No VAT For Now
There's no easy fix to the budget mess.
2:48 PM, Apr 16, 2010 • By MATTHEW CONTINETTI
What to do? The American welfare state transfers massive amounts of money from the working (and relatively poor) young to the retired (and relatively affluent) old. It's a looting strategy that is unsustainable. But, since no one pays much attention to what young people think, maybe the best possible reform of the welfare state starts with them. For example, Paul Ryan's Roadmap for America's Future keeps the current welfare state in place for everyone 55 years old and over. Why not introduce a bill that means-tests Social Security, indexes benefits to inflation, eliminates the incentives to early retirement, and raises the retirement age to 70 while indexing it to life expectancy -- but only for everyone 50 and under? (No need to include controversial personal accounts, which do not address the solvency question and actually increase deficits in the short-term.) Americans in that age cohort know they aren't going to see the benefits government promises them. They might appreciate the straight talk. And everyone seems to agree that Social Security is "easy" compared with Medicare and Medicaid. The health care conversation is much tougher, especially in light of Obamacare's passage, but a bill that reforms Medicare and Medicaid along free-market lines -- but only for young people! -- makes sense too.
Meanwhile, I have confidence that Congress will consider tax reforms like Gregg-Wyden in the near future. You're beginning to see a consensus that the American tax system is too complicated and too inefficient for its own good. Marron outlines some principles for tax policy here. And in light of the upcoming election, recall that the last major tax reform -- lowering rates while broadening the tax base -- occurred when the government was divided. God willing, we may face a similar situation soon.
Young people are paying for the welfare state we have now. They'll face the penalty for our profligacy in the coming decades. We might avoid the latter scenario if we begin to admit that we cannot keep our promises to the young. I think they'll be able to handle the dismal reality. When it comes to social insurance, they're used to shouldering the burden.