We have two camps committed to protecting and expanding welfare benefits for those who need them least.
President Donald Trump has submitted a budget blueprint to Congress, and Congress will ignore it, as tradition, the Constitution, and prudence all dictate — the power to spend and the power to tax reside with the legislative branch, not with the executive. This is another example of American politics as ritual.
The Democrats still have declared themselves appalled by Trump’s proposals, which include cuts to many government agencies (which employ many Democrats) and to programs for poor people. Democrats object to this. At the same time, the Trump schematic maintains a political moat around welfare programs that benefit relatively well-off people, Social Security and Medicare prominent among them.
Democrats do not in general advocate cuts to entitlements for affluent people, either. And, in fact, some of the most popular items on the current Democratic agenda are wealth transfers to people who are relatively well-off and in some cases very well-off. The most prominent example of that is the proposal to pay off Americans’ college loans for them. The wage premium for college graduates has fluctuated a bit over the years, but college graduates on average still earn much more than non-graduates, and they end up about twice as wealthy. Most of the borrowers with college loans are able to repay them out of a relatively small portion of their incomes, and the people who are the most burdened by their student loans are, counterintuitively, those with the least debt: We see those shocking stories about recent graduates with six-figure debt burdens, but borrowers with $5,000 or less in student debt are almost twice as likely to be in default as those with $100,000 or more.
Which is to say, if you were trying to design a program that would concentrate its benefits on those who are the least well-off and most in need of help, then people with big debts resulting from an expensive university education probably would be somewhere near the bottom of your list. Not every student borrower graduates, of course, but student debt is the most concentrated among those who end up earning the most. If you go to Stanford Law or the Harvard Business School, you may have big debts, but you also are likely to have a big income. The same is true to a less dramatic extent for undergraduate borrowers: The kids at Princeton at going to be okay, and so are the ones at the University of Texas and Berkeley, the ones getting pharmacy degrees from the University of Kentucky, etc. That is why the college-debt programs put forward both by Senator Elizabeth Warren (D., Harvard) and Senator Bernie Sanders (Socialist, Soviet Honkystan) both disproportionately benefit rich people. Sanders’s proposal would benefit the wealthy slightly more than Warren’s would.
Likewise, people who benefit from Social Security are wealthier than average, which is not surprising, given that people tend to accrue more wealth as they get older: The median net worth of Americans 55–64 was just under $200,000, according to a 2016 Federal Reserve study, while the mean was $1.2 million. The radical difference between the median and the mean means that there are some very, very rich oldsters out there, but Bill Gates and Bruce Springsteen are eligible for Social Security and Medicare simply by virtue of their age. When you hear about “means-testing” entitlements, that’s what is meant. And while the money that goes to a handful of dusty billionaires may not actually be all that much in the context of overall entitlement spending, overall Social Security spending disproportionately benefits relatively affluent people, in part because of flaws in the design of the program that are well understood but politically impossible to fix.
Senator Sanders’s giveaway to college borrowers will cost about $1.6 trillion. That’s enough to send a check for $125,000 to every American household in the poorest 10 percent or to buy about 15 million houses and give them away to poor people. Invested at a 3 percent return, that money could generate almost $90,000 a year to look after every homeless person in the United States — forever. But none of that quite captures the Democratic imagination like funding a $1.6 trillion wealth transfer from American taxpayers, at least some of whom are of relatively modest means, to a group of people who are on average wealthier than the average American, high-earning, more upwardly mobile, more likely to come from affluent backgrounds, and more likely to be white. Representing Vermont, as he does (What was wrong with Brooklyn, Senator?), Bernie Sanders is something of an expert on the needs and aspirations of relatively affluent white people with college degrees. Senator Sanders is a class-war man, it is true, but maybe not the kind you’d think.
That $1.6 trillion is a lot of money. But so is the cost of Social Security, a program under which we spend that $1.6 trillion about every 18 months or so.
So the Sanders Democrats and the Trump Republicans agree about at least one thing: Both camps are committed to protecting and expanding welfare benefits for those who need them least. When push comes to shove, Republicans and Democrats alike choose to comfort the comfortable.
And that is not necessarily the wrong idea. Those Scandinavian welfare states that Senator Sanders says he admires (and who knows why? — they are far from the socialism he claims to profess) tend to operate on a similar model with one important difference: As with the United States, the Nordic countries tend to concentrate benefits on the middle classes; unlike the United States, they tax their middle classes heavily to pay for those middle-class benefits. “Nordic nations offer their citizens — all of their citizens, but especially the middle class — high-quality services that save people a lot of money, time, and trouble,” as Anu Partanen, a Finland-born journalist, put it in The Atlantic. “This is what Americans fail to understand: My taxes in Finland were used to pay for top-notch services for me.”
There are two main ways of conceptualizing a welfare state. One model is redistribution, taking money from the relatively well-off and spending it on the relatively poor. That’s the model that programs such as food stamps are based on. Another model is consumption-smoothing, which is really the basis of most social-insurance programs. It is a kind of forced-savings program, a way for the relatively young, healthy, higher-income you to transfer money to the older, sicker, lower-income you. This is the kind of program that F. A. Hayek described as “providing for those common hazards of life against which few can make adequate provision.”
Bringing the affluent into the group of welfare-state beneficiaries is usually good politics — “A program for the poor is a poor program,” the proverb advises, and canny politicians such as Franklin Roosevelt made sure that the American entitlement model would rely more on the self-interest of the middle and upper classes than on their philanthropic impulses.
The problem is that the American model is half-redistributionist and half-Scandi — and the wrong half in both cases. Our tax system concentrates the burdens of paying for the welfare state very heavily upon the highest-earning Americans (the top 10 percent of earners pay 70 percent of federal income taxes, and the top half of earners provide nearly all federal revenue), but relatively little of that money goes to supporting programs for the poor. At the same time, the middle class enjoys generous entitlement benefits but is not taxed at a rate sufficient to pay for them, which is why Social Security and Medicare are the major long-term drivers of federal debt. The Trump administration is touting the best economy in American history (it isn’t that — not by a long shot — but it is pretty good) and, even with reasonable growth and low unemployment, we are expected to run a deficit of more than $1 trillion this year. Those middle-class benefits are expensive, but there is no serious effort among Republicans or Democrats to impose the taxes necessary to pay for them.
Eventually, we are going to have to align our tax burden with our benefit-driven spending commitments. That means either much higher taxes or big cuts in benefits. Naturally, we’ll start with cuts to programs for poor people — politically speaking, poor people do not matter very much. That’s why Republicans will put forward cuts for food stamps long before they consider cuts to Social Security, and why leading progressives such as Senator Sanders and Senator Warren are going to bat for a $1.6 trillion wealth transfer to the well-off.