To be more specific, poorly designed entitlement programs are leading to an ever-growing spending burden that ultimately will either lead to massive tax increases or a debt crisis.
I’ve previously written about how to fix “social insurance” programs for older people, such as Social Security and Medicare.
Today, let’s look at the other category of entitlements, the “means tested” programs for low-income people, such as Medicaid and food stamps.
Let’s start by looking at two charts from the Economic Policy Innovation Center.
The first chart shows how fast spending on health programs is increasing, along with a line showing how fast spending increases if Republicans in Congress succeed with some reforms to the Medicaid program.
The second chart shows how food stamp spending dramatically spiked during the pandemic and has since stayed very high because Biden expanded the program.
In the short run, this would mean giving states a “block grant” and giving them the flexibility to figure out the best ways of spending the money.
In the long run, the ideal policy would be to phase out the block grants so that states can decide both how to raise money and how to spend money.
Matt Weidinger of the American Enterprise Institute has a similar perspective. Here are some excerpts from a recent article.
The case for reform starts with the perverse incentives for excessive benefit collection embedded in current federal welfare policies. For example, under the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps, federal taxpayers now cover 100 percent of benefit costs. That policy offers an open-ended stream of federal funding for bigger benefit caseloads than states might otherwise choose to maintain if they bore some of the benefit costs themselves. …In a similar fashion, Medicaid “expansion” policies—which cover nearly all adults with incomes up to 138 percent of the federal poverty line—presently provide states “with an enhanced federal matching rate (FMAP) of 90% for their expansion populations.” That enhanced FMAP significantly exceeds the federal reimbursement rate for other Medicaid recipients, including children, pregnant women, seniors, and disabled individuals, which varies by state from 50 to 83 percent. …To state the obvious, placing all, or nearly all, of the financial burden for benefit payments on federal taxpayers contributes to swollen caseloads, as it subsidizes state policy choices that promote greater benefit receipt. …in the long run federal policymakers will have no choice but to transition to greater state financial responsibility for programs like SNAP and Medicaid. …Such improvements are not without precedent. When welfare reforms in the 1990s placed increased financial responsibility on states, states responded by implementing changes that increased work and reduced caseloads, yielding significant savings for both state and federal taxpayers.
As far as I’m concerned there should not be “greater state financial responsibility.” These programs should be the complete responsibility of states.
That will lead to competition and innovation, which presumably will inform us what approaches are good for both taxpayers and poor people.
I’ll close by sharing two charts from Weidinger’s article, both of which show that the current approach is a windfall for blue states.
Notice how it is mostly blue states (plus fiscally profligate Alaska) that lure more people into Medicaid dependency.
Similarly, it is blue states that produce the most food stamp dependency.
As far as I’m concerned, blue states should have the freedom to adopt bad policy (which I’ll then be happy to write about, as you can see here, here, here, here, and here).
But if they want to create more welfare dependency, they should be willing to pay for it themselves.
Dan Mitchell is co-founder of the Center for Freedom and Prosperity and Chairman of the Board. He is an expert in international tax competition and supply-side tax policy.
