employment.39 To the extent each state is successful in finding private work for the poor, the cost of ending poverty would be borne primarily by private employers paying wages in return for work, rather than taxpayers. Consequently, instead of taxpayers paying the bottom 20% in income not to work, as taxpayers do today, employers would be paying them to work. As a result, the bottom 20% would be contributing to the economy, rather than drawing out of it through public support financed by taxpayers. Additionally, any individual who cannot find work and collects unemployment benefits (currently a joint state-federal program, with federal taxes paying for a majority of the program) will be required to participate in a job-training program. We can better help these Americans by requiring them to participate in real training programs in private companies, in exchange for temporary unemployment aid. Our goal is to convert the time and money now lost to a maintenance unemployment program into a human capital investment program that increases the competitiveness of the American worker in the world market in a time of dramatic scientific and technological change.

39

Ferrara, America’s Ticking Bankruptcy Bomb
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32
This program should be delegated to the 50 states so each can experiment with the best way to use unemployment compensation as a job training program.

Through required work, the welfare incentives for family breakup and births out of wedlock would also be eliminated entirely. No automatic benefits would be handed out any longer for bearing a child out of wedlock. If the mother has a child without a husband, then the mother must go to work to support the child. Thus, the new system will instead provide incentives to raise children in two-parent households. Since living together will reduce living expenses that the couple will have to work to pay for in any event, the incentives are for family unification rather than family breakup. Liberating Low-Income Americans While Fixing Fiscal Challenges With all the programs of the current welfare empire estimated together to cost $10 trillion over the next 10 years, the resulting savings to the taxpayers would be several trillion just in those first 10 years alone. In his book America’s Ticking Bankruptcy Bomb, Peter Ferrara estimates approximately $3.25 trillion in savings by the federal government and approximately $1.4 trillion in savings by the states over the next decade. Indeed, while substantial costs would remain for a program like Medicaid, the above incentives would likely drive down costs for most of the remaining programs by more than half. But at the same time, poverty in America would decline substantially, with nearly all able-bodied people who can secure employment earning sufficient income to climb above the poverty line.40

