Dan Mitchell article Four Major Problems with Senator Romney’s Plan for Universal Child Allowances

Four Major Problems with Senator Romney’s Plan for Universal Child Allowances

My late friend Walter Williams was a first-rate economist, an important public intellectual, and a truly great American. He also was an amazing communicator, with an unparalleled ability to make important points in a succinct and easy-to-understand manner.

My favorite Walter quote is about how capitalism enabled positive-sum wealth creation.

Today, though, I want to share Walter’s quote about the simple rules for life that basically eliminate poverty.

Sadly, the current welfare state undermines those rules and instead lures many people into self-destructive behaviors. Choices that are bad for them and bad for society.

  • Have kids out of wedlock? No problem, Uncle Sam will take care of you with a plethora of handouts.
  • Watch TV on the sofa all day rather than work? No problem, Washington will provide you with benefits.

As an economist, I’m especially concerned that redistribution programs discourage employment. That’s bad for the economy. Even more important, it’s very bad for people who get trapped in lives of dependency.

Oh, and let’s not forget that the welfare state also is a big burden on taxpayers.

The reason for highlighting these problems is that Senator Mitt Romney has unveiled a plan (the “Family Security Act”) to have the federal government provide universal child allowances.

The good news is that his plan will mitigate some of the problems with the current system. The bad news is that his proposal will exacerbate other problems.

Here are some excerpts from the Senator’s summary of the proposal.

The Family Security Act would provide a monthly cash benefit for families, amounting to $350 a month for each young child, and $250 a month for each school-aged child. …Promoting marriage; Providing equal treatment for both working and stay-at-home parents; and Reforming and consolidating outmoded federal programs, including by fully paying for the new proposal….a new national commitment to American families by modernizing and streamlining antiquated federal policies into a monthly cash benefit. …The bill consolidates overlapping and often duplicative federal policies into direct support for families. …deficit-neutral.

That description sounds nice, and the proposal would be beneficial in some ways.

Most notably, there would not be high implicit marginal tax rates on work (a big problem in the current system) since people would get the child allowances regardless of employment status.

But there are some serious drawbacks to the plan. Here are four things that cause concern.

First, it increases the burden of government.

Senator Romney (as well as proponents of the plan such as the Niskanen Center) highlight the fact that the plan is “deficit neutral.” But that doesn’t tell us whether the plan increases or reduces the size and scope of the federal government.

Unfortunately, if you take a close look at the Senator’s summary, it’s clear the proposal would be a net increase in the burden of spending.

Here’s the relevant table, which ostensibly shows Romney’s new spending along with the “spending offsets” that make the plan deficit neutral.

For what it’s worth, I’m disappointed that the Senator (his staff?) chose to be dishonest. Three of the “spending offsets” are actually measures that would increase tax revenue (circled in red).

And when you fix that dodgy bit of accounting, Romney’s plan would add more than $45 billion per year to America’s fiscal burden.

Second, why would anyone think it’s a good idea to copy Europe?

According to an article from HuffPost, “The U.S. is one of the only developed countries that doesn’t pay parents a child benefit or child allowance. Romney’s proposal shows there is bipartisan support for the policy.”

This is an accurate observation, but it’s hardly persuasive. Yes, European nations generally send people money simply because they have children.

But why on earth would we want to copy nations where living standards are far below American levels? Heck, poor people in America tend to be more prosperous than middle-class people in Europe.

By the way, some like Romney’s plan because they think it will boost marriage rates and fertility rates (i.e., lure people into having more children). Seems like that might be theoretically true, but the data show that European birth rates are very low, significantly below American levels.

In other words, don’t hold your breath waiting for more marriages and more children.

Third, it undermines federalism by giving Washington a bigger role rather than smaller role.

I’ve argued that the so-called War on Poverty has been very bad news. We have a Byzantine system of handoutsthat require an army of bureaucrats to administer dozens of handouts that subsidize bad behavior.

It’s created dependency and the data show it actually has had a negative impact on the trend of poverty reduction and self sufficiency (same thing has happened in other nations as well).

The right approach is to get Washington out of the business of income redistribution. We’re far more likely to get good outcomes if we let states decide (and learn from each other on) how best to reduce poverty.

