December 12, 2012

OJOM:

How Republicans Can Steal Obama's Budget Mojo (Edward Glaeser, Dec 11, 2012, bLOOMBERG)

The Republicans should also demand consolidation of federal social policies. The U.S. has six large programs -- Temporary Assistance for Needy Families, Medicaid, food stamps, housing vouchers, unemployment insurance and the earned-income tax credit -- spread across four Cabinet departments and the Internal Revenue Service.

Every one of the six plans encourages recipients to earn less, because aid levels are tied to income. Although the adverse incentives in an individual program are 
moderate, collectively they can represent an effective tax rate far exceeding 50 percent. (How this works: The federal housing vouchers follow a 30 percent rule -- you spend 30 percent of your income on housing if you have a voucher. If your income goes up by a dollar, 30 cents of it goes for increased housing payments. With food stamps, for every extra dollar you earn, your allotment goes down by 30 cents. Putting the two programs together adds up to a 60 percent tax on earnings.)

The six programs should be better targeted, to provide more effective aid for the disadvantaged at less cost. Rather than extending unemployment insurance, which encourages long jobless spells, current recipients should receive a fixed payment for a limited duration that they will receive as long as they either look for work or find a job. Consolidation will also highlight the total amount of U.S. welfare spending, and will force serious thinking about the trade-offs between different types of spending.

Most important, the Republicans need to demand fundamental changes in Social Security and Medicare. They have already endorsed the easy solution: raising eligibility ages. That move will cut costs, and it is the right response to any Social Security funding shortfalls. Yet it will not save Medicare.

Any program that offers an open-ended commitment to pay for new medical procedures will generate an unending stream of expensive new treatments from private-sector innovators. As economists Jeffrey Clemens and Joshua Gottlieb have documented, when Medicare reimbursement rates go up, costly elective procedures also become more common, with little improvement in patient health.
Posted by at December 12, 2012 8:22 PM
  
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