40

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33 Step 3: Health Care Reform: Obamacare versus Patient Power With the overwhelming burden of existing entitlement programs threatening long-term fiscal chaos and the end of America’s traditional world leading prosperity, President Obama decided the top priority was to make the problem worse with Obamacare, which wildly expands future entitlement spending. While President Obama insisted Obamacare would not add to the federal deficit, Ferrara in America’s Ticking Bankruptcy Bomb explains why it will add $4 to $6 trillion in additional deficits and debt in the first 20 years of implementation alone. On top of this, it promises to decimate the world leading quality health care that has long been a central component of the high standard of living of the American people. But that is not the biggest problem. Obamacare was advanced to address two central problems, rapidly rising health costs and the number of uninsured. In reality it did nothing to address costs. Expanding insurance coverage through government expansion without addressing costs is the worst possible approach. National health care costs have been growing faster than the economy for almost a century, though the costs began to skyrocket in earnest about fifty years ago. In 1960, health care costs amounted to 5 percent of the size of the total economy. Over the next half-century costs grew more than three times as quickly as GDP, so that by 2009 they amounted to 17% of the economy. That year, Americans spent $2.5 trillion on health care, a figure higher than all but four other economies in the world. Even compared to other affluent countries, we spend a disproportionately high amount on healthcare. France spends about 11.2% of GDP, followed by Switzerland and Germany, which both spend between 10 and 11% of their output on healthcare. We spent $7,538 per capita on healthcare, a third more than second-place Norway ($5,003) and third-place Switzerland ($4,627). Germany and Britain both spent less than half as much, and the OECD average in 2009 was $3,060. Obama’s health plan does not do a thing to halt this dangerous trend. In fact, by 2040 the Congressional Budget Office estimates that close to one-third of our entire output will be dedicated to healthcare. The Third-Party Payment Problem What makes healthcare so unique that its costs rise so much more quickly than any other sector?
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34 The answer lies in what economists call the “Third-Party Payment” problem. Simply put, patients do not actually for health care products and services directly, so few of us actually grasp the true cost of this care. Most working-age Americans have private insurance or an HMO where they pay a fixed premium every month, with additional costs heavily subsidized. Seniors and the poor depend on government insurance, where costs tend to remain consistent regardless of how much care is consumed. In 2008, private health insurance, Medicare, Medicaid, or other public spending paid for 84% of health expenditures. Why does this matter? Consider this analogy: Imagine sending your son into a candy store. You tell him he can buy whatever he likes, but the cost of whatever he purchases comes straight out of his allowance. Now imagine instead that you tell him that his favorite uncle has paid for an “all you can eat” deal at the candy store that day. The bill has already been paid up front, so he can take as much candy as he wants at no further cost. Your son would likely make his selections with a more discerning eye under the first scenario; the second scenario is likely going to create a very bad stomachache. This is the core of the problem with our current system of health insurance. We don’t purchase our medical services and devices directly. Rather, a third party – whether it be private insurance or the government – pays the bills, so few of us ever grasp the magnitude of the costs of medical care. Therefore, with little transparency and little sense of true costs, neither patients nor the medical industry have any incentives to control these costs. On the consumer side, we as patients have poor information about the true cost and quality of care. Because we are not paying the costs of our care directly, patients have little incentive to search for the best or most efficient value in their health care choices. On the provider side, doctors, hospitals and other businesses in the medical industry have little incentive to compete to lower costs, since costs are rarely a consideration for consumers. In just about every other industry, a new and popular innovation will quickly draw many competitors into the market selling a similar product – the result of this competition is that future iterations of the product both increase in quality and decrease in price. Just think about how much cheaper and better-quality flat-screen TVs are today than they were just 5 years ago. But in health care, none of these rules apply, and new technology actually tends to increase costs all around. Most other countries have addressed this problem of costs by instituting centralized, government-controlled healthcare systems. The government uses taxpayer money to pay all of the medical bills, so the government ultimately decides
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35 the type and quantity of health care that its citizens can consume. Health care decisions become a cost-benefit analysis, but a cost-benefit analysis made by some distant government bureaucrat, not a patient and their doctor. In Britain for instance, the National Health Service Constitution is clear that government approves and government decides—not patients and doctors. “You have the rightto drugs and treatments that have been recommended by NICE [National Institute for Health and Clinical Excellence] for use in the NHS, if your doctor says they are clinically appropriate for you. You have the right to expect local decisions on funding of other drugs and treatments to be made rationally following a proper consideration of the evidence. If the local NHS decides not to fund a drug or treatment you and your doctor feel would be right for you, they will explain that decision to you.” [emphasis added]41 This model is wrought with perverse incentives, particularly to sacrifice to broader political calculations the interests of the sickest and most costly, always a small minority not nearly fully aware of the scope of possible medical alternatives. With the government and politics ultimately deciding who gets paid how much for what health care, incentives for investment to develop new medical technology, innovation, and breakthroughs are decimated. Most disturbingly, the government is left to make life-or-death decisions for many individuals, as it is the final arbiter as to whether or not certain services are worth the costs. The British NHS even goes so far as to use rationing of health care services to promote social equality: “[The NHS] has a wider social duty to promote equality through the services it provides and to pay particular attention to groups or sections of society where improvements in health and life expectancy are not keeping pace with the rest of the population.” The fact that government promotes a left-wing social agenda through the delivery of medical services is beyond chilling. Though initially subtle and opaque, Obamacare creates the framework to take America down this road. That can be seen for starters in the $15 trillion in future cuts to Medicare payments to doctors and hospitals, and turning over the program to the democratically unaccountable Independent Payment Advisory Board. Patient Power: The Pro-Market, Pro-Patient Alternative to the Obama Model

41http://www.dh.gov.uk/en/Publicationsandstatistics/Publications/PublicationsPolicyAnd