Fourth, it is akin to a “basic income” that may have a very corrosive impact on societal capital.

I was very opposed to Andrew Yang’s plan to provide universal handouts, in large part because I feared it would undermine personal independence, the work ethic, the spirit of self reliance, and other traits that are critical for a successful society. And I also didn’t trust (for good reason) Yang’s claim that his scheme would replace other redistribution programs.

Well, Romney’s proposal is like a starter version of a basic income, but with the handouts based on the number of children.

I fear this will enable some people to decide they can drop out of the labor force.

Scott Winship of the American Enterprise Institute shares my concerns.

The Romney proposal would take us back to the bad old days in key ways, and policymakers are playing Russian roulette with low-income families’ wellbeing. …some people (including future people) who would choose single parenthood or non-work except that the current safety net makes it unaffordable would be able to afford these choices under child allowances. For them, child allowances are allowances for behavior that would be expected to hurt their own long-term prospects and, more importantly, the wellbeing of their children.

I’ll conclude by observing that Romney’s plan is nowhere near as bad as Congresswoman Ocasio-Cortez’s scheme for universal handouts.

But that’s hardly the test for good legislation. For those who prefer smaller governmentless dependency, and less centralization, Romney’s plan is bad news.

Milton Friedman in 2004

Portrait of Milton Friedman.jpg

Power of the Market – Immigration

MILTON FRIEDMAN ON IMMIGRATION

MILTON FRIEDMAN ON IMMIGRATION PART 2

January 15, 2021

Office of Barack and Michelle Obama
P.O. Box 91000
Washington, DC 20066

Dear President Obama,

I wrote you over 700 letters while you were President and I mailed them to the White House and also published them on my blog http://www.thedailyhatch.org .I received several letters back from your staff and I wanted to thank you for those letters. 

There are several issues raised in your book that I would like to discuss with you such as the minimum wage law, the liberal press, the cause of 2007 financial meltdown, and especially your pro-choice (what I call pro-abortion) view which I strongly object to on both religious and scientific grounds, Two of the most impressive things in your book were your dedication to both the National Prayer Breakfast (which spoke at 8 times and your many visits to the sides of wounded warriors!!

I have been reading your autobiography A PROMISED LAND and I have been enjoying it. 

Let me make a few comments on it, and here is the first quote of yours I want to comment on:

WHEN IT CAME to immigration, everyone agreed that the system was broken. The process of immigrating legally to the United States could take a decade or longer, often depending on what country you were coming from and how much money you had.Meanwhile, the economic gulf between us and our southern neighbors drove hundreds of thousands of people to illegally cross the 1,933-mile U.S.-Mexico border each year, searching for work and a better life. Congress had spent billions to harden the border, with fencing, cameras, drones, and an expanded and increasingly militarized border patrol. But rather than stop the flow of immigrants, these steps had spurred an industry of smugglers—coyotes—who made big money transporting human cargo in barbaric and sometimes deadly fashion. And although border crossings by poor Mexican and Central American migrants received most of the attention from politicians and the press, about 40 percent of America’s unauthorized immigrants arrived through airports or other legal ports of entry and then overstayed their visas.
By 2010, an estimated eleven million undocumented persons were living in the United States, in large part thoroughly woven into the fabric of American life.Many were longtime residents, with children who either were U.S. citizens by virtue of having been born on American soil or had been brought to the United States at such an early age that they were American in every respect except for a piece of paper. Entire sectors of the U.S. economy relied on their labor, as undocumented immigrants were often willing to do the toughest, dirtiest work for meager pay—picking the fruits and vegetables that stocked our grocery stores, mopping the floors of offices, washing dishes at restaurants, and providing care to the elderly. But although American consumers benefited from this invisible workforce, many feared that immigrants were taking jobs from citizens, burdening social services programs, and changing the nation’s racial and cultural makeup, which led to demands for the government to crack down on illegal immigration. This sentiment was strongest among Republican constituencies, egged on by an increasingly nativist right-wing press. However, the politics didn’t fall neatly along partisan lines: The traditionally Democratic trade union rank and file, for example, saw the growing presence of undocumented workers on co
    nstruction sites as threatening their livelihoods, while Republican-leaning business groups interested in maintaining a steady supply of cheap labor (or, in the case of Silicon Valley, foreign-born computer programmers and engineers) often took pro-immigration positions.

