Blame Entitlements — Not the Tax Bill — for Blowing Up the Deficit

December 20, 2017

It is true that the GOP tax bill will reduce future federal revenue and widen the government’s budget deficits — but not by large amounts. Before the tax legislation, CBO projected the government would run a deficit of 5.6 percent of GDP in 2030.  The Joint Committee on Taxation (JCT) expected the Senate version of the tax bill would widen deficits in the coming years by another 0.5 to 1.0 percent of GDP; the final version is likely to have a similar effect.

Increasing future deficits is not ideal, of course. It would be better for the economy if the GOP followed up the tax legislation with bills containing serious entitlement reforms that would narrow future deficits by amounts that are larger than the tax cuts. The combination of the tax legislation with long-term deficit reduction would be strongly pro-growth

via Blame Entitlements — Not the Tax Bill — for Blowing Up the Deficit | RealClearPolicy

The Timing of Exemptions from Welfare Work Requirements and its Effects on Mothers’ Work and Welfare Receipt Around Childbirth

December 18, 2017

I quantify the effects of welfare work exemptions on women’s labor force participation and welfare receipt. This study, which also examines the age of youngest child (AYC) exemption, is the first to investigate the pregnancy exemption. Between‐state and within‐state variations in exemption length allow me to estimate the heterogeneous effects of each exemption by its timing and strictness. I find that the effects on labor force participation are driven by employment for the pregnancy exemption, inducing relatively stable welfare receipts. In contrast, the effects are driven by unemployment for the AYC exemption, which triggers more reliance on welfare after birth.

via The Timing of Exemptions from Welfare Work Requirements and its Effects on Mothers’ Work and Welfare Receipt Around Childbirth by Jiyoon Kim :: SSRN

Is the U.S. Congress an Insurmountable Obstacle to Any ‘Far‐Sighted Conception of Budgeting’?

December 18, 2017

In recent years, Congress has recurrently failed to meet its minimum responsibilities in federal budgeting. This article analyzes whether it is possible to repair this problem, using concepts popularized by Allen Schick in his influential article “The Road to PPB.” His article compared the PPB reform effort to the history of budget process reforms that started with the design of the executive budget. It publicized a logical sequence of budget process improvements that started with control and then advanced through management and planning. The article did not substantially address the role of Congress, but eight years after it was published, Congress reasserted its constitutional role in the budget process. Its record of performance since then has ranged from mixed to dysfunctional. The Congress has been criticized for budgetary delays, micromanagement, myopia, procrastination, indiscipline, and an inability to prioritize intelligently. If these faults are set in stone, then an integrated system of budgeting, as described in “The Road to PPB” and related work, is unattainable. On the other hand, if reform of Congressional budgeting is politically feasible, improvements to that system can utilize the unique contributions that a legislature can make to a good system of budgeting.

via Is the U.S. Congress an Insurmountable Obstacle to Any ‘Far‐Sighted Conception of Budgeting’? by Roy Meyers :: SSRN

Atlas Nods: The Libertarian Case for a Basic Income

December 18, 2017

Proposals for a universal basic income are generating interest across the globe, with pilot experiments underway or in the works in California, Canada, Finland, Italy, Kenya, and Uganda. Surprisingly, many of the most outspoken supporters of a universal basic income have been self-described libertarians — even though libertarians are generally considered to be antagonistic toward redistribution and a universal basic income is, at its core, a program of income redistribution. What explains such strong libertarian support for a policy that seems so contrary to libertarian ideals?

This Article seeks to answer that question. We first show that a basic safety net is not only consistent with, but likely required by, several strands of libertarian thought. We then explain why libertarians committed to limited redistribution and limited government might support a system of unconditional cash transfers paid periodically. Delivering benefits in cash, rather than in-kind, furthers autonomy by recognizing that all citizens — even poor ones — are the best judges of their needs. Decoupling such transfers from a work requirement acknowledges that the state lacks the ability to distinguish between work-capable and work-incapable individuals. Providing payments periodically, rather than through a once-in-a-lifetime lump sum grant, ensures that all individuals can receive a minimum level of support over lifespans of variable lengths, while also allowing individuals to adjust payment flows through financial market transactions.