Guidance/DH_113613
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36 The alternative has been dubbed Patient Power, after the seminal book of that name by free market health guru John Goodman published by the Cato Institute in 1992. The classic example of such policy is Health Savings Accounts (HSAs). Here is how HSA’s work: The consumer enters an insurance policy with a high annual deductible, typically between $2,000 and $6,000 in 2011. The higher the deductible, the lower the cost of the insurance, with monthly premiums much lower than traditional insurance plans. The funds that would normally go towards financing monthly premium payments instead are saved in the HSA, to be withdrawn as needed. Typically, if a patient remains healthy during his first year on a high-deductible HSA plan, enough funds will accumulate in the savings account to cover all of the expenses below the deductible (And even if the patient has an unhealthy first year, the net out of pocket costs after using up the first year savings in the HSA is not much more than standard deductibles and copayments in traditional health insurance). Unspent HSA funds can be used for health expenses in later years, or for anything in retirement. High-deductible plans coupled with an HSA all but eliminate the “third party payment” problem for all non-catastrophic expenses. The patient will be paying for non-catastrophic medical care and products directly out of this HSA account. Therefore will have an incentive to search for care that is high in quality, but he will be cognizant of the costs as he will be paying these costs directly. As HSAs become more widespread, the medical industry will fundamentally change the way it operates. Doctors, hospitals and other providers would now have to compete to both maximize quality and control costs – as is the case in just about every other market. Producers of medical technology and pharmaceuticals will have incentives to develop new products that both reduce costs and improve quality. The medical industry, one of the few remaining that is insulated from the positive powers of free-markets, will adapt and flourish. HSAs can be expanded throughout the health care system. Workers can be allowed the freedom to choose them in place of employer provided coverage, the poor can be allowed to choose them for their Medicaid coverage, seniors can be allowed to choose them for Medicare. Similar policies would involve providing the poor through Medicaid with designated sums for the purchase of private insurance coverage in competitive markets, resulting in incentives for cost saving choices among competing health insurance alternatives. That can be done with employer provided health insurance as well, with the worker free to use an employer contribution for any private insurance coverage of his or her choice.
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37 By contrast, Obamacare goes in the opposite direction and actually restricts consumerism. Obamacare increases taxes on Flexible Spending Accounts by cutting the tax advantage by 50%. On HSAs, Obamacare restricts what medicines patients can purchase, and the most dangerous assault on HSAs could be when the federal government prohibits their inclusion in the newly state-based health insurance exchanges that Obamacare mandates. We must also break down other unnecessary barriers to achieve Patient Power. Americans should be allowed to purchase insurance across state lines, which will vastly increase choice and drive down costs. Regulations that only serve to benefit special interests must be repealed, including mandates that require plans to cover unnecessary services, guaranteed issue rules, and community rating rules. Additionally, regulations that exist only to bar certain providers from market should be pared down, especially certificate of need requirements. Bringing “Patient Power” to Medicare Consumerism can also be unleashed in Medicare, as House Budget Committee Chairman Paul Ryan has proposed. Retirees can be provided premium support through the program for the purchase of the private health insurance they choose. The resulting market competition among health plan will help to control costs. Similar private sector competition for the drug coverage of Medicare Part D has proved quite successful in controlling costs. A personal savings and investment account for the Medicare payroll tax during working years would provide additional funds that can be used in retirement for the purchase of private health insurance of the retirees’ choice. President Obama’s approach to Medicare emphasizes again the other alternative of expanded government control over the health care provided to seniors under Medicare. He makes sharp Medicare cuts to payments to doctors and hospitals for senior health care, and creates the Independent Payment Advisory Board to implement still further Medicare cuts, which is ominously exempted from democratic control. This is why Ryan’s Medicare reforms are actually better for seniors than Obama’s approach to Medicare. Maximizing Quality for Medicare Patients Improving the quality of health care is also a critical part of the solution to Medicare. While many of the changes need to be made to other parts of government, such as fundamentally transforming the FDA and NIH as well as encouraging and accelerating research and development with tax changes, the breakthroughs that would result will greatly benefit Medicare—both in terms of improvements in beneficiary health and cost savings.
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38