     Back in 2007, the maverick version of John McCain, along with his sidekick Lindsey Graham, had actually joined Ted Kennedy to put together a comprehensive reform bill that offered citizenship to millions of undocumented immigrants while more tightly securing our borders. Despite strong support from President Bush, it had failed to clear the Senate. The bill did, however, receive twelve Republican votes, indicating the real possibility of a future bipartisan accord. I’d pledged during the campaign to resurrect similar legislation once elected, and I’d appointed former Arizona governor Janet Napolitano as head of the Department of Homeland Security—the agency that oversaw U.S. Immigration and Customs Enforcement (ICE) and U.S. Customs and Border Protection—partly because of her knowledge of border issues and her reputation for having previously managed immigration in a way that was both compassionate and tough.
My hopes for a bill had thus far been dashed. With the economy in crisis and Americans losing jobs,few in Congress had any appetite to take on a hot-button issue like immigration. Kennedy was gone. McCain, having been criticized by the right flank for his relatively moderate immigration stance, showed little interest in taking up the banner again. Worse yet, my administration was deporting undocumented workers at an accelerating rate. This wasn’t a result of any directive from me, but rather it stemmed from a 2008 congressional mandate that both expanded ICE’s budget and increased collaboration between ICE and local law enforcement departments in an effort to deport more undocumented immigrants with criminal records. My team and I had made a strategic choice not to immediately try to reverse the policies we’d inherited in large part because we didn’t want to provide ammunition to critics who claimed that Democrats weren’t willing to enforce existing immigration laws—a perception that we thought could torpedo our chances of passing a future reform bill. But by 2010, immigrant-rights and Latino advocacy groups were criticizing our lack of progress..And although I continued to urge Congress to pass immigration reform, I had no realistic path for delivering a new comprehensive law before the midterms.

Milton Friedman wisely noted,  “It’s just obvious you can’t have free immigration and a welfare state,” 
Is it prudent to allow illegal immigrants (60 percent of whom are high-school dropouts) access to Social Security, Medicare, and, over time, to 60 federal means-tested welfare programs? I don’t think so either!

Walter Williams on Immigration

I have mixed feelings about the right response to illegal immigration. I don´t favor amnesty because of my respect for the rule of law and because it would encourage more illegal immigration. On the other hand, I certainly do not want law enforcement resources diverted to hassling people who are in America solely in search of a better life based on hard and honest work. Walter Williams has a good column on the issue which concludes with a call for more legal immigration:

I believe most people, even my open-borders libertarian friends, would not say that everyone on the planet had a right to live in the U.S. That being the case suggests there will be conditions that a person must meet to live in the U.S. …most Americans would recoil at the suggestion that somebody other than Americans should be allowed to set the conditions for people to live in the U.S. …Probably, the overwhelming majority of Mexican illegal immigrants are hardworking, honest and otherwise law-abiding members of the communities in which they reside. It would surely be a heart-wrenching scenario for such a person to be stopped for a driving infraction, have his illegal immigrant status discovered and face deportation proceedings. Regardless of the hardship suffered, being in the U.S. without authorization is a crime. …Various estimates put the illegal immigrant population in the U.S. between 10 and 20 million. One argument says we can’t round up and deport all those people. That argument differs little from one that says since we can’t catch every burglar, we should grant burglars amnesty. Catching and imprisoning some burglars sends a message to would-be burglars that there might be a price to pay. Similarly, imprisoning some illegal immigrants and then deporting them after their sentences were served would send a signal to others who are here illegally or who are contemplating illegal entry that there’s a price to pay. …Start strict enforcement of immigration law, as Arizona has begun. Strictly enforce border security. Most importantly, modernize and streamline our cumbersome immigration laws so that people can more easily migrate to our country.


Sincerely,

Everette Hatcher III, 13900 Cottontail Lane, Alexander, AR 72002, ph 501-920-5733 everettehatcher@gmail.com

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