Although our main objective is to assess the fit between libertarian theory and a universal basic income, we also address various design choices inherent in any basic income scheme: who should receive it?; how large should it be?; which programs might it replace?; and should it phase out as market income rises? Lastly, we consider the relationship between a basic income and the political economy of redistribution. We find that the case for a basic income as a libertarian “second-best” is surprisingly shaky: libertarians who oppose all redistribution but grudgingly accept a basic income as the least-worst form of redistribution should reconsider both aspects of their position. We conclude by drawing out lessons from our analysis for non-libertarians, regardless of whether they are supportive or skeptical of basic income arguments.

via Atlas Nods: The Libertarian Case for a Basic Income by Miranda Fleischer, Daniel Hemel :: SSRN

Medicaid Access & State Flexibility: Negotiating Federalism

December 18, 2017

Medicaid is a persistent target of federalism-based accusations that the federal government is infringing states’ sovereignty in the area of health care. Such claims have been used to advance policy proposals to radically reduce Medicaid funding and roll back entitlements, in the name of protecting state power and increasing state flexibility. Such claims have also played a prominent role in legal disputes over Medicaid administration as states push for the elimination or curtailment of private rights enforcement of federal spending conditions. The stakes are high in both instances. And for both, we need to move past simplistic and outdated accounts of federalism that treat federal power as an inherent threat to state authority and states as passive recipients of burdensome federal mandates imposed from on high. This view is inconsistent with the modern reality of the federal-state relationship in Medicaid as one that is often negotiated, dynamic, and in which states are powerful, if not equal, partners.

This more modern federalism account has two implications. In the legal arena, it provides useful context for understanding the Supreme Court’s recent decisions around preemption–based enforcement of federal spending conditions. The decisions arose out of challenges to state Medicaid rate setting, an area of Medicaid administration in which we see negotiated or dynamic federalism constantly at work. The Court’s rate-setting decisions reflect a nuanced approach to determining the availability of equitable relief from state violations of spending conditions – one that exhibits a deep respect for state flexibility consistent with federal program goals, while also affirming the importance of private enforcement of certain Medicaid protections. A modern understanding of the federal-state relationship in Medicaid shows why this balanced approach – as opposed to the wholesale rejection of rights enforcement advanced by the states – is more faithful to the legislative balance struck in the Medicaid statute. In the policy arena, this modern insight supports preserving this balance. The negotiated federalism model undermines claims that a dramatic rollback of Medicaid entitlements and block granting funds are necessary or even effective for achieving greater state flexibility. Indeed, such proposals would create de facto constraints on state power that would reduce flexibility in areas of state discretion, while threatening essential access guarantees that for decades have been understood to be non-negotiable.

via Medicaid Access & State Flexibility: Negotiating Federalism by Brietta Clark :: SSRN

Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection

December 18, 2017

We conduct a stated-choice experiment where respondents are asked to rate various insurance products aimed to protect against financial risks associated with long-term care needs. Using exogenous variation in prices from the survey design, and objective risks computed from a dynamic microsimulation model, these stated-choice probabilities are used to predict market equilibrium for long-term care insurance using the framework developed by Einav et al. (2010). We investigate in turn causes for the low observed take-up of long-term care insurance in Canada despite substantial residual out-of-pocket financial risk. We first find that awareness and knowledge of the product is low in the population: 44% of respondents who do not have long-term care insurance were never offered this type of insurance while overall 31% report no knowledge of the product. Although we find evidence of adverse selection, results suggest it plays a minimal role in limiting take-up. On the demand side, once respondents have been made aware of the risks, we find that demand remains low, in part because of misperceptions of risk, lack of bequest motive and home ownership which may act as a substitute.

via Long-Term Care Insurance: Knowledge Barriers, Risk Perception and Adverse Selection by M. Martin Boyer, Philippe De Donder, Claude Fluet, M.‐L. Leroux, Pierre-Carl Michaud :: SSRN

The Rising Longevity Gap by Lifetime Earnings – Distributional Implications for the Pension System

December 18, 2017

This study uses German social security records to provide novel evidence about the heterogeneity in life expectancy by lifetime earnings and, additionally, documents the distributional implications of this earnings-related heterogeneity. We find a strong association between lifetime earnings and life expectancy at age 65 and show that the longevity gap is increasing across cohorts. For West German men born 1926-28, the longevity gap between top and bottom decile amounts to about 4 years (about 30%). This gap increases to 7 years (almost 50%) for cohorts 1947-49. We extend our analysis to the household context and show that lifetime earnings are also related to the life expectancy of the spouse. The heterogeneity in life expectancy has sizable and relevant distributional consequences for the pension system: when accounting for heterogeneous life expectancy, we find that the German pension system is regressive despite a strong contributory link. We show that the internal rate of return of the pension system increases with lifetime earnings. Finally, we document an increase of the regressive structure across cohorts, which is consistent with the increasing longevity gap.

via The Rising Longevity Gap by Lifetime Earnings – Distributional Implications for the Pension System by Peter Haan, Daniel Kemptner, Holger Lüthen :: SSRN