For example, in regenerative medicine we stand at the edge of a dramatic new potential to use our own cells to grow solutions totally compatible with our bodies. Regenerative medicine is creating the potential for revolutionary breakthroughs for spinal cord injuries, cancer patients, heart disease and every aspect of our physical body. In kidney dialysis alone the federal government now spends $27 billion a year. Kidney dialysis will soon be a larger cost than the entire NIH budget. Yet regenerative medicine stands at the edge of making it an obsolete therapy. Brain science stands on the edge of an even greater revolution in knowledge and capabilities than regenerative medicine. Because of breakthroughs in instrumentation and computation, brain science will almost certainly be the most exciting and explosive area of new knowledge in our lifetime. Brain science opens up potential solutions for Alzheimer’s, Parkinson’s, Autism, Schizophrenia, Bipolar disease, and even in how fast and thoroughly we learn. Medicare spends billions every year to treat the symptoms of Alzheimer’s. Medicaid programs also spend billions in long-term care costs related to the disease. If we were to move the barriers standing in the way of innovators and entrepreneurs to find a cure or a vaccine, we could unleash the power of cuttingedge industries like biotechnology to develop and deploy the treatments and cures that will improve health and lower costs in Medicare. Additional changes to Medicare, such as rapidly moving away from fee-forservice payments to value-based payments, are also vital. Fraud continues to be an anchor on the program. Some estimates are as high as 10 percent of all Medicare spending is outright fraud, leading the GAO to designate Medicare as “a high-risk program because of its size, complexity, and susceptibility to improper payments.” Utilizing modern information technology to monitor fraud in real-time is critical. All of these solutions must be combined with empowering Medicare patients with the decision-making authority and responsibility over how their health care dollars are spent. Medicare patients must be given market incentives to consider the full costs of the health care they choose to consume, in which case the patient weighs the personal benefits of his or her health care against the costs of that care. Improving the Health Care Safety Net for Low Income Americans Such Patient Power reforms can be extended to provide a complete health care safety net covering everybody to assure that no one will suffer lack of essential health care, for just a small fraction of the cost of Obamacare. Moreover, this can and should be accomplished with no individual mandate and no employer mandate.
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39 Obamacare, by contrast, for all of its trillions in future taxes and spending, and both its individual and employer mandate, still does not cover everyone. Such reform would begin with Medicaid, which already spends over $400 billion a year providing substandard health care coverage for 50 million low-income Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all those who otherwise could not afford coverage, ideally with Medicaid provided premium support. This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, close to half of all doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Access is already a dire problem. But shockingly, Obamacare dramatically expands Medicaid—20 million more Americans beginning in 2014—without making a single change to fundamentally improve the program. It is a scandal to add 20 million more Americans to the program without addressing the existing access problem. Health insurance vouchers would free the poor from this Medicaid situation, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market. Ideally this would be done by block granting Medicaid back to the states, as with the 1996 AFDC reforms discussed above. With finite block grants for Medicaid, states that innovate to reduce costs can keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. The voters of each state can then decide how much assistance for the purchase of health insurance to provide each family at different income levels to assure that the poor would be able to obtain essential health care. This would rightly vary with the different income and cost levels of each state. This would not cost much because only about 12 million Americans arguably cannot afford health insurance without some public assistance. Out of the 47 million uninsured we keep hearing about, 9.7 million are already eligible for current government programs like Medicaid or SCHIP but haven’t signed up. Another 6 million are eligible for employer sponsored insurance but have not signed up for that either. Another 9 million are in families earning more than $75,000 per year. Another 10.2 million are immigrants, legal or illegal, and not U.S. citizens. Just give the assistance necessary, counting what they can reasonably pay based on their income, to the 12 million Americans that need it to buy private health insurance.
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40 A second step necessary to ensure a complete safety net is to provide federal funding to help each state run a High Risk pool. Those uninsured who become too sick to purchase health insurance in the market, perhaps because they have contracted cancer or heart disease, for example, would be assured of guaranteed coverage through the risk pool. They would be charged a premium for this coverage based on their ability to pay, ensuring that they will not be asked to pay more than they could afford. Federal and state funding would cover remaining costs. Such risk pools already exist in over 30 states, and for the most part they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable. Obamacare included $5 billion to fund high-risk pools until 2014. In theory risk pools will no longer be needed since insurers will be required to cover preexisting conditions, and guaranteed issue and community rating would be mandated. This will undoubtedly drive up the cost of insurance for everyone. The better approach would be to assist those who are truly uninsurable in the private market with a publicly backed high-risk pool, while introducing a series of patientpower reforms for the private market. The law already provides that insurers cannot cut off already existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be. With these reforms, those who have insurance can keep it, those who can’t afford it are given the necessary help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it have a back up safety net in the risk pools. Everyone is assured of being able to get essential health care when they need it, with no individual or employer mandate. The intractable problem with such individual and employer mandates is this: once you have a mandate, the government has to specify exactly what coverage must be included in insurance for it to qualify. This introduces political considerations into determining these minimum standards, guaranteeing that nothing desired by the special interests will be left out. And once the government mandates such expensive insurance, the government becomes responsible for its costs. It has to adopt expensive subsidies to help people pay for the expensive plans that it is requiring. The resulting cost to the taxpayer and strain on the budget leads the government to try and control healthcare costs by limiting healthcare services. The inevitable result is rationing by a nameless, faceless, unaccountable board of government bureaucrats. This is why individual and employer mandates are bad policy leading down the road to socialized medicine, whether the mandates are adopted at the federal level, or the state level.
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41

Two Starkly Different Paths The Medicaid block grants would likely cost less actually than Medicaid today, but serve the poor far better as discusses above, and the High Risk pools involve only marginal additional costs. Obamacare, by contrast, was estimated by CBO to cost a trillion dollars a year, more likely $2 to $3 trillion.42 But with Patient Power, the patients themselves would enjoy maximized personal control over their own health care, with the current world leading quality of American health care maintained. So again, the people are better served, at just a fraction of the cost. Moreover, once the decision over what health care to buy is united with market incentives to control costs in the patients themselves, then the people themselves can decide what percentage of GDP should be devoted to health care, through their collective decisions in the marketplace. The health cost problem would be addressed in the competitive marketplace, consistent with the preferences of the people. The health care industry would then be a contributor to jobs and growth of the economy just like any other, rather than considered a net drain on the economy. Restraint of health costs consistent with consumer preferences would further contribute to economic growth.

42

Ferrara, America’s Ticking Bankruptcy Bomb
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42 A New Vision for Entitlements, A New Vision for Prosperity Incremental changes will not solve the challenges that we face, nor will incremental changes capitalize on theopportunities that all Americans have in front of them today. This is why we must undertake a bold restructuring of the welfare state that both rejects theunsustainable status quo, but also rejects the notion that we have no choice but to settle for less in the future. We as Americans have the most dynamic economy in the world. We have the most mobile, innovative citizens in the world.When something doesn’t work, we do not settle, and we do not temper our expectations. So there is no reason we should continue to tolerate a woefully inefficient Social Security system, a broken Medicare system, or a welfare system that prolongs the cycles of poverty rather than breaking them. This is why we mustreject the current static and outdated welfare and entitlement models, and replace them with models that introduce ournatural dynamism and innovation into our entitlement and systems. Through growth and innovation, we will not only fix Social Security, we can tap into the power of the market to secure unprecedented prosperity in retirement for Americans of all income levels. Through growth and innovation, we will not only rethink and reconstruct the current “welfare empire” that has prolonged and intensified inequality, but we will turn it into an engine of opportunity for the millions of Americans trapped in poverty by introducing the right incentives and the right locally-designed initiatives that emphasize work and lifelong learning. Through growth and innovation, we will reverse the mentality that the only way to expand health care access is to ration it for all. Through Patient Power policies that remove bad incentives and distortions, Americans at all income levels will have the better quality care at lower prices. This paper projects a new, modernized, 21st centuryvision for entitlements, harnessing modern capital, labor and insurance markets, and productive incentives, to achieve all of the social goals of those entitlements far more effectively, ultimately serving seniors and the poor far better. Yet, because those reforms rely on markets and productive incentives, the cost of those programs to taxpayers are dramatically reduced. Indeed, over time federal spending is reduced by half or more from where it would be otherwise.
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43 The changes will be bold and controversial, but once implemented, we will havetransformed the current broken model into a dramatically more efficient system that taps American growth and American innovation to make all Americans more prosperous and secure.

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APPENDIX A Federal Means Tested Programs (184 programs) Food and Nutrition Assistance (13 programs) Food Stamps Women, Infants and Children program Child Nutrition Child Nutrition Commodities Special Milk Program HHS: Congregate Meals HHS: Meals on Wheels CSFP Emergency Food Assistance Program Food Program Administration Food Donations Child and Adult Food Program Nutrition Assistance for Puerto Rico Social Services Programs (34 programs) Social Services Block Grant Community Services Block Grants Community Economic Development Community Development Block Grants Emergency Food and Shelter (McKinney) Emergency Community Services Grants Farm Worker Assistance Rural Housing Rural Community Facilities National Youth Sports Community Food and Nutrition VISTA VISTA – Literary Special Volunteers programs Retired Senior Volunteer Corps Foster Grandparent Program Senior Companion Program Senior Demonstrations Demonstration Partnership Agreements
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45 Juvenile Justice Formula Grants (A&B) Juvenile Justice Discretionary Grants Youth Gangs (Part D) State Challenge Grants (Part E) Juvenile Monitoring (Part G) Prevention Grants (Title V) Americorps: National Service Trust Service America Civilian Community Corps. Youth Community Corps. Points of Light Foundation Runaway and Homeless Youth Transition Living for Homeless Youth Drug Education for Runaways Legal Services Corporation Low Income Housing Programs (27 programs) Section 8 Public Housing Section 236 Section 235 Homeownership Assistance Section 101 Rent Supplements Home Investment Partnership Program (HOME) Homeownership and Opportunity for People Everywhere (HOPE) Section 202 Elderly Section 811 Disabled Housing Opportunities for Persons with AFDC Emergency Shelter Grants to Homeless Section 8 Moderate Rehab for SROs Supportive Housing for Homeless Shelter Plus Care Innovative Homeless Initiatives Demonstration Section 502 Rural Home Loans Rural Housing Repair Loans Rural Housing Repair Grants Farm Labor Housing Loans Rural Rental Housing Grants Farm Labor Housing Grants Section 521 Rural Rental Assistance Rural Self-Help Housing TA Grants Section 523 Self-Help Housing Site Loans Section 524 Rural Housing Site Loans
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46 Section 533 Rural Housing Preservation Grants Bureau of Indian Affairs Housing Grants Health Programs for Low Income People (23 programs) Medicaid Community Health Centers Migrant Health Centers Health Care Services for Homeless Health Services for Residents of Public Housing National Health Service Corps Field Program National Health Service Corps Recruitment Program Rural Health Services Outreach Grants Maternal and Child Health Block Grant Setaside for Special Projects of National Significance Setaside for Community Integrated Services Systems Healthy Start Initiative Family Planning Program Adolescent Family Life Demonstration Grants Indian Health Services Projects for Assistance in Transition and Homelessness Immunization Program Vaccines for Children CARE Grant Program Scholarships for Disadvantaged Student Faculty Centers of Excellence Education Assistance Regarding Undergraduates Nurse Education Opportunities Federal Employment and Training Programs for Low Income People (30 programs Plus) JTPA Job Corps JTPA IIA Training Services for the Disadvantaged -- Adult JTPA IIB Training Services for Employment and Training Program JTPA IIB Training Services for Disadvantaged Summer Youth JTPA IIC Disadvantaged Youth JTPA EDWAA-Dislocated Workers (Substate Allotment) JTPA EDWAA-Dislocated Workers (Governor’s Discretionary) JTPA EDWAA-Dislocated Workers (Secretary’s Discretionary) Job Opportunities and Basic Skills Program Vocational Education – Basic State Programs Vocational Education – Tech Prep Education
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47 Adult Education – State Administered Basic Grant Programs Trade Adjustment Assistance – Workers Food Stamp Employment & Training Upward Bound School to Work Federal Supplemental Education Opportunity Grants State Legalization Impact Assistance Grants Senior Community Service Employment Program Supportive Housing Demonstration Program One Stop Career Centers Survivors and Dependents Educational Assistance Student Support Services Economic Development Grants for Public Works and Development Vocational Rehab for Disabled Veterans Employment Service – Wagner Peyser State Grants All Volunteer Force Educational Assistance Rehab Services Basic Support Grants to States Federal Pell Grant Guaranteed Student Loans Miscellaneous (93 programs with spending less than $100 million, 31 programs authorized but with no appropriation) Federal Child Care Programs for Low Income Families (24 Programs) Child Care and Development Block Grant Child Welfare Services Child Care for Recipients of AFDC At Risk Child Care Transitional Child Care Child Care Licensing Improvement Grants Employer Provided Child or Dependent Care Services Early Intervention Grants for Infants and Families Native Hawaiian Family Education Centers Special Child Care Services for Disadvantaged College Students Special Education Preschool Grants Abandoned Infants Assistance Act Comprehensive Child Development Centers State Dependent Care Planning and Development Grants Temporary Child Care for Children with Disabilities and Crisis Nurseries Migrant and Seasonal Farmworkers Programs Summer Youth Employment and Training Program Youth Training Program Early Childhood Development Program
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48 Family Self-Sufficiency Program Homeless Supportive Housing Program Appalachian Childhood Development Residential Substance Abuse Treatment for Women Substance Abuse Prevention and Treatment Block Grant Federal Child Welfare and Child Abuse Programs for Low Income Families (28 programs) Abandoned Infants Assistance Child Abuse State Grant Program Children’s Justice Grant Program’ Child Abuse Demonstration and Research Grants Demonstration Grants for Abuse of Homeless Children Adoption Opportunities Program Family Violence State Grant Program Family Support Centers Community Based Family Resource Program Missing and Exploited Children’s Program Temporary Child Care for Children with Disabilities Crisis Nurseries program Grants to improve the investigation and prosecution of child abuse cases Children’s Advocacy Centers Treatment for juvenile offenders who are victims of child abuse and neglect Child Welfare Services Child Welfare Training Child Welfare Research and Demonstration Family Preservation and Family Support Program Independent Living Family Unification Program Entitlement for Adoption (4 programs) Entitlement for Foster Care (3 programs) Federal Education Programs for Low Income Families (4 programs) Title I Education for the Disadvantaged Head Start Even Start Migrant Education Cash Assistance (1 program) Supplemental Security Income Program (SSI